The Natural Gas Gridlock

Natural Gas exports are hurt, with Qatar being outcast.

A campaign led by Arab powers to cut off links with Qatar is disruptive to commodity trade, ranging from crude oil to consumables like food. In addition, the isolation of Qatar furthers the fear of a possible crisis on the global gas market, in which the tiny Gulf state is a key player. Following Saudi Arabia and her Arab allies severing transport links with Qatar over a diplomatic row, Doha’s fleet has been banned from using the regional ports and anchorages. Consequently, Qatar threatens halting her gas exports, disrupting the liquefied natural gas (LNG) trade. Qatar is a primary investor in the United Kingdom and the biggest supplier of LPG across the world. Qatar’s major Asian trading partners are S. Korea, India, Japan, and Taiwan, with the rest of the world having an export share of 65.3 percent.

In a 2016 agreement, Qatar agreed to reduce its production of crude oil by about 30,000 barrels of oil per day.  However, its willingness to abide by the supply cuts could wane subject to diplomatic dispute between the Gulf state and her neighbours. Recently, oil market stakeholders are raising concerns, doubting whether Qatar, being a comparatively small player in oil would be able to produce sufficient oil to breach its quota. Nevertheless, other states speculate that the schism among Gulf economies could form the basis to unravel the deal over time.

Most important is the disruption of Qatar’s Natural Gas supply. The UK relied on Qatar for almost a third of her gas supply in 2015. Qatar is the world’s largest exporter of LNG. LNG is compressed below freezing temperature for transportation purposes as a liquid by tankers. The LNG is transported across the globe through UAE’s Fujairah port for refuelling as the tankers transit the Strait of Hormuz to the commodity’s global customers. Unfortunately, UAE, a major gas customer, has banned Qatar from the port.

On the other hand, Saudi Arabia, the (UAE), and Bahrain have also severed their relations with Qatar, closing their airports to commercial flights early this June. This marks the worst divide between powerful Arab states in years. In a Middle East Trip, the U.S President Donald Trump was warned against Doha, stating that the latter is funding “radical ideology” which should be stopped. However, Qatar denied the accusations linking it to financing militia groups.

Consequently, Qatar’s effort to ship crude oil onto super tankers among other Gulf-based grades has been crippled by the diplomatic bans. Accordingly, the price agency S&P Global refused automatic inclusion of Qatar in its Middle East price benchmark. The agency, upon realizing that tankers combine Qatari shipment with those from Saudi Arabia, Kuwait, UAE, and Oman before leaving the Gulf, said “Restrictions on vessels calling into Qatar and associated uncertainty could impact the inherent value of crude loading from Qatar”.

The bans on Qatar-linked LNG and oil vessels refuelling at Fujairah has caused various chaos; cut off food imports into Qatar for her 2.5 million people population – forcing shippers into search of new refuelling points at additional cost. Currently, Qatar is forced to send her LNG tankers far afield to Gibraltar and Singapore to refuel, as an alternative to the off-limits Fujairah. The implication will be increased costs and delayed deliveries of LNG to the global customers. The UAE’s ban puts a stop to LNG produced in Qatar from reaching the Gulf State.

LNG traders are awaiting disruptive trade waves at the Suez Canal. Currently, they are tracking the Al Ruwais LNG tanker, the first Qatari cargo through the Canal since the dispute ensued. Barring Qatari tankers from the Suez would force them to cycle Africa, increasing delivery delay, a trade disruption that would promote demand for Russian gas amid Europe’s efforts to reduce reliance on Russian sources following a dispute against Moscow’s involvement in the Ukraine crisis. Circumventing barriers within the Gulf economies to reach out for customers in Europe, U.S, and Asia would take a while. As such, the diplomatic face-off is inflicting havoc on the global LNG supply chain.

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