THE ECONOMIST Liquefied natural gas is the overlooked economic chokepoint

“This will bring down the economies of the world,” warned Saad al-Kaabi, Qatar’s energy minister, on March 6. It was not hyperbole.

Days earlier QatarEnergy, which makes a fifth of the world’s liquefied natural gas, shut down its production and export facilities after some were hit by Iranian strikes.

Unable to extract, process and, because the Strait of Hormuz is blocked by the fighting, ship its LNG, the firm has declared force majeure on its contracts.

The price of LNG has ballooned on world markets. Customers around the globe, who use it to generate electricity, heat homes and make things like fertiliser, are scrambling to respond.

Exactly how far down the Qatari pause will bring economies hinges on the answers to four tough questions. How long will it last? How quickly can shipments resume in full once it ends? Can countries live off existing reserves until then? And how much of the gap can be plugged by LNG from elsewhere?

The first question is the hardest to answer, for it depends on the will of three unpredictable actors: Donald Trump, America’s mercurial president; Binyamin Netanyahu, Israel’s determined prime minister; and Mojtaba Khamenei, Iran’s new supreme leader.

On March 9 Mr Trump sent mixed signals, saying that the Iran war would be over “very soon”, then insisting America was “going to go further”.

Mr Netanyahu wants to erase Iran’s ability to threaten Israel for good. And Mr Khamenei, whose father and predecessor was killed in an Israeli strike at the start of the war on February 28, also gets a say. After Mr Trump’s statements Iran declared it would “determine the end of the war”.

The hostilities, and the halt to Qatari LNG shipments, could thus last anywhere from a week or two to many months. That means entertaining various scenarios, none pleasant.

Rystad, a consultancy, reckons that if Qatari infrastructure suffered little damage and exports resumed after 15 days, annual global LNG output would fall by 4.3 per cent this year.

If this stretches to a month, the loss would be more than 14 per cent. Last year the Oxford Institute for Energy Studies, a think-tank, modelled a 12-month blockade and found that even accounting for extra production spurred in other places by high prices, annual output would fall by 15 per cent.

This at a time when LNG demand was forecast to rise by nearly 8 per cent in 2026.

The question about speed of recovery is a bit more tractable. Natural gas at the wellhead can be flicked back on like oil. LNG cannot. Because the stuff needs to be cooled to 160°C below freezing to turn into a liquid, QatarEnergy can economically stockpile no more than five days of production.

Tankers and liquefaction gear are designed for constant and high utilisation. After being switched off, they too must be cooled back down, then restarted one after another rather than at the same time.

And although QatarEnergy has dozens of tankers, it has only a few jetties from which to load them. As a result, it would typically take a fortnight to liquefy and load the first cargoes. Reaching full capacity may take between four and six weeks.

In the meantime, countries will be eyeing their gas stores — if they have any.

In contrast to oil, notes Gavin Thompson of Wood Mackenzie, a research firm, there are no strategic reserves.

Some places, like the European Union, mandate minimum storage levels. But even Europe is not safe, despite getting just 13 per cent of its LNG imports from Qatar.

Its stores are lower than normal after winter and Rystad warns that if the Qatari disruption extends to April, the bloc’s target for next winter’s gas storage will be difficult to meet without destroying demand, switching from gas to coal or rethinking the EU’s full ban on gas imports from Russia, due to take effect next year.

Asian countries are more dependent on gas from the Gulf. They also have fewer options.

South Korea is least stretched, with 52 days’ worth of gas inventory. Japan has roughly 20 days’ worth and Taiwan’s stores would last just 11 days.

The Morgan Stanley bank estimates that India has just 5-6 days of inventory. Big Indian users are already beginning to ration; fossil-fuel firms like GAIL and Indian Oil reportedly seek to cut 10-30 per cent of gas use. At least one big city has stopped using gas for cremation.

The search is therefore on for alternative supplies.

When the EU’s imports of gas from Russia plunged following the invasion of Ukraine, the shortfall was similar to the current disruption.

Back then cargoes of “freedom molecules” from America sailed to the old continent’s rescue. But because the crisis took longer to unfold, Europe had time to add regasification capacity, cut demand and find other suppliers (especially from Asia).

This time, says JPMorgan Chase, “the shock is abrupt and alternative supplies are scarce.”

Plugging a Qatar-sized gap “is simply not realistic”, the bank concludes.

That is because the world’s LNG export capacity is virtually tapped out. Australia, where producers are running at 90 per cent, counts as having slack (and the 10m tonnes it could add at 100 per cent is a fraction of the current shortfall of 85m tonnes).

America’s LNG facilities are operating at 95 per cent capacity.

New ones under construction may not come online in time to help with the current LNG shock. Technical difficulties are causing delays at the biggest of these, Golden Pass in Texas, which was due to start shipping gas this month.

From Russia, with qualms

The only producer that could conceivably step in is Russia. The country may, in theory, plug much of the global gap at short notice, using its existing piped-gas and LNG infrastructure.

America has already granted India a waiver to import embargoed Russian oil. Doing something similar with gas is harder, however.

The bulk of Russia’s spare capacity is in piped gas to Europe. Tapping it would require the EU in particular to roll back sanctions on Russia, restart pipelines from there and once again tie its fate to a revanchist power on its doorstep.

Ukraine, through which some of these pipelines run, would need to allow its invader to start pumping gas again. It would also need to stop going after LNG vessels in Russia’s blacklisted “shadow fleet”.

For both the EU and Ukraine, this looks like a non-starter.

Not everyone is panicking. Lots of the world’s natural gas is piped rather than liquefied and shipped, says Mel Ydreos of the International Gas Union, an industry body. But he cautions that “the longer the outage goes, the bigger the complications”.

Martin Senior of Argus Media, a price-reporting agency, is blunter. So long as Qatari LNG stays offline, “it is demand that will have to take a hit.”

How much of a hit depends on how soon Messrs Trump, Netanyahu and Khamenei see eye to eye.