The last LNG ship to pass through the Bab el-Mandeb Strait off the coast of Yemen did so in February. Since that month, LNG shipments through the once major energy chokepoint have ceased as ships have detoured around Africa or changed destinations entirely.
As Houthi attacks on ships sailing in the Red Sea prompted a reorientation of maritime trade in the region, several analysts sought to gauge the significance of the incident. Most people seem to agree that rerouting ocean shipping will increase the price of goods and slow down deliveries. LNG is no exception, with analysts pointing out that the supply of LNG carriers is tightening due to longer cruising distances and the potential for market fragmentation.
This fragmentation remains true to this day. Qatar's liquefied natural gas is now mainly destined for Asia, while his Russian LNG is destined for Europe. U.S. LNG is scheduled to be shipped to both locations, but some forecasters are now warning that a supply outage anywhere would have a more severe impact on the market than before February. There is.
The Oxford Energy Institute said in a February analysis of the situation that red sea vessel diversion would increase Europe's dependence on US LNG, while making it more difficult to transport Qatari LNG to the country. said there would be more shipments to Asia. This is exactly what happened. Qatar is selling more liquefied gas to buyers in Asia, and Europe is also buying more US gas (from Russia).
Bloomberg reported this week that shipments show Qatar's LNG exports to Asian countries rose this year to the highest since 2017, despite threats of sanctions and import bans from the EU, and that Russia is also ramping up LNG shipments to Europe. reported the data. But the report also warns that if a production stoppage occurs in one of the major producing countries, it will be harder for another producer to compensate than it was before February.
This means that global LNG is now more vulnerable than before, increasing the likelihood of price spikes if the balance of supply and demand shifts. The recent shutdown of the Freeport LNG plant, which led to higher prices for U.S. LNG, is a good example. Now, Australia's Gorgon LNG project has been shut down due to mechanical failure, causing prices to rise again. That's because that outage coincided with a seasonal increase in demand in Asia.
According to Bloomberg, solutions to this situation include having U.S. producers send their own LNG to Europe and possibly purchase other cargoes in the Middle East for customers in Asia to meet their contractual obligations. This includes the exchange of cargo. This appears to be the new normal for LNG exports, as the Houthis do not appear to be planning to stop firing at ships in the Red Sea.
So far, the situation seems relatively easy to deal with. LNG carrier supply may be a little tighter than before as some of these tankers will be making long-distance voyages, but market segmentation means that most are being deployed for shorter regional voyages. Suggests. However, gas demand is expected to increase further as summer begins in the northern hemisphere and demand for air conditioning increases. A Bloomberg report suggests this may require the exchange of even more cargo. And this could eventually lead to higher prices.
China, the world's biggest LNG buyer, could have another record year for imports, according to PetroChina. The state's energy giant predicts imports will increase by 9% to 12% annually. China imported 20 million tons of supercooled fuel in the first quarter alone.
Meanwhile, EU sanctions targeting Russia's LNG industry could make it difficult for Novatek to send cargo to Asia, potentially disrupting supplies. The irony is that more Russian LNG will remain in Europe and exports to India and China will decline unless Novatek does more cargo swaps, according to analysts cited by Bloomberg. It is said to mean.
But EU sanctions on Russian LNG will also affect international LNG traders such as Shell, Total Energy and Germany's new state-owned company Securing Energy for Europe GmbH. These companies will need to find alternative supplies for non-European customers if Russian cargo is too problematic to purchase. And the Red Sea will remain closed to LNG transport for the foreseeable future.
The LNG market is therefore likely to remain in its current, or perhaps even fragmented, state for at least a few more months, or if the Israel-Hamas war extends beyond 2024. The industry will continue to adapt as it always has. far. But securing supply may be a little more difficult for major import markets. In this situation, all that is needed to disrupt the market is a production outage of the kind that seems to occur all too often in large LNG projects.
Written by Irina Slav for Oilprice.com
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