With Saudi Arabia and three other countries in the Middle East breaking ties with Qatar, analysts expect a possible disruption in LNG supplies from Qatar to neighboring countries.
Energy sector experts believe that the situation in Middle East could affect global gas markets as well as Qatar is the top supplier of liquefied natural gas (LNG). Saudi Arabia, along with the United Arab Emirates and Egypt — both highly reliant on Qatari gas via pipeline and LNG — and Bahrain said they would sever all ties including transport links with Qatar, an escalation on past diplomatic spats. Four countries have accused Qatar of supporting extremism.
LNG traders in the region as well as those in the international market have said that they will be adopting a wait-and-see approach with possibility of potential disruption of regional energy flows. Qatar has assured to India and Japan that LNG supplies will not be affected.
Some analysts are having a different viewpoint as they believe that the LNG exports will not face any disruptions due to the conditions in the Middle East. Still, traders startled by the development began to plan for all eventualities, especially any upsets to piped gas supplies from Qatar to the United Arab Emirates (UAE).
The UAE consumes 1.8 billion cubic feet/day of Qatari gas via the Dolphin pipeline, and has LNG purchase agreements with its neighbour, leaving it doubly exposed to tit-for-tat measures, industry sources and traders said.
So far flows through Dolphin are unaffected but traders say even a partial shutdown would ripple through global gas markets by forcing the UAE to seek replacement LNG supply just as its domestic demand peaks.
With LNG markets in bearish mood and demand weak, the UAE could cope with Qatar suspending its two to three monthly LNG deliveries by calling on international markets, but Dolphin piped flows are too large to fully replace.
Egypt, while relying heavily on Qatari LNG brought in by Swiss commodity trade houses, is less vulnerable than the UAE because it has no direct deals with Qatar, the domestic gas output is squeezing out the need for imports, and traders would be liable for any moves by Qatar to restrict exports.
In reality, though, Qatar can block exports to certain countries by issuing so-called destination restrictions.
Egypt is halfway through its annual LNG cargo delivery programme for the year, with 50 shipments left to arrive, of which at least 10 are of Qatari origin, a Cairo-based energy source said.
Retaliatory measures such as suspending LNG supply deals would leave Qatar free to push more volumes into Europe where it has access to several import terminals.
Under that scenario, trade houses with supply commitments to Egypt could turn to the United States, Algeria and Nigeria for replacement cargoes, traders and industry sources said.
The deterioration in ties between Qatar and Egypt contrasts with 2013 when the producer gifted five LNG cargoes to Egypt – when Mohamed Mursi, leader of the Muslim Brotherhood, served as president.