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Qatar’s dispute with Arab states lifts oil prices, may impact LNG supplies

Qatar meets almost a third of global LNG demand with India being the second largest buyer after Japan

world Updated: Jun 05, 2017 15:00 IST
The benchmark Brent crude futures prices rose around 1 per cent to over $50 per barrel on concerns about a widening rift in the Arab world.
The benchmark Brent crude futures prices rose around 1 per cent to over $50 per barrel on concerns about a widening rift in the Arab world. (AFP file photo)

SINGAPORE: Saudi Arabia and key allies on Monday cut ties with Qatar, the world’s top seller of liquefied natural gas (LNG), accusing it of supporting extremism and sending shockwaves through the energy industry.

Saudi Arabia, along with the United Arab Emirates, Egypt, and Bahrain said they would sever all ties including transport links with Qatar, which also sells oil products like condensate but is not a big crude oil exporter.

“(Qatar) embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, ISIS (Islamic State) and al-Qaeda, and promotes the message and schemes of these groups through their media constantly,” Saudi state news agency SPA said.

The rift did not immediately affect tanker shipments, but benchmark Brent crude futures prices rose around 1 per cent to over $50 per barrel on concerns about a widening rift in the Arab world.

The move comes as the Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia, the UAE and Qatar are members, recently agreed to extend crude oil production cuts in order to tighten the market and pop up prices.

It was not immediately clear how the political crisis would affect policy-making at OPEC, of which Saudi Arabia as the world’s biggest crude exporter is seen as the de-facto leader.

A Saudi oil industry source said the action was unlikely to have a large impact on OPEC decision making, noting that other political disputes within the group, including between Saudi Arabia and Iran, had not prevented OPEC from agreeing on oil policy.

LNG IMPACT UNCLEAR

Traders said it was too early to say if the dispute would have any impact on LNG shipment within the region, with both Egypt and the UAE taking regular cargoes from Qatar.

India is the second-biggest buyer of Qatari LNG, according to energy consultancy Wood Mackenzie, after Japan.

With an annual import of 7.5 million metric tons (MMT) of LNG under a long term contract between Petronet of India and RasGas of Qatar, and some spot purchases by Indian companies from time to time, Qatar is the largest supplier of LNG to India, accounting for over 65% of India’s global import and 15% of Qatar’s export of LNG.

Qatar meets almost a third of global LNG demand and Egypt, which struggles to meet its electricity needs, has imported an average 857,000 cubic metres per month of LNG from Qatar since January 2016, according to shipping data in Thomson Reuters Eikon.

The fuel is used largely for power generation.

Egypt last year awarded a large tender for 2017 supplies, much of it sourced from Qatar, although traders said rising domestic output and alternative sources including Norway, Nigeria and the United States could fill a potential gap.

The UAE has imported on average 190,000 cubic metres of LNG per months from Qatar since January 2016.

Traders pointed out, however, that other members of the Gulf Cooperation Council (GCC) like Kuwait, which often fall in line with decisions made by Saudi Arabia, have not, at least for now, taken action against Qatar.

Kuwait has imported on average 283,000 cubic metres of LNG per month from Qatar since 2016, the data shows.

Shipments to the world’s biggest LNG buyers in Asia are unlikely to be affected, barring a major escalation, importers said.

“I don’t think there will be any impact on it. We get gas directly from Qatar by sea,” R.K. Garg, head of finance at Indian LNG importer Petronet, told Reuters when asked to comment on the coordinated move to cut relations.

Qatar is also a major exporter of condensate, an ultra-light form of crude oil, as well as liquefied patroleum gas (LPG), with most supplies of the two fuels going to Japan and South Korea under long-term supply contracts.