When Russia suspended pipeline gas supplies to Europe following Moscow’s invasion of Ukraine in February 2022, concerns about a supply shortage triggered a market frenzy, leading to record-high prices for liquefied natural gas. Some European nations resorted to burning coal for electricity generation, while others, sometimes those same countries, quickly set up LNG receiving terminals and secured supplies from the U.S., Qatar, and to a lesser extent from the United Arab Emirates and Oman.
This time around, the current gas market has barely responded to the crisis in the Red Sea, where Houthi rebels in Yemen have launched dozens of attacks against shipping since November. These attacks have forced tankers to avoid the shortest route from the Gulf to Europe through the Suez Canal.
LNG traffic
Since mid-January, all LNG traffic through the Red Sea has been suspended, yet gas prices have fallen sharply. QatarEnergy redirected West-of-Suez LNG shipments through the longer Cape of Good Hope route, following a decision by Shell, another major LNG supplier, BP and Equinor, to reroute their tankers away from the Red Sea. By early February, overall Red Sea traffic had decreased by approximately half from pre-crisis levels of 60-70 vessels.
Shipping data referenced by the Oxford Institute for Energy Studies in a January 29 podcast indicates that between December 25 and January 25, 10 LNG carriers transited the Suez Canal, with seven delivering Qatari shipments to Europe and three transporting Russian cargoes to Asia. Qatar and Russia are the largest LNG suppliers to the European market after the U.S.
On January 24, Bloomberg reported that Qatar, a major global LNG supplier, had notified some European buyers of delays and rescheduled shipments as cargoes diverted around the Cape of Good Hope. According to ship tracking data, since January 15, Qatar has redirected at least six shipments originally intended for Europe.
Data intelligence provider Kpler has identified three unladen tankers returning to Qatar’s Ras Laffan industrial hub and LNG export terminal, opting for a longer route around Africa. These manoeuvrers extend the time vessels spend in transit, posing challenges for suppliers in adhering to delivery schedules. The delayed return to Ras Laffan’s LNG facilities may have cascading effects, especially if subsequent planned cargoes are already scheduled.
European Market
While not its primary market, Europe remains a sizeable one for Qatari LNG. In 2023, approximately 15 million tons were delivered to Europe through the Red Sea. That is a 20 percent decline from the nearly 19 million tons sent in the year preceding the 2022 gas crisis. Oman and the UAE occasionally supply cargoes to Europe, but their primary focus is the Asian market.
Although gas supplies haven’t halted, it is taking longer for LNG cargoes to reach their intended markets. This disruption has coincided with restricted traffic through the Panama Canal, where low water levels, caused by drought, have prompted the Panama Canal Authority to limit traffic. This is affecting U.S. LNG cargoes heading east, along with Russian supplies from the Yamal Peninsula, as LNG cargoes cannot use the northern sea route during winter and must instead traverse the Suez Canal.
Despite these challenges, the LNG market has remained relatively stable due to a mild winter season, the overall economic resilience of European economies, and ample storage capacity to mitigate delays or disruptions in LNG supplies. In contrast to the conditions in 2022 when stocks depleted, current market conditions are more favorable. However, if delays persist and inventories decline during the summer refilling period, the market could tighten, leading to potential price increases.
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Export approvals halt
This disruption in the gas market coincided with a surprising announcement on January 20 by the administration of U.S. President Joseph Biden which declared a pause in approvals for exports from new LNG projects to non-Free Trade Agreement countries. The market widely interpreted this decision as implying a potential delay in unapproved projects, impacting around 50 million tons per year of planned U.S. and Mexican projects. However, projects with final investment decisions and non-FTA approvals remain unaffected, minimizing the immediate impact on LNG supply until 2028. If the denial of non-FTA approvals becomes permanent, it could significantly affect future LNG supply.
This situation could benefit Qatar and other Middle Eastern LNG exporters, which are currently expanding their LNG capacity to be operational by 2028. Qatar, the world’s third-largest LNG exporter, is increasing capacity at its Ras Laffan plants from a current 77 million tons to 142 million tons by before the end of the decade. In the UAE, the Ruwais facility, under construction, and an expansion of the Das Island plant will increase total capacity to 10.4 million tons per year. Oman is also considering adding a fourth train to its 11.4 million tons per annum plant at Sur.
In its Outlook 2024, Shell, a major LNG supplier, forecasts a more than 50 percent increase in demand by 2040. This growth is due to the acceleration of industrial coal-to-gas switching in China and increased LNG usage in South Asian and Southeast Asian countries to support economic growth.
About Kate Dourian
Kate Dourian is a non-resident fellow at the Arab Gulf States Institute in Washington. She is also a fellow at the Energy Institute. Previously, she was the regional manager for the Middle East and Gulf states at the World Energy Council. Dourian joined the IEA from the Middle East Economic Survey where she was a senior editor. She was also responsible for compiling the monthly OPEC survey for MEES. From 2000-13, Dourian was the editor-in-chief for the Middle East for oil price reporting agency Platts.
Dourian has been a speaker and moderator at international conferences and has made many radio and television appearances, discussing energy and geopolitics on several platforms in English, Arabic, and French.
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