DIPLOMATIC SLOWDOWN IN THE PERSIAN GULF: Nightmare for Energy Importing Countries?

June 10, 2017

 

Natural gas trade events do not receive too much spotlight as crude oil events do when it comes to the Middle East and the Gulf. However, the recent Qatar feud has definitely compelled the world to pay attention to this energy resource. Qatar, the Saudi Arabia of liquefied natural gas markets, accounts for roughly 30 percent of the production in the importing world. Additionally, the country exports 78 million metric tons of LNG per year through joint ventures to the Middle East as well as the Asian countries.


What once used to be a part of a group of five Nations-Saudi Arabia, Egypt, United Arab Emirates (UAE), Bahrain, and Yemen, is now left to isolation, after a cut in the diplomatic relations of the countries, due to Qatar’s support in favor of extremism and terrorism.


What is concerning is that Egypt and the UAE have been historically dependent on Qatar for an enormous amount of their LNG and pipeline gas supplies. Will the diplomatic rift spill over to the commercial sector as well? In 2016, Egypt offered Qatar maximum business for spot LNG, and the 2017 volumes are ahead of last year’s figures. Thus, the Diplomatic-U turn comes as a big surprise, considering the key role Qatar plays in the markets of world’s biggest importers of energy.


Although 65 percent of the total LNG gets exported to Asian countries like Japan, South Korea and India, Egypt remains Qatar’s largest customer for spot cargoes. According to PIRA’s speculation, Egypt will reach supply self-sufficiency by 2018, however, based on the current trade figures it does not seem that the country is quite there yet.


The UAE, another country that cut ties with Qatar, imports large amounts of gas by pipeline from the latter. Last year, Qatar provided the UAE with roughly 30 percent of the gas it consumed. At a time, when electricity demand is constantly rising, any disturbance in the gas supply would be highly disruptive to the power grid.


Asian countries like Japan, China, South Korea and India have cordial relations with both parties. The Asian powers depend on Qatari natural gas for power and electricity, and on Saudi Arabia and the UAE for oil import.


Given the variety of countries that are likely to get affected by any major rift in the field of commercial trade with Qatar, it seems like there is hope from major ends of the globe to pacify the diplomatic relations of the middle eastern countries and other gulf countries with Qatar. 

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