The largest LNG exporter QatarEnergy has suspended sending tankers to Europe through the Red Sea after attacks on Yemen
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The world’s largest exporter of liquefied natural gas, QatarEnergy, has suspended sending tankers through the Red Sea to Europe. The passage of at least five Qatari LNG tankers over the weekend was delayed after the US and British militaries launched strikes in Yemen in response to Houthi attacks on merchant ships in the Red Sea. So far, potential supply disruptions from Qatar have not had any impact on gas prices in Europe, which dropped sharply following trading on January 15.
Qatar has temporarily suspended LNG supplies through the Red Sea amid escalating tensions in a key global trade corridor. Last week, the US and UK launched air and missile strikes against Houthi militants in Yemen in retaliation for their attacks on merchant ships in the Red Sea and Gulf of Aden.
“This is a pause to seek advice from security services. If passage through the Red Sea is unsafe, we will go through the Cape (of Good Hope),” a source familiar with the situation told Reuters. “We are not talking about stopping (LNG) production,” he added. At least five tankers carrying Qatari LNG have so far stopped before passing through the Bab el-Mandeb Strait into the Red Sea, writes Bloomberg.
The Red Sea is connected to the Mediterranean Sea by the Suez Canal, the shortest sea route between Europe and Asia. More ships are now being forced to take the longer route around the Cape of Good Hope in Africa. This increases the journey time for LNG from Qatar to Europe by 9-10 days instead of 18, and also leads to an increase in shipping tariffs.
Rishi Sunak, British Prime Minister, on attacks on Houthi targets, January 15:
We did this in self-defence and to support freedom of navigation, as Britain has always done
Qatar is the EU’s second largest LNG supplier after the US, and QatarEnergy is the world’s largest LNG exporter. At the end of 2023, QatarEnergy supplied about 13.2 million tons of LNG to Europe, or about 13.2% of its total imports into the region. Qatar’s supplies to Asia last year reached 59.3 million tons.
The interruption in supplies has not yet affected European prices: according to the results of trading at the Dutch TTF hub, futures decreased by 6.8%, to €29.8 per MWh, or about $338 per 1 thousand cubic meters.
It is likely that forecasts for milder weather towards the end of the month, high stock levels in underground gas storage facilities (79.7% as of January 13), strong LNG imports, as well as weak industrial demand have managed to overcome market concerns about possible supply disruptions due to rising tensions in the Middle East.
Independent expert Alexander Sobko believes that in the current situation there is still potential for swap operations. Based on 2023 data, the US supplied more LNG to Asia than Qatar did to Europe, meaning LNG traders could divert even more US LNG to the EU, and therefore Qatar could increase its supply to Asia, he says. “For owners of American LNG, this is now doubly convenient, since due to difficulties in the operation of the Panama Canal, logistics to Europe becomes even more profitable compared to delivery to the Asia-Pacific region,” the analyst notes. However, he does not expect a critical impact on gas prices.
According to Ivan Timonin from Implement, the logistics leverage for deliveries to North-Western Europe will almost double for the exporter – from about 6.5 thousand nautical miles when routed through Suez to 11.3 thousand when going around the Cape of Good Hope. As a result, transport costs will increase by approximately $90 per 1 thousand cubic meters, which, in his opinion, would increase the attractiveness of supplies to the Asia-Pacific region relative to the European alternative. “However, one should also take into account the high level of contracting of Qatari facilities, from which LNG was supplied under long-term contracts with a strict geographical reference, most of them continue to operate this year. In this regard, volumes from Qatar do not have significant flexibility when choosing a supply location,” he emphasizes. The most likely consequence of the suspension of Qatari LNG supplies through the Red Sea will be a slight reduction in the Asian premium as a result of higher prices in Europe relative to the Asia-Pacific countries, Mr. Timonin believes.
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