LNG shipping logjam for Qatar

The UAE has tightened its restrictions, with Abu Dhabi banning all ships to and from Qatar from entering its oil ports, a move that will further disrupt its energy trade and create a logistical headache for shippers.

The sea restrictions have caused a logjam for Qatar’s liquefied natural gas tankers, some of which are stuck at its Ras Laffan export terminal.

This week, Gulf countries, led by Saudi Arabia, cut diplomatic ties and began placing economic pressure on Qatar. Ports in the kingdom as well as the UAE have restricted access to any vessels with a relationship to Qatar.

The restrictions also include closing airspace for any airline headed or coming from Qatar, as well as the kingdom’s land border with its neighbour.

Abu Dhabi Petroleum Ports, a subsidiary of the Abu Dhabi National Oil Company, issued a circular yesterday to reinforce the restrictions on diplomatic ties and the closure of all borders with Qatar.

The statement said local authorities will deny entry of any vessel flying the Qatari flag, those owned or operated by a Qatari company as well as any ship arriving from or heading to the blacklisted country – regardless of its flag.

The closure of the UAE ports, including Fujairah’s bunkering hub, where many ships fuel up before continuing their journeys, also appeared to be disrupting cargoes from the world’s biggest LNG exporter, with trading sources saying yesterday that there were 17 LNG tankers outside Ras Laffan, up from just seven on Monday, some of which were supposed to fuel up in Fujairah. ​

This has led to some companies looking for other ways to uphold their contractual obligations to provide LNG to places such as the UAE. The energy company Royal Dutch Shell signed a deal with Dubai Supply Authority to provide LNG primarily from Qatargas beginning in 2011.

However, the company rerouted its US shipment bound for Kuwait on the Maran Gas Amphipolis tanker to Dubai yesterday, according to Bloomberg data. The ship, which flies under the Greek flag, can carry about 170,000 cubic metres of gas.

Shell would not comment on the exchange, but a company spokesman said Shell was focused on "running our Qatar business as usual and are not experiencing any operational disruption as a result of the current situation".

One of the immediate consequences of the regional sea ban has been a move by S&P Global Platts, the commodity pricing service that determines the price of regional benchmark Dubai crude, to temporarily remove Qatar’s Al Shaheen grade from its list of five crudes that can be delivered against the Dubai contract on Tuesday.

The response was to ease confusion in the trading community about how the system would work given the diplomatic crisis, said Dave Ernsberger, the head of energy pricing at Platts.

"All the Qatari crudes are still going to be demanded from buyers in Asia, but the core issue is how it is going to work with ports in the Gulf closed to Qatari shipping," he said.

So far this year, nearly 40 per cent of the cargoes nominated for delivery against the Dubai contract has been the Qatari grade crude, compared with Abu Dhabi’s Upper Zakum, which accounts for just over half the cargoes physically delivered.

Affinity, a UK-based independent shipbroker, said the market has so far responded quickly to the escalation.

"We’ve seen vessels carrying the Qatari flag getting replaced to different-sized segments," said Fotios Katsoulas, head of research at Affinity.

Cargoes that would normally be loaded onto a very large crude carrier (VLCC), which can carry about 2 million barrels of crude oil, are being switched out for multiple smaller vessels to avoid disruption.

"The tankers are smaller so operators may need two, which is not economical," he said.

The short-term impact is a headache for owners and operators, but should more pressure be added because of limiting vessel availability, rates will likely increase.

Prices for benchmark routes for crude on VLCCs headed to Singapore and Japan from the Middle East have little changed. Since the start of the week, prices have dropped at most by 1.2 per cent, according to Affinity.

Mr Katsoulas said that while he didn’t think the price hikes would be traumatic, it was a wait-and-see game.

lgraves@thenational.ae

amcauley@thenational.ae

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