U.S. natural gas exporters are poised to benefit from the big disruption in global supply caused by the escalating war in the Middle East. Qatar halted production of liquefied natural gas Monday after Iran struck two key facilities in retaliation for the massive U.S.-Israel airstrikes that killed the Islamic Republic's head of state, Ayatollah Ali Khamenei. The shutdown leaves a huge gap. Qatar is the second-biggest LNG exporter in the world behind the U.S., accounting for about 20% of global supply, according to energy consulting firm Kpler. "We've got an acute contraction of global LNG supply," said Alex Munton, an expert on natural gas markets at consulting firm Rapidan Energy. "The world is now down 20% from where it was, and that leaves the world short." LNG is a form of natural gas that is supercooled at minus 260 degrees Fahrenheit into a liquid state and loaded on tankers for transport around the world. It is used for electricity production and heating. Shares of Cheniere and Venture Global , the two biggest U.S. producers, have surged about 7% and nearly 24%, respectively, this week after Qatar's production went offline. "With the largest available incremental LNG capacity in the world, the United States will play a critical role during this historic disruption in the market," Venture Global CEO Michael Sabel told analysts Monday on the company's fourth-quarter earnings call. "Venture Global stands ready to help keep the markets stabilized and supplied," Sabel said. Iran has also ordered the closure of the Strait of Hormuz, the most important choke point in the world for oil and LNG exports. Tanker traffic had already come to a standstill as ship owners took precautionary measures due to the widening war in the Middle East. On Tuesday, President Donald Trump said the U.S. would provide insurance to tankers transiting the Strait of Hormuz and provide naval escort if necessary. "Effective IMMEDIATELY, I have ordered the United States Development Finance Corporation (DFC) to provide, at a very reasonable price, political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf," Trump said in a social media post. U.S. LNG flexible The U.S. exported about 108 million metric tons of LNG last year. U.S. producers can't ramp LNG production beyond current levels, Munton said. "They're basically running at capacity," he said. But since their customer contracts don't have fixed destinations, they can reroute LNG to meet demand, he said. The flexible capacity at U.S. LNG producers like Venture and Cheniere plays a crucial role in moments of crisis, the analyst said. It's a unique feature of the U.S. LNG industry, he added. "The volumes are able to reroute to where the demand is greatest," Munton said. "We saw this in 2022 after Russia's invasion of Ukraine. Suddenly, Europe was left short, and it was able to call on U.S. LNG and utilize the inherent flexibility of U.S. LNG." U.S. LNG cannot replace lost supply from Qatar, but buyers who really need the gas and are willing to pay a high enough price will get it, Munton said. Nearly 90% of Qatar's LNG exports are shipped to Asia with the remainder going mostly to Europe, according to Kpler. European natural gas futures have soared more than 80% this week in response to the loss of supply from Qatar. "The reason European natural gas prices are rallying so much is because they now have to compete with LNG that is going to be being pulled to Asia to offset the loss of Qatari flows," said Matt Smith, an oil analyst at Kpler. Russian supply It is unclear how long the shutdown in Qatar will last. Production can only restart when the Strait of Hormuz is open to traffic and the LNG can be loaded onto ships, Munton said. Rapidan Energy expects the Strait to remain closed for the next two to four weeks, he said. "It's going to be a gradual restart, so it's going to extend over many weeks realistically," Munton said. "The war is not ending in the immediate future. As far as we can tell, it's going to run for weeks." Russian LNG could also enter the discussion if there is a prolonged loss of supply from Qatar, said Jan-Eric Fahnrich, a senior analyst at Rystad Energy, in a note Tuesday. "The reintroduction of Russian volumes, however, hinges on lifting all sanctions and Europe buying most Russian LNG to support shipping logistics," Fahnrich said. This is very unlikely because it is diametrically opposed to U.S. national interests, he said. Russian supply would undermine U.S. expansion plans, the analyst said. Europe is facing an almost worst-case scenario right now on energy, Munton said. Its legislative ban of Russian pipeline gas and LNG takes effect March 18, and will be gradually phased in through the year. Now, Europe also faces the loss of Qatar supplies. Europe had "not quite shaken off the large energy crisis" from Russia's invasion of Ukraine, Munton said. "Now, it confronts another one," he said.
