Red Sea tension could affect Europe’s LNG deliveries, experts say

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Tension in the Red Sea could have a significant impact on Europe’s liquefied natural gas (LNG) deliveries, but as of now, the effect on gas prices has been muted.

This week, oil prices have surged by about 3 per cent after the suspension of operations in the Red Sea by some of the world’s largest shipping companies, in response to attacks by Yemeni Houthi rebels.

However, European gas prices have continued to decline on high storage levels and lower demand after a brief increase earlier this week.

The Dutch Title Transfer Facility gas futures contract, the benchmark for Europe, was last trading at €33.52 ($36.70) a megawatt hour on Thursday after declining by more than 61 per cent this year.

The Red Sea is an important waterway that all vessels passing through the Suez Canal must transit.

The Suez Canal is a major artery for global trade, with significant LNG exports through the canal mainly consisting of deliveries from Qatar to Europe and exports from the US and Russia to Asia.

Last year, Qatar’s LNG trade with Europe through the canal stood at 19.84 million tonnes, ahead of the second-largest trade flow from the US, according to Rystad Energy data.

This year, the Gulf country has exported 13.74 million tonnes of LNG to the continent so far.

Sending Qatari ships to Europe via the Cape of Good Hope, off Southern Africa, would mean extending the travel time by about 17 days, doubling the current duration of the voyage, Lu Pang, senior analyst at Rystad Energy said.

“If Qatari LNG cargoes to Europe are disrupted in the Red Sea, additional shipping capacity may be required to cover the additional voyage duration,” Mr Pang said.

“Depending on contract clauses and negotiations, arranging for European LNG deliveries through other methods may become feasible.”