Skip to main content

Editorial comment

Disruptions to Red Sea LNG traffic stepped up in mid-January as Qatar, the biggest single user of the route in 2023, paused a number of vessels due to cross through the Bab al-Mandab strait.

The narrow passage, at the bottom of the Red Sea, has become the centre of global attention over recent weeks after Houthi attacks on shipping crossing the strait, followed by US and UK counter-strikes.

Register for free »
Get started now for absolutely FREE, no credit card required.

Qatar supplied Europe with 16% of its LNG imports during 2023, equal to around 15.1 million t of the region’s total 96.2 million t. That made Qatar a key supplier to the region, although significantly lower than the US, which made up almost half of Europe’s LNG supplies in the year at 45.5 million t.

Disturbances to Qatari LNG flows to Europe could add time and costs to deliveries, likely lifting spot gas prices. However, Europe is well placed to deal with disruptions, with its gas storage still very high for the time of year, and much better positioned than two years ago when Russia started its war with Ukraine. Europe’s gas stocks are much higher than two years ago, when the Russia-Ukraine war was about to begin.

Like Qatar, the US has often used the Suez Canal to deliver cargoes to Asia, sending them east across the Atlantic, then through the Mediterranean, and down through Suez.

Routes east from the US to Asia have become more important in recent years as the Panama Canal has grown more congested and suffered from drought, reducing water levels.

The number of crossings in December 2023 was fairly in line with normal usage. From 1 – 12 January 2024, however, ICIS tracked only five laden LNG tankers travelling through the Suez Canal, and all were either Qatari or Russian cargoes.

Some US spot cargoes started looking for shorter routes to Europe rather than the long route to Asia, while other US cargoes added to the traffic on an increasingly busy route southeast across the Atlantic and around the Cape of Good Hope to Asia.

For US cargoes heading to Asian customers, taking the route via the Cape of Good Hope only adds a couple of days compared with heading via the Suez Canal, although it is significantly longer than heading west via the Panama Canal and across the Pacific.

Qatar’s decision to pause LNG traffic through the Red Sea did not pose an immediate threat to Europe’s security of gas supply, as the region is well stocked and has steady inflows of other gas, including Norwegian pipeline gas and US LNG.

For much of the first half of winter, the weather has been relatively mild, and industrial demand remains suppressed from pre-crisis levels.

Although Europe’s spot prices at the ICIS TTF have fallen hugely from the records broken in 2022 when Russia halted most pipeline supplies to Europe, even now gas prices remain above the long-term averages in the decade before the Russia-Ukraine war, adding to bills for households, leading to factory closures and challenging inflation targets.

In the event of long-term disruption, energy companies could attempt to re-arrange global trade flows to make shipping more efficient. For example, a US company that had to deliver a cargo to Japan could do a swap with a Middle East company that wanted to sell into Europe. The US company could deliver its cargo into Europe instead, and the Middle East company could deliver east into Asia. Both customers would receive a cargo and overall shipping times would be cut. In this case, both companies might avoid any need to use the Red Sea at all.

Companies already carry out such swaps internally and from time-to-time with other parties. For major LNG traders like Shell or TotalEnergies, the ability to rearrange flows in such a way is one of the benefits of having large global trading portfolios within which they can find cost savings. While it could be a theoretically attractive way to minimise the fallout from any prolonged shipping disruption, in practice, cargo swapping on a very large scale between major companies would require an unprecedented level of trading and co-operation.