Qatar diplomatic crisis not seen impacting oil, LNG shipping

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Saudi Arabia’s decision to break off diplomatic ties with its Persian Gulf neighbor, Qatar is unlikely to directly impact crude oil and LNG shipping, market sources said Monday.

Saudi Arabia severed consular relations as well as land, air and sea contacts with Qatar early Monday, over its alleged ties with Iran and Islamist groups. This was followed by similar moves from Bahrain, the UAE and Egypt.

“[Qatar] embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, ISIS and al-Qaida, and promotes the message and schemes of these groups through their media constantly,” the state-run Saudi Press Agency said.

It is not clear how the diplomatic crisis may affect policy making at OPEC, which is currently led by Saudi Arabia.

Qatar’s energy minister Mohammed al-Sada played a key role in bringing together OPEC and major non-OPEC producers last year to agree to cut crude oil output by 1.8 million b/d.

More immediate concerns surround potential disruption to oil and gas exports from Qatar.

NO RESTRICTIONS ON CO-LOADING

Shipping sources said they have not heard of any restrictions imposed on VLCCs carrying Qatar-origin crude oil cargoes from calling on Saudi or UAE crude loading ports. Even if imposed, charterers could reschedule their Qatari loading to come last to avoid any issues.

The Middle East typically loads crude on VLCCs, which are capable of carrying around 2 million barrels. Since spot crude oil cargoes in the region are typically 500,000 barrels in size, refiners will often buy a number of cargoes from Persian Gulf countries to be co-loaded on the same vessel.

Typically VLCC loading combinations include crude oil from Kuwait, Saudi Arabia, Qatar, UAE and Oman.

For example a VLCC may first load 500,000 barrels of Qatar Marine crude oil from Halul Island, and then travel to Abu Dhabi’s Das Island for another 500,000 barrels of Das Blend crude before heading to UAE’s Fujairah for a final cargo of 1 million barrels of Murban crude oil.

SUEZ CANAL IMPLICATIONS

That Egypt joined Saudi Arabia, Bahrain and the UAE in cutting diplomatic ties with Qatar should not be a surprise.

Cairo and Doha have been at odds since 2011, when the Egyptian government criticized Qatar’s support for the banned Islamist organization, the Muslim Brotherhood. Doha also supported former Egyptian president Mohammad Morsi, who was removed from power in 2013 by a military coup.

However, there is no indication that Egypt will pursue any further action on Qatari trade through the key Suez Canal route.

“If Egypt was to categorically mention that cargoes of Qatari origin won’t be allowed to pass through the Suez Canal, then it will disturb the trade flows and push up the prices of energy products,” said a shipping broker in Singapore.

Unless that happens, the cut in diplomatic ties between Egypt and Qatar may not translate into stopping Qatar-origin cargoes and Qatar-owned or flagged ships from passing through the canal, he said.

State-owned Qatar Shipping Co., or Q Ship, has only a handful of tankers — two Medium Range and three Aframaxes. The bulk of the country’s oil trade is done on a FOB basis or through voyage charters, so there are few Qatar-flagged or Qatar-controlled oil tankers which can be debarred for movement by the Suez Canal authorities.

In any case, Qatar’s three main crude grades — Al-Shaheen, Qatar Marine and Qatar Land — travel almost exclusively to refiners in Asia.

Q Ship is a much bigger player in the global LNG trade, with stakes in nine LNG carriers. It also has a 15% stake in Nakilat, Qatar’s gas transport company. Nakilat and Q Ship in turn have an equal 50% stake in the Gulf LPG Transport Company that operates around four VLGCs.

“It is tricky to stop such ships from moving in specific waters such as the Suez Canal,” one of the shipping sources said. Almost always these ships are on long-term time charter to other companies, he said.

To debar Q Ship-owned gas carriers from passing through the Suez Canal may be legally difficult, as they are commercially controlled by companies who have taken them on long-term time charter, sources said.

To complicate matters further, not all the LNG carriers are wholly owned owned by Q ship.

Companies, which have stakes in these ships include Shipping Corporation of India and Japan’s Mitsui, NYK, K Line and NYK, which have nothing to do with Qatar’s diplomatic relations with other countries in the Middle East.

Source: Platts

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