Electricity prices could stay higher for longer after attack on world’s top LNG plant

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SINGAPORE - The expected increase in Singapore’s electricity tariffs in March will likely not be the last, after Iranian missile strikes caused extensive damage to the world’s largest liquefied natural gas (LNG) export plant.

The March 18 attack on Qatar’s Ras Laffan Industrial City set fire to a plant that accounts for a fifth of the world’s LNG supply. LNG accounts for nearly half of Singapore’s electricity generation.

The barrage of missiles on Ras Laffan – estimated to have knocked out about 20 per cent of the plant’s total capacity – followed an Israeli strike on Iran’s South Pars gas field.

QatarEnergy told Reuters the damage to two of its LNG units, in which ExxonMobil was a co-investor, would take three to five years to repair, cost the company US$20 billion (S$25.5 billion) a year in lost revenue, and force it to cancel long-term contracts with China, South Korea, Italy and Belgium.

The price response was immediate.

The Dutch TTF natural gas contract, considered the European benchmark, spiked as much as 35 per cent on March 19 to more than double its pre-war level. Brent crude oil, meanwhile, jumped as much as 9 per cent to above US$119 a barrel.

The Asian benchmark for spot LNG cargoes, Japan/Korea Marker PLATTS Future, surged to US$22.35 per million British thermal units – more than double its price before the war started on Feb 28.

The war has effectively closed the Strait of Hormuz waterway, which connects the Persian Gulf to the Indian Ocean and handles a fifth of the world’s crude oil and about the same of LNG supplies.

Shipments from the Ras Laffan plant had already been halted earlier in March after a drone attack. This resulted in buyers like global oil giant Shell – a major LNG supplier to Singapore – declaring force majeure.

But the latest strikes on Ras Laffan were more destructive, and the resulting lengthy shutdown will leave buyers – particularly in Asia – scrambling to make up for millions of tonnes of lost supply.

While Singapore has so far avoided any shortage of LNG supply to its power generation plants, it is unlikely to be spared the consequential global price hike.

Senoko Energy – one of Singapore’s largest power generation companies – told The Straits Times that its natural gas supply remains stable due to diversified sourcing and robust procurement arrangements.

“Our generation assets are also designed with operational flexibility and can utilise alternative fuels such as diesel when required, as part of broader system contingency arrangements to ensure power system reliability,” said Mr Jothilingam Thiraviam, president and chief executive officer of Senoko.

The Energy Market Authority regulates Singapore’s electricity tariffs, which it reviews quarterly to reflect the cost of power generation and natural gas.

For January-March 2026, the regulated tariff was 26.71 cents per kilowatt-hour before GST, or 29.11 cents per kWh with 9 per cent goods and services tax. Rates for April-June will be announced by the end of March.

Mr Landon Derentz, vice-president for energy and infrastructure at the Atlantic Council, a US think-tank, said the attacks on Ras Laffan have heightened concerns that the conflict could spiral into a structural supply disruption.

“Such a scenario would carry lasting consequences for global energy affordability, rather than proving a transitory shock that subsides once hostilities end and the Strait of Hormuz reopens,” he said.

Mr Jan-Eric Fahnrich, senior natural gas analyst at research firm Rystad Energy, said: “The margin of safety in the global LNG market has narrowed materially.”

Rystad estimated that about 20 million tonnes per annum, or more than one-fourth, of Qatar’s projected 2026 LNG production could be disrupted.

Said Mr Fahnrich: “This is a directional shift for the gas market: from expecting more supply flexibility over time to confronting tighter balances and greater infrastructure risk.

“What matters now is not only the volume lost, but also the precedent set – once critical Gulf energy infrastructure is seen as vulnerable, buyers will price that risk for longer than the initial outage itself.”

Analysts said the attacks will not only impact LNG supply from one of the world’s top LNG exporters in the coming years, but also possibly delay Qatar’s subsequent North Field expansion, given the pressure on labour and material, and capital constraints due to lost revenue from exiting capacity.

However, Mr Fahnrich said this may not end the possibility of oversupply in the early 2030s as significant expansion volumes from North America are still expected, and the recent events in the Middle East may trigger additional investments elsewhere.

Asian buyers, including those from Singapore, have their eyes fixed on additional supplies from the US and Australia, the other big LNG exporters. But they are not alone – Europeans are also trying to grab all the cargo leaving the US and Australia.

Analysts say US producers usually have more flexibility to go beyond their contractual obligations and supply the global spot market. Meanwhile, Australia is believed to have more or less maxed out its capacity.

While so far, Asian spot buyers have outbid Europeans fair and square, the latter are likely to offer fiercer competition as Europe begins its critical summer storage refill season within the next few weeks.

“There’s little prospect for prices to come down as long as Qatari supply remains offline and Europe and Asia compete for limited LNG cargoes,” the Atlantic Council’s Mr Derentz said.

Meanwhile, the effective closure of Hormuz is having a broader impact on prices of products made from oil and natural gas, boosting prices of everything from petrol, diesel and jet fuel to fertilisers and petrochemicals used to make plastics and rubber.

Analysts said the unappreciated yet most consequential immediate price hike would be that of fuel oil, which powers seaborne trade.

Vortexa – which provides real-time global tracking and analytics for waterborne energy trades – said disruption of crude oil flows from the Persian Gulf has already resulted in a 30 per cent month-on-month drop of high-sulphur fuel oil (HSFO) in the first two weeks of March.

“These volumes will come down further when the full-month data is complete, as we have not seen any vessels carrying HSFO out of the (Hormuz) waterway since the war began,” said Mr Xavier Tang, senior market analyst at Vortexa.

Analysts said that as fuel oil supply tightens, fewer vessels would be heading out to sea, exacerbating the supply chain shock worldwide.

Mr Tang said that because most of these HSFO supplies go to Fujairah and Singapore – the world’s two top marine refuelling hubs – the bunker market is tightening quickly, which is boosting HSFO prices.

Analysts believe that higher energy costs may not only feed inflation, but also stun economic growth worldwide unless oil and gas supply from the Middle East is fully restored.

The European Central Bank, announcing its monetary policy decision on March 19, said: “The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth.”