Oil Markets to Face Extensive Fallout from Qatar Strikes
Petroleum product markets are feeling the impact of drone attacks on QatarEnergy’s infrastructure and bracing for an extensive fallout that could ripple through global markets for at least a year, even after the conflict subsides.
The attacks are expected to result in about $20 billion in lost annual revenue and could take up to five years to fully repair, disrupting supplies to markets in Europe and Asia, the company said in a news release on Thursday.
Situated in Ras Laffan Industrial City, QatarEnergy operates a complex that ranks among the world’s top exporters of natural gas and produces key petroleum products, including LPG, naphtha and gasoil. The drone strikes launched late Wednesday and early Thursday damaged two LNG trains, which together account for 12.8 million metric tons of annual production, as well as the Pearl GTL facility, comprising two trains of equal size which produce 140,000 b/d of gas to liquids.
“The damage caused to one of the two trains at Pearl GTL is being assessed and is expected to be offline for a minimum of one year,” Qatar’s Minister of State for Energy Affairs and QatarEnergy Chief Executive Officer Saad al-Kaabi said in the release.
Production from Pearl GTL, operated by Shell under a production-sharing agreement, has now ceased to enable assessment of damage. Before the attack, Pearl was producing at reduced rates with exports constrained by the Strait of Hormuz blockage, according to Shell in an update on Thursday. The facility primarily converts natural gas into naphtha and gasoil, with smaller volumes of LPG.
The disruption is expected to reduce condensate throughput by 18.6 million barrels, LPG output by 1.28 million mt and naphtha production by 0.59 million mt, accounting for approximately 24%, 13% and 6% of Qatar’s exports, respectively. China, South Korea, Japan and India are among the key Asian importers of Qatar’s oil products.
Potential Market Rebalancing
Market participants in Asia are assessing the impact of the conflict, with some noting the move could rebalance the market towards tighter conditions.
LPG market sources said the drone attacks have worsened the supply shortage in Asia, with most Middle Eastern flows disrupted. This comes alongside Houston-based Targa Resources’ force majeure declared on Wednesday, which is expected to reduce propane loadings.
“The market is already under pressure, and LPG prices have surged to record highs,” a trader said. The CFR Japan propane flat price crossed the $1,000/mt mark on Thursday to close at $1,116/mt, up $175/mt from the previous day, OPIS assessments show.
Market participants have largely stayed on the sidelines amid elevated prices, with many adopting a wait-and-see approach. Some sources said that earlier expectations of an oversupplied Asian market may be overturned due to the ongoing disruptions.
“From late last year until now, there has been market chatter about an LPG oversupply in Asia, especially with new capacities in the U.S. and the Middle East. But with the disruptions occurring one after another, the market may instead face a supply shortfall this year as participants scramble for alternative cargoes,” a Singapore-based analyst said.
Market participants estimate the loss of naphtha shipments into Asia at less than one long-range 1 vessel per month. “It’s not that significant, but it may rebalance the market to some extent,” a market source said.
QatarEnergy regularly offers spot and term volumes of GTL gasoil produced at Pearl GTL via tenders. The most recent spot tender, as reported by OPIS, closed on Feb. 4 for 332,100 barrels of GTL gasoil for loading over March 19–21 or March 29–31.
The outcome of the tender has not been determined, and the refiner has not declared force majeure on the cargo, according to a source.
While QatarEnergy likely has sufficient inventory to meet the tender, it remains uncertain as to whether the cargo can be shipped, the source added.
—Reporting by Yiwen Ju, yju@opisnet.com, Cheryl Lee, clee@opisnet.com and Kite Chong, kchong@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com