Countries across Europe and Asia are facing a potential energy crisis after an Irani drone strike shut down Qatar’s exports of liquefied natural gas this week, cutting off nations from India to Italy from a crucial energy source and potentially increasing costs for key industries in the United States.
Qatar is a linchpin of a global energy system built on LNG, a fossil fuel less polluting than coal that many countries have embraced because it is easy to ship and store, and was sourced from generally stable countries.
Now consumers and businesses from Seoul to Islamabad to Brussels may face steeply higher energy costs, after an Iranian drone struck Qatar’s largest gas liquefaction plant in Ras Laffan, south of Doha on Monday. The strike was part of a wave of attacks by Iran on energy infrastructure in Qatar and fellow U.S. ally Saudi Arabia.
Qatar Energy, which produces and exports the LNG, said in a statement Monday that it “ceased production” at the facility. On Wednesday it announced it would not be able to honor export contracts.
It is unclear how long it will take Qatar Energy to repair the plant. Analysts say returning to full production would take another two weeks after repairs are complete.
Countries around the world are now scrambling to figure out how to backfill the abrupt halt of LNG shipments from Qatar, which accounts for one-fifth of the world’s supply. Asian spot LNG prices surged nearly 40 percent in the couple of days and a key index of future LNG prices in Europe jumped 70 percent since Friday.
Analysts warn the natural gas crunch is likely to have more severe and far-reaching economic impacts than the Iran conflict’s disruption to oil markets, even if abundant gas supplies in the U.S. shield American consumers from short-term price spikes.
“Oil is exported from practically every country in that region,” said Pavel Molchanov, an investment strategy analyst at Raymond James. “LNG more or less comes from one country there: Qatar.”
The sudden shutoff of Qatari LNG is expected to quickly hit nations across Asia and Europe that depend on Qatari gas, with domestic energy bills likely to spike and factories at risk of shutting down.
Some countries will likely bring mothballed coal plantsback online, analysts predicted, a costly reversal that could also massively increase carbon emissions and other air pollution.
Bangladeshi newspaper The Business Standard reported Tuesday that officials at the country’s energy ministry had ordered an increase in power generation from coal. Taiwan is examining similar options, according to Argus, a firm that tracks global energy markets. Prices of Asian coal futures jumped sharply this week.
“The first response would likely be to seek out LNG supply from other regions,” Zhi Xin Chong, head of Asia Gas Research at S&P Global Energy, said in an email.
But producers like the U.S., Australia and Malaysia have little extra to spare, causing prices for what is available to soar. Chong said if the fuel proves “too expensive and difficult to procure, markets like Japan, South Korea, Taiwan, India and Southeast Asia will likely pivot to coal where possible.”
Some of the countries most dependent on Qatar for energy are also among the least able to pay the premium for emergency replacements. In some cases the economic fallout is expected to cascade back to the U.S. due to how LNG underpins other industrial sectors.
In India, the second-largest importer of Qatari LNG, gas supplies to industrial users are already being cut, according to local media reports, leading ceramics manufacturers in that country to pause operations. Utilities in Pakistan, which is even more reliant on Qatar, are also starting to cut their deliveries of gas to industrial clients, Bloomberg News reported.
In both countries, the constraints are leading to cutbacks in fertilizer production, as natural gas is the key ingredient for making urea, the world’s most widely used nitrogen fertilizer. Molchanov said prices for urea have increased 25 percent since the U.S. and Israel attacked Iran.
“That is a big deal for the agricultural sector around the world — including the United States,” he said, warning it “will potentially translate into higher food costs in the near term.”
The global reshuffling to replace energy from Qatari LNG threatens to take a toll on the planet. Japan is currently using only about two-thirds of its 53 gigawatts of coal capacity, according to Chong. Should that country choose to tap into that capacity, millions of tons of additional carbon pollution could be released into the atmosphere within months. China has significantly more unused coal power it could tap into.
Rachel Ziemba, an adjunct fellow at the Center for a New American Security, said as nations reassess their dependence on LNG imports some of the backsliding to coal power could become permanent.
“This will reinforce the push to generate power domestically,” she said. “It could mean more use of coal.” That could include European countries such as Germany and Poland, which are still burning coal and produce the fuel domestically.
The LNG shock may also drive extra investment into renewable energy. Some of the countries best prepared to ride out disruption to Qatari exports are those that have added the most clean energy to their power grids, Ziemba said.
China, which in recent years has installed more solar and wind power than the rest of the world combined in a drive for energy independence, is well positioned to weather a gas shortage.
France may also be able to absorb energy price shocks because of its large nuclear power capacity. And much of Europe increased its investment in solar and wind after the 2022 energy crisis on the continent precipitated by Russia’s invasion of Ukraine.
Gas makes up just 16 percent of Europe’s energy mix — a sharp decrease since 2020 — and renewables now provide 47 percent of its power.
“This is an example of how Europe’s climate policy supports energy security,” Molchanov of Raymond James said. “Any wind farm, any solar installation in Europe is less natural gas they have to import.”
“Europe is the only major economy in the world using less natural gas today than they did a decade ago,” he said. It “has accelerated its diversification strategy to reduce dependence on natural gas no matter where it comes from — whether Russia, the U.S., or Qatar.”
While Qatar’s export freeze triggers stress around the world, American gas producers are likely to benefit.
The U.S. became the world’s largest LNG exporter in 2023. Its export terminals are currently running near maximum capacity, limiting how much additional volume the U.S. can provide to replace Qatari supplies.
But the industry may find its commercial and political prospects are now favorable to expand. “This is going to set off another LNG project boom,” said Ira Joseph, a scholar at Columbia University’s Center on Global Energy Policy. “Not just in the U.S. but elsewhere.”
But he added that there may also be a new drive by countries and industries around the world to reduce dependence on LNG. “The push for using more natural gas was that it is very reliable,” Joseph said. “But in the last four years you had the largest exporter in the world — Russia — cut off its pipelines. And now, the second-largest has cut off its shipments. It raises the question of how much one wants to rely on gas imports in an energy mix.”
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