Gas supplies keep flowing as Qatar diplomatic spat flares

The UAE's crucial natural gas imports from Qatar don't seem to be affected by the growing diplomatic dispute, though risks remain.

Qatar’s natural gas supplies were flowing as normal to the UAE yesterday, despite the worsening diplomatic spat between Qatar and several of its regional neighbours.

The UAE imports Qatar gas for about a third of its daily needs and the question of continuity of supply was raised following the move yesterday by the UAE – together with Saudi Arabia, Bahrain, Egypt, Yemen and the Maldives – to sever all ties with Qatar because of its “funding and hosting of terror groups” among other diplomatic breaches, according to a UAE Ministry of Foreign Affairs statement.

The move to sever ties included closing all UAE airspace and territorial waters to Qatar, but the UAE government statement made no mention of the sub-sea gas pipeline that runs between Qatar and the UAE, part of a decade-old Dolphin Project, which now brings in about 2 billion cubic feet a day (cfd) of gas for use in the UAE grid, minus about 200 million cfd transited onward to Oman. There was no official comment either from the companies involved or from the governments, but sources familiar with operations of the gas pipeline said it was flowing without disruption as of late yesterday.

Dolphin’s three original customers are the Abu Dhabi Water & Electricity Company, Dubai Supply Authority (Dusup) and Oman Oil Co. Last October, an agreement to supply an unspecified additional amount of gas via Dolphin to Sharjah Electricity and Water Authority and Ras Al Khaimah was also put in place.

The Dolphin network takes gas from Qatar’s huge North Field via a 364-kilometre pipeline to Abu Dhabi’s Taweelah power station, then runs up to the northern emirates, including Fujairah port, and on to Oman.

The UAE, whose gas demand has been growing at about 6 per cent a year, has been diversifying its sources of gas, including developing the Shah gasfield in the Western Region, which now supplies about 10 per cent of consumption. Dusup, which operates a floating storage and regasification unit (FRSU) at Dubai’s Jebel Ali port, last September upgraded its LNG capability with a new, larger FRSU chartered from Excelerate Energy, based in Woodlands, Texas. Excelerate also last August chartered to Abu Dhabi its first FSRU, which is based at the refinery town of Ruwais in the Western Region.

Egypt also looks to Qatar for a significant amount of its gas consumption, sourcing about 65 per cent of its liquefied natural gas (LNG) imports from Qatar, covering 10 per cent of its total daily consumption, according to Wood Mackenzie, an energy consultancy.

Egypt’s national gas company, Egyptian Natural Gas Holding Co, did not respond to requests for comment.

Despite the uncertainty, analysts said it seemed unlikely that Qatar’s natural gas trade flow would be affected by the growing tensions.

Although Saudi Arabian and UAE waters have been restricted, “Qatar can access international waters in the Arabian Gulf, and thus its key markets for LNG exports, namely, Japan, South Korea, India and China, are unlikely to be affected”, said Ehsan Khoman, Dubai-based regional head of research and strategist at Bank of Tokyo-Mitsubishi UFJ.

Similarly it is unlikely Qatar will withdraw support for the Opec-led oil output restraint deal, to which it is only a small contributor, says Jason Tuvey, economist at Capital Economics. “And given that tensions with Iran have existed for decades [with Saudi Arabia and its allies] and haven’t resulted in any kind of blockade [of the Strait of Hormuz], this isn’t likely to happen either,” he adds.

The risk of any disruption to seaborne LNG is also mitigated by protections afforded by the United Nations Convention on the Law of the Sea, according to analysts at BMI Research, a unit of Fitch credit rating agency.

Qatar is the world’s largest LNG exporter, according to WoodMac, exporting 78 million tonnes last year, or nearly 30 per cent of global supply, with about two-thirds going to Asia.

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More on the Qatar row

■ Qatar stocks slump as GCC neighbours cut ties

■ Little risk to UAE-Qatar gas shipments amid diplomatic row

■ Emirates and Etihad to suspend flights to and from Qatar amid diplomatic dispute

■ Qatar rift could lead to credit rating downgrade and lower non-oil growth

■ DP World: 'Too early to comment' on Qatar row implications

■ UAE Exchange chief says it is monitoring Qatar row and trading on riyal is normal

■ Closure of ports and road links could have an impact on Qatar's contracting market

■ UAE retailers keep a close eye on Qatar developments

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