Low LNG demand cushions Europe from Red Sea issues

Vijay Valecha, Special to the Arabian Gulf Business Insight Jan 16, 2024

Low demand and healthy natural gas inventory levels have offset concerns over the Red Sea crisis, leaving markets cool-headed, energy experts said.

Europe’s benchmark natural gas price, Dutch TTF, traded at €29.99 ($32.65) per megawatt-hour on Tuesday as industrial demand weakens and stockpiles grow, despite the cold spell.

Most shippers have stopped using the Red Sea route, diverting their cargoes around Africa’s southern tip.

US projects stopped the transit of LNG cargoes via the Suez Canal to Asia in early January, choosing Panama and other alternative routes, which increased the time and transportation costs.

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Vijay Valecha, Century Financial’s chief investment officer, pointed out that the increased energy consumption cost would have to be met by consumers. “There could be an additional outgo of 1.5 euros per megawatt hour,” he estimated.

Additionally, companies face difficulty refuelling and restocking as African ports struggle with congestion, poor facilities and bureaucracy.

South Africa’s leading ports, including Durban, Cape Town and Ngqura, are among the worst performing globally, a World Bank 2022 index released in May said.

According to Siamak Adibi, a Singapore-based principal consultant at oil and gas consultancy Fact Global Energy (FGE), although the southern route involves a longer voyage, the impact on the European gas balance will not be substantial. This is due to weak gas demand in Europe and a steady supply from other sources like the US and West Africa.

“The US LNG cargoes are mainly redirected to Europe,” Adibi noted. The US became the world’s largest LNG exporter in 2023, overtaking Qatar and Australia. It became a swing supplier for both Europe and Asia.

Odoardo pointed out that if Qatari ships go through the Cape of Good Hope to get to Europe, Qatar will need more ships to deliver the same volume.

“But the shipping market is well supplied, with charter rates low and a record number of ships coming to market this year. It will create some logistical issues but is unlikely to move the market much.”

Qatar produces 20 percent of the global LNG supply but a relatively small amount goes to Europe. It was 14.9 Mt in 2023, just above five percent of EU and UK demand.

“A key question revolves around how long this situation will continue,” Adibi added.

The US and UK have made it clear that they will act against Houthi rebels if they continue to disrupt international shipping.

“The Red Sea crisis is far from over, and its effects on the LNG markets will continue to unfold in the coming weeks and months,” said Vikas Lakhwani, CPT Market’s chief revenue officer.

Source:

Arabian Gulf Business Insight