A diplomatic row with its neighbours weakens Qatar’s position as it renegotiates long-term LNG-supply deals with Japan
Diplomatic rows are ten a penny in the Arab world. LNG World Shipping usually steers clear of Middle East politics. However, the growing tensions between Qatar and its Arab neighbours could have a direct impact on global LNG.
Qatar is the world’s largest producer of LNG. Last year, GIIGNL reports, Qatar produced just under 80 million tonnes a year (mta) of LNG. That’s more than 30 per cent of the world’s LNG supply.
Qatar sells LNG globally, particularly to Asia’s Big Four buyers, to India, to Egypt and to the UK. Although RasGas and Qatargas export LNG under traditional long-term contracts, they also produced 27 per cent of the world’s spot and short-term cargoes last year.
On Monday, six Arab states – led by Saudi Arabia and including Egypt – broke off diplomatic ties with Doha. They accuse Doha of backing Sunni and Shia radicals. Doha has denied those claims.
This latest crisis comes at a sensitive time for Doha, which is also holding supply-renewal talks with its biggest buyers in Japan. Until recently, LNG was a seller’s market. Now, Qatar faces new competition, from Australia, from the US and from a new wave of African and Arctic export ventures.
Last week, Qatar Petroleum warned the Japanese utilities not to push it too hard. It hinted that it could exclude Japanese companies from future Qatar-backed LNG projects.
Is Qatar in a position to talk tough? Oversupply has strengthened LNG-buyers’ hands. The Japanese contracts that expire in 2021 account for 7.2 million tonnes (mta) and are worth US$2.8 billion. That’s a massive 10 per cent of Qatar’s gas earnings.
Nearly half the country’s revenues come from hydrocarbon sales. And political isolation weakens Qatar’s position in the LNG trade talks. Right now, Doha needs all the friends it can get.
That may persuade Qatar to play nicer when it talks to its partners outside the Middle East.