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Nigeria may profit as Qatar, other Arab gulf states spat

By on June 12, 2017

Global oil and gas markets have been plunged into uncertainty since Monday after Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt cut diplomatic and economic ties with Qatar, the world’s biggest supplier of liquefied natural gas (LNG).

The governments of the four countries said in statements they will sever ties including all air, land and sea transport links with Qatar, accusing the country of supporting Islamist terrorist groups.

The spat is already disrupting trade in commodities from crude oil to metals and food, thereby stoking fears of a possible shock in the global gas market, where Qatar is a major player.

Within hours of the diplomatic break, the UAE barred all vessels coming from Qatar. Similarly, Saudi Arabia’s ports authority reportedly told shipping agents not to accept vessels flying the Qatari flag or ships owned by Qatari companies or individuals. Also, vessels from Qatar were said to have been barred from docking in the UAE.

Of greater concern has been the disruption of Qatari’s fleet from using regional ports and anchorages thereby threatening supplies of LNG, which is gas that has been converted to liquid form for ease of storage or transport and used as fuel in a variety of industries.

Qatar exported nearly 30 per cent of global LNG supply in 2016 according to the International Group of Liquefied Natural Gas Importers (GIINGL). Much of the exports went to Asia, particularly Japan, India, South Korea and China which accounts for one-third of global LNG imports.

Kuwait, Oman, Jordan, the UAE and Egypt, are also Qatar’s largest market. The UK also relies on Qatar for most of its gas supply needs, according to the most recent official data.

Oil traders are worried that Saudi Arabia’s allies would refuse to accept LNG shipments from Qatar; likewise Egypt might even bar tankers carrying the Gulf state’s cargoes from using the Suez Canal to head to Europe and beyond.

Analysts noted that although all Saudi and Emirati waters are blocked to Qatar’s gas and oil exports vessels, they can still sail via Iranian waters to reach global customers but that could be at extra costs. So shippers would have to find new refueling points and alternative routes at extra cost.

Qatar’s misfortune, Nigeria’s fortune

While it is uncertain how long the chaos would last, commodity traders are startled by the development and could begin to plan for alternative gas supplies.

Traders with supply commitments to Egypt and some Asian states could turn to Nigeria, the United States, and Algeria for replacement cargoes.

Nigeria’s strength in the market is well known. The Nigeria Liquefied Natural Gas (NLNG) company described as one of Africa’s largest industrial investments supplies about seven percent of total world LNG demand. It recently reached another major milestone with the exportation of its 4000th LNG cargo to Turkey.  Its Bonny Island Terminal in Rivers State is said to be the fourth largest LNG plant in the world.

Although, Egypt relies heavily on Qatar gas, it has no direct deals with Qatar as most of its LNG are said to be supplied by Swiss commodity trading houses. Egypt is said to be halfway through its annual LNG cargo delivery program for the year, with 50 shipments left to arrive, of which at least 10 are of Qatari origin.

The North African state willingness to upturn its abysmal trade volume with Nigeria beyond pharmaceutical and engineering may present potential opportunity for Nigeria’s gas. A flurry of North African energy ties with Nigeria is already imminent as Nigeria and Morocco only recently sealed pacts to build a gas pipeline from Nigeria to Morocco.

Again, Nigeria could profit from Qatar’s misfortunes as it has begun talks with potential LNG buyers to replace some of the existing customers whose current contracts will soon expire.

Through master sale agreements with several companies, Nigeria’s LNG volumes have been delivered to receiving facilities in Japan, South Korea, Taiwan, China, India Brazil, Kuwait, and Argentina, thus gaining reputation as a major player in the global LNG industry.

NLNG is seeking buyers on new contracts for gas supplies from its Trains 1, 2 and 3, which expires by 2022. Officials were seen at the Gastech trade conference recently in Tokyo, and initial responses from potential Asian buyers were said to be positive.

However Nigeria’s optimism could be clipped by the slack in the global energy markets and other factors.

“Qatar’s misfortune could turn into its competitors’ good fortunes. In that sense, Nigeria may potentially benefit,” said Emeka Duruigbo, US-based professor of energy and business Law.

“In practical terms, that outcome is unlikely, at least in the short term. Many gas supply contracts are long term contracts, whose terms are likely to continue to be fulfilled,” Prof. Duruigbo who teaches at the Texas Southern University, Houston, said.

“I do not foresee a lasting regional impact, as it is in the interest of the affected countries, allies such as the United States, customers such as Japan and even OPEC to resolve the imbroglio speedily,” he added.

A professor of petroleum economics and former President, International Association for Energy Economics, (IAEE) Wumi Iledare said the impact of the Arab states dispute would impact little at the moment because “the LNG market is soft.”

“However, if the situation is prolonged, Nigeria will certainly serve as an alternative LNG source to Asia as the LNG spot market evolves.”

“Qatar certainly has much more to lose if the situation deteriorates further,” Iledare who also heads the Nigerian Association for Energy Economics (NAEE) said of the potential impacts of LNG deliveries from Qatar to Asian markets.

LNG expert and Managing Director of Energy Business Total Solutions Engr. Magose Abraham Eju said he does not envisage any major opportunity for Nigeria (via NLNG) to increase her share of global LNG supply as a result of the diplomatic row.

“The reason is because of the way LNG commercials are structured. LNG is sold / supplied based on long-term Sales and Purchase Agreements (SPAs). Qatar already has SPAs with her LNG buyers in Asia, etc and do not have diplomatic issues with these countries. These SPAs apart from being long-term are guided by specific Terms of Contract. Additionally, none of the countries involved in the current diplomatic row with Qatar are major buyers (importers) of her LNG, infact some (Egypt & UAE) export LNG as well. Saudi Arabia and Bahrain does not import LNG.” Eju who monitors developments in the LNG market said.

“Nigeria may benefit marginally via export of Spot LNG Cargoes to Middle East. Spot Cargoes are LNG produced in excess of the contractual volumes with long-term buyers. These excess volumes may be sold by the supplier to any customer via Spot Free on Board Master Sales Agreements (MSAs). These are short-term sales. However, LNG exporting countries close to the region, such as Oman and Algeria, may also compete for such opportunities to supply Spot Cargoes to UAE and/or Egypt,” he added.

 

[Daily Trust]