Qatar Row Roils LNG Market

The escalating diplomatic conflict between Qatar and its Middle East Arab neighbors has roiled the liquefied natural gas (LNG) trade, causing at least one tanker to change course and UK gas prices to spike.

Saudi Arabia, the United Arab Emirates, Egypt and others this week severed diplomatic and transport links with Qatar, the world's biggest LNG producer, accusing it of sponsoring terrorism, Reuters reported.

In one of the earliest signs of the effect on the LNG market, Royal Dutch Shell sent an LNG cargo from the United States to Dubai, shipping data shows, after the United Arab Emirates banned Qatari ships from entering UAE ports.

A cluster of 17 LNG tankers were moored off the coast of the Qatari LNG export facility at Ras Laffan, up from seven on Monday.

Gas prices in the UK spiked on Thursday, with the UK National Balancing Point price for July up over 4.5% after two Qatari tankers that were likely bound for the UK changed course, according to Reuters shipping data.

It is unclear why those tankers shifted movements, though traders said they may be diverted around the continent of Africa rather than transit the Suez Canal, which is where they were expected to go.

Traders worry that Egypt might bar tankers carrying Qatari cargoes from using the Suez Canal, though it is bound by international treaties not to block the canal.

Analysts still do not see an interruption in supply in the LNG market, even with Qatar's role as the world's largest producer.

"Only Egypt and the UAE are boycotting Qatari cargos so they are the only countries that might see US volume replace Qatari," said Theodore Michael, senior LNG analyst at energy data provider Genscape in Boulder, Colorado.

Egypt, however, continues to buy LNG from Qatar brought in by Swiss commodity trade houses, like Trafigura, Glencore and Vitol, which take ownership of the cargoes at the Qatari port and do not use Qatari ships, analysts and traders said.

One source said four tankers were expected to deliver Qatari LNG to Egypt over the next two weeks.

Qatar's Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani, said the UAE was "exploiting a trading position as a political tool," noting that about 40% of UAE power depends on natural gas from Qatar.