War Flips LNG Surplus Narrative, Morgan Stanley Says

The Middle East war and the resulting production halt at the world’s second-largest LNG exporter, Qatar, are erasing the projected glut of the fuel that was expected before the region was set on fire, according to Morgan Stanley. 

Qatar’s state energy firm QatarEnergy last week halted LNG production at its Ras Laffan hub, the world’s largest LNG complex, and later issued force majeure notices to buyers, following a drone attack at the facility and the all but halted tanker traffic through the Strait of Hormuz.   

If the outage in Qatar extends beyond one month, this “quickly brings a deficit” to the market, Morgan Stanley analysts wrote in a note on Sunday, as carried by Bloomberg.

Before the war, Morgan Stanley and all other investment banks and forecasters had anticipated a wave of excess LNG supply to hit the market as soon as this year.  

But the war in the Middle East is now upending all previous forecasts and assumptions, with the LNG market seen in a deficit very soon if the world’s second-biggest exporter after the United States doesn’t restore supply within a month.

Even if the war were to end today, Qatar would likely need “weeks to months” to ‌return to a normal schedule and cycle of energy deliveries, Qatar’s Energy Minister Saad al-Kaabi told the Financial Times in an interview published on Friday.

Oil prices could soar to as much as $150 per barrel within two to three weeks if the critical Strait of Hormuz remains off limits for tankers, al-Kaabi told FT. 

Oil already hit $100 per barrel on Monday while natural gas prices in Asia and Europe continued to soar. 

Following a 50% weekly jump last week, Europe’s benchmark natural gas prices surged by another 20% as trade opened in Amsterdam on Monday as Asia is attracting most flexible-destination LNG cargoes away from Europe amid renewed competition for supply.