LNG: The Perishable, Vulnerable Resource

“Everyone wants a little bit of volatility to make some money.”

Natural gas is historically volatile in price, which has always been a natural advantage to wind and solar, which can readily sign 20 year contracts at predictable prices.
In keeping with the colossal record of incompetence and ignorance of the Trump administration, the utterly predictable damage to Persian Gulf infrastructure, as well as permanent uncertainty about reliabilty of supply from the region, add new uncertainty costs to renewable’s biggest competitor.

Fracking Grifter and Energy Secretary Chris Wright no doubt thought, when he bought his cabinet seat with huge donations to the Trump campaign, that his vision of locking the world into US LNG contracts and massive infrastructure investments was secure.
One wonders what he is thinking today.

Economist:

“This will bring down the economies of the world,” warned Saad al-Kaabi, Qatar’s energy minister, on March 6th. It was not hyperbole. Days earlier QatarEnergy, which makes a fifth of the world’s liquefied natural gas (lng), 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.

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% this year. If this stretches to a month, the loss would be over 14%.

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%. This at a time when lng demand was forecast to rise by nearly 8% in 2026.

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% this year. If this stretches to a month, the loss would be over 14%. 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%. This at a time when lng demand was forecast to rise by nearly 8% 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.

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 (see chart 2). Australia, where producers are running at 90%, counts as having slack (and the 10m tonnes it could add at 100% is a fraction of the current shortfall of 85m tonnes). America’s lng facilities are operating at 95% 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 lngvessels in Russia’s blacklisted “shadow fleet”. For both the eu and Ukraine, this looks like a non-starter.