Uncertainty looms on LNG market over diplomatic blockade of Qatar

On June 5, Saudi Arabia, United Arab Emirates (UAE), Bahrain and Egypt cut ties with Qatar, alleging the country supports extremism. Qatar has, however, denied such allegations but the rising diplomatic rifts have raised worries about global access to Qatar’s LNG, particularly after some regional ports in the Persian Gulf stated that they would not allow Qatari-flagged vessels.

Qatar exported 78.8 million mt of LNG in 2016, more than 30 percent of a total global supply of 257.8 million mt and an increasing share of its production is being delivered to emerging Middle Eastern buyers, including Egypt, Jordan and the UAE.

As exclusion zones took effect, Qatar’s fleet of LNG vessels anchored off the UAE’s port in Fujairah prior to the diplomatic cut-off has moved out. A cluster of 17 LNG tankers were moored off the coast of the Qatari LNG export facility at Ras Laffan.

Gas prices in the UK spiked on 8 June, with the UK National Balancing Point (NBP) price for July up over 4.5 percent after two Qatari tankers that were likely bound for the UK changed course.

Shell has a deal to supply the Dubai Supply Authority (DUSUP) with LNG which it typically sources from Qatar. But the ban meant it had to source the LNG from elsewhere but Qatar has asked its clients in Japan and India not to be anxious as the LNG shipments will not be affected by the tension.

Commodity traders have expressed concern relating to Qatar’s LNG being banned from Saudi Arabia or from passing through Egypt’s Suez Canal. Though, no restrictions have been imposed so far, traders worry that Egypt might bar tankers carrying Qatari cargoes from using the Suez Canal, though it is bound by international treaties not to block the canal.

Egypt, however, continues to buy LNG from Qatar brought in by Swiss commodity trade houses, like Trafigura, Glencore and Vitol, which take ownership of the cargoes at the Qatari port and do not use Qatari ships.

More than 60 percent of Egypt’s LNG imports in 2016, 4.61 million mt of a total 7.26 million mt, were sourced from Qatar. Any disruption to Qatari LNG supply could have a significant impact on pricing, regional trade flows and energy security in Egypt, which imports most of its LNG from Qatar, a Singapore-based trader said.

Meanwhile, ConocoPhillips has announced that that production and exports of LNG from an investment project in Qatar have not been affected. ConocoPhillips owns a 30 percent stake in an LNG project operated by Qatargas Operating Co Ltd, part of the state-controlled energy company. The investment was worth $869 million to ConocoPhillips at the end of 2016.

Also, ExxonMobil has reported that production and exports of liquefied natural gas (LNG) from Qatar have not been impacted by the growing political tensions in the Middle East. ExxonMobil has been helping the country become the world’s largest LNG exporter, investing in LNG-processing plants, transport ships and related infrastructure.

FRANK UZUEGBUNAM