Oil and gas companies look for alternatives to Strait of Hormuz

Qatar is drafting a plan to shut down its liquefied natural gas plants in case of a disruption to the Strait of Hormuz.

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Oil and gas companies are drafting contingency plans to deal with any interruption by Iran of exports through the Strait of Hormuz.

Qatar's natural gas plants are among the most exposed to any disruption, which Iran has suggested it may consider in reaction to US and EU sanctions, industry executives said. Some oil exports might find other ways to leave the Gulf region, possibly through the east-west pipeline that connects Saudi Arabia's Gulf coast to the Red Sea.

The UAE has almost completed a pipeline running from the Gulf coast to Fujairah on the Sea of Oman that could handle most of Abu Dhabi's oil exports.

But Qatar, the world's biggest liquefied natural gas (LNG) exporter, sends 77 million tonnes of LNG every year through the strait to customers as distant as Japan and Argentina, and has reportedly been working on a contingency plan to close the 14 plants that cool natural gas to a liquid that can be shipped out.

"LNG exports have no other options available so the shock to the gas market might actually be greater than to the oil market, particularly if demand continues to pick up," said Badr Jafar, the president of the oil producer Crescent Petroleum, based in Sharjah.

"You might see a similar tightening of spot gas prices in Europe if Qatari LNG couldn't leave the Gulf."

Qatar Petroleum, the parent company of Qatar's two LNG joint ventures, did not respond to requests for comment. LNG prices often rise with the price of oil, which would face the same shipping bottleneck in the strait. About 40 per cent of the world's traded crude passes through Hormuz.

A disruption would also deprive the emirate of hydrocarbon revenues that have helped it become the world's richest nation per capita. Last week the IMF warned of the effect of a shutdown on economic growth, which grew by nearly 20 per cent last year.

"All it takes is to take control of this very narrow waterway," said Theodore Karasik, the director of research and development at the Institute for Near East and Gulf Military Analysis in Dubai. The US says it can prevent the closure of the strait through military action if needed.

"If we have to deal with someone trying to close the Strait of Hormuz, we have the naval and air capability to be able do that," Leon Panetta, the US defence secretary, said last week in Munich. "We can do that in conjunction with Nato, we can do that on our own."