Friday, June 16, 2017

Qatar Sanctions to Prove Immaterial to LNG Markets


In the short run, Saudi, Emirati, and Egyptian sanctions are posing an inconvenience for the global liquefied natural gas (LNG) trade. Qatar the world’s largest LNG exporter, has tried to remain neutral in the clash between Saudi Arabia and Iran over Persian Gulf dominance. However the Saudis, along with U.S. pressure, are now forcing Qatar to pick sides.

The escalating diplomatic conflict between Saudi Arabia and Qatar have resulted in a number of issues, including bunker fuel access to ships inbound from Asia and a potential closure of the Suez Canal for Qatari ships (unlikely due to international treaty). Qatar has recently diverted two European-bound ships from Suez transit to round the African Cape, a policy that is likely to continue until current friction is resolved.

Shell’s LNG supply to the Dubai Supply Authority (DUSUP) is sourced from Qatar. Due to the ban, Shell’s “Maran Gas Amphipolis” from Cheniere Energy’s Sabine Pass, which was initially headed towards the Port of Mina Al-Ahmadi in Kuwait, had to be redirected to the Port of Jebel Ali in Dubai. 

Genscape Vesseltracker long-term track of cargo Amphipolis
Source: Genscape Vesseltracker™. Redirect of Sabine cargo “Amphipolis” from Kuwait to UAE. Click to enlarge
The UAE and Qatar Will Not End Pipeline Deliveries

The Dolphin natural gas pipeline connects the UAE and Qatar, delivering 2 Bcf/d. The pipeline delivers Qatari natural gas to the UAE and Oman. Oman has remained neutral in this conflict.

With recent tensions, Genscape believes that the UAE will not be able to replace this volume through LNG while the Persian Gulf is in the middle of air conditioning season. It is also unlikely Qatar will want to sever this relationship; it’s necessary in order to maintain reliability as a supplier and to prevent an abrupt shut off, which could tax their reservoir. 

Dolphin natural gas pipeline
Source: Mubadala Petroleum. The UAE connects directly to Qatar via the Dolphin natural gas Pipeline. Click to enlarge
Egypt’s Gas Goal: Self Sufficient End of 2018

Egypt has vastly expanded its gas reserves over the last several years and hopes to speed up its production. EGAS is looking to defer dozens of cargoes that are due for arrival as production begins at Egypt's Zohr gas field in the Mediterranean. Trading companies holding the tenders will redirect Qatari supply to other markets.

Long-Term U.S. Gains from Qatari Fall Out

Qatari reliability concerns may encourage LNG buyers to look to American supply. Japan and Qatar are currently in negotiations for expiring contracts in 2022 and 2023, but should Japanese buyers decide to leave, they risk losing lucrative equity positions in Qatari projects. However, Japan, like Korea, has a security pact and trade issues with the U.S. that will weigh on these future commitments. Qatar’s market share in Japan is already under pressure from Australian and U.S. supplies, as well as future Russian sources. Losing share in Japan will force Qatar to seek sales among less creditworthy buyers in Africa and South Asia.

Qatar is not alone facing reliability issues. Saudi Arabia’s launch of its trillion dollar IPO may suffer collateral damage if the dispute does not wind down.

Genscape's Global North American LNG Supply and Demand Service can prepare traders, analysts, and other market players for changes in the rising global LNG industry. Genscape provides a comprehensive picture of the costs associated with purchasing gas for export, which can be critical in this competitive landscape. To learn more about Genscape’s Global North American LNG Supply and Demand Service, please click here.

With Genscape's Vesseltracker, users are able to track near-real-time changes to tanker movements. Genscape Vesseltracker's terrestrial and satellite-based AIS tracking capability provides current and historical visibility include vessel location and predictive analytics for every LNG vessel journey globally. Users actively monitoring the long-term track of the Rioja Knutsen (or another LNG tanker) are able to see shifts in destination, ETA, and instances of idling (floating storage), leveraging that information in their trading decisions To learn more about Genscape Vesseltracker, or to request a trial, please click here.


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