After the Hormuz disaster, buyers will press Qatar and UAE to offer cheaper and more flexible LNG deals
Asian and European buyers will ask Qatar and the United Arab Emirates for lower prices, and to provide additional guarantees of supply, as a result of 'the U.S. - Iran war, which has increased insurance costs.' Buyers, traders, and executives in the industry have confirmed this. The war has reshaped 'the?global?energy industry. It is stripping Gulf producers from their reputation as world's most reliable supplier, which gave them considerable negotiating power in the past. The war has made it harder for them to set their own terms because most oil and natural gas have been stopped flowing through the Strait of Hormuz. This is the main shipping chokepoint that leads to the Gulf of Arabia.
Qatar's huge reserves have helped it become the world leader in the gas market. The UAE and Qatar, whose production is increasing, together account for one-fifth the global LNG export capacity.
Qatari LNG is among the most affordable due to its low production costs. The UAE, however, offers a more flexible price. The buyers claim that the increased risk and insurance costs will allow them to negotiate more aggressively in the future and demand even greater?flexibility.
Nicola Monti is the chief executive officer of Italy's Edison. She said on the sidelines a recent business conference that anyone entering into new contracts with the Gulf region should also consider the potential insurance costs.
Before the Iran War, LNG contracts between Qatar and the UAE typically cost 12.6%-12.7% Brent crude before the war. But some deals concluded since then have been closer to 12.3%. This suggests that buyers had already factored in the increased regional risk. QatarEnergy has been forced to close liquefaction train, declare force majeure for deliveries and suspend exports due to the war. This month's resumption by Iran of attacks on tankers traversing the Strait has clouded prospects for a return to the pre-war flow. Edison, which had a long-term agreement for 6.4 billion cubic meters of Qatari natural gas per year -- about 10% of Italy's demand annually -- saw deliveries cancelled between April and early September due to force majeure.
QatarEnergy, and Abu Dhabi’s state-owned energy company ADNOC, did not respond to requests for comment. Requests for comment from QatarEnergy and Abu Dhabi's state energy company ADNOC were not answered.
ASIAN BUYERS REASSESS RISK
Six Asia-based traders stated that future Gulf gas deals would be centered on reducing the prices, but also increasing security and diversification. Six Asia-based traders spoke under condition of anonymity because the subject matter was sensitive. Their companies have long-term agreements with Qatar and UAE.
One of the six traders stated that the pair could also lower their prices due to the increasing competition from the United States.
Analysts estimate that Qatar could produce LNG at a cost of as low as $0.50 for every million British thermal units. This is compared to $3-$5/mmBtu, which many other projects around the world charge. The UAE and Qatar are closer to Asian markets, so they pay less in shipping.
Both companies plan to increase their?LNG production in the coming years, which means buyers will have more bargaining power, traders said.
Buyers will also want Qatar and UAE to guarantee replacement cargoes in case exports via Hormuz are disrupted.
Edison's Monti stated that "going forward, (Gulf Suppliers) will have to deal with a different risk profile arising from what happened at the Strait of Hormuz. And nobody can exclude the possibility of another occurrence in the future."
(source: Reuters)
