Singapore — Saudi Arabia, the UAE, Bahrain and Egypt on Monday announced they have broken off diplomatic ties and severed all land, sea and air links with Qatar.
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Saudi Arabia said the move was necessary to protect the kingdom from what it described as terrorism and extremism.
"[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.
Qatar said in a statement that it regretted the decision by Saudi Arabia, UAE and Bahrain. "Such measures are unjustified and are based on baseless and unfounded allegations," Qatar's foreign minister said in a statement.
Below S&P Global Platts highlights the implications on oil and gas of what has been described as the region's most serious diplomatic crisis in years.
** LNG traders were bracing for potential disruptions following the diplomatic crisis.
** Qatar is the world's largest LNG supplier, having exported 78.8 million mt of LNG in 2016, more than 30% of a total global supply of 257.8 million mt, according to Platts Analytics, and an increasing share of its production is being delivered to emerging Middle Eastern buyers, including Egypt, Jordan and the UAE.
** More than 60% of Egypt's LNG imports in 2016 -- 4.61 million mt of a total 7.26 million mt -- were sourced from Qatar and delivered as part of supply contracts between Egyptian Natural Gas Holding (Egas) and traders or portfolio sellers.
** Dubai received 1.25 million mt of LNG from Qatar in 2016, 40% of its total import volume of 3.12 million mt.
** Traders said any disruption in Qatari LNG supply could have a significant effect on pricing, regional trade flows and energy security in Egypt. Cargoes would have to come from elsewhere. Meanwhile, Qatar might have some additional volumes that can be sold into other Middle East countries and the Far East.
** Qatar supplies 2 Bcf/d of gas to the UAE and Oman via the Dolphin pipeline. With a capacity of 3.2 Bcf/d, it is the only pipeline transporting natural gas across borders between Arabian Peninsula countries.
** In summer, gas deliveries through the pipeline are augmented on an intermittent basis. Excess gas supplies often become temporarily available from Qatar Petroleum in summer due to seasonally depressed LNG demand.
** Of the underlying 2 Bcf/d of permanent Dolphin gas supply from Qatar, about 1.8 Bcf/d goes to state-controlled power and water utilities serving all seven UAE emirates, and the remaining 200,000 Mcf/d goes to Oman under a long-term contract with Oman Oil Co.
** It is hard to tell what overall proportion of UAE gas demand is actually supplied by Qatar, but gas flow from Qatar is especially important to the UAE in the summer months, when demand peaks throughout the Arabian Peninsula due to high power demand for air-conditioning.
** BP's latest available Statistical Review of World Energy put the UAE's 2015 gas consumption at 69.1 Bcm (6.7 Bcf/d). Of that amount, at least 27% would have been supplied by Dolphin.
OIL, LNG SHIPPING
** Though crude oil prices rose in the aftermath of the announcement, no immediate effect was seen on crude oil and LNG shipping.
** No restrictions were 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.
** There were also no indications that Egypt would pursue any further action on Qatari trade through the key Suez Canal route. Even if it does, it will have no effect on oil shipments as Qatar's three main crude grades -- Al-Shaheen, Qatar Marine and Qatar Land -- travel almost exclusively to refiners in Asia.
** 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 that can be debarred for movement by the Suez Canal authorities.
** Q Ship has 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.
** 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.
** To complicate matters further, not all the LNG carriers are wholly owned owned by Q ship. Companies with stakes in these ships include Shipping Corporation of India and Japan's Mitsui, NYK, and K Line.
--Staff Reports, email@example.com
--Edited by Mriganka Jaipuriyar, firstname.lastname@example.org; Jonathan Fox, email@example.com