Houthi Attacks on Red Sea Impact Global LNG and Oil Shipping
Attacks by Yemen's Houthi group have led to a heightened sense of caution among shipping companies, with some LNG tankers diverting from the crucial East-West trade route.
A screen grab captured from a video shows that cargo ship 'Galaxy Leader', co-owned by an Israeli company, being hijacked by Iran-backed Houthis from Yemen in the Red Sea on November 20, 2023. Photo by Anadolu Images.
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ecent escalations in the Red Sea with attacks by Yemen’s Houthi group have led to a heightened sense of caution among shipping companies, with some LNG tankers diverting from the crucial East-West trade route. The Suez Canal, connecting through the Red Sea, is vital for global trade, with about 12% of world shipping traffic and a significant portion of LNG cargoes passing through it annually.
In 2023, a substantial amount of LNG trade between the Atlantic and Pacific Basins has utilized the canal, indicating its critical role in energy supply chains. Qatar, the United States, and Russia are the primary LNG shippers through the Suez, with Qatar being the main exporter in the east-to-west direction.
The disruptions have not immediately impacted LNG prices, which remain steady, likely due to high inventory levels in Europe and Asia. However, oil prices have experienced a slight rally, and shipping costs have surged, with insurance war risk premiums increasing fivefold due to the risks associated with passing through the affected waters.
Closely monitoring the situation
Market players are closely monitoring the situation, with the consensus being that unless the disruptions persist for an extended period, significant market shifts are unlikely. The potential rerouting of shipments, such as those from Qatar, could lead to longer journey times and affect supply schedules.
While the crude and oil products markets are wary of the potential need to seek alternative sources, LNG market participants expect trade to be largely unaffected. However, Atlantic LNG supplies to Europe could face more significant strategic adjustments than Qatari supplies.
The situation remains fluid, with a U.S.-led international force patrolling near Yemen to mitigate risks. The shipping industry and global markets are keeping a vigilant eye on developments, as any prolonged instability could lead to broader implications for energy transportation and costs.
Potential perils
Energy Aspects’ Jake Horslen, an expert in LNG analytics, pointed out that the potential vulnerabilities in Suez Canal transit are more pertinent to the flow of Atlantic-origin LNG to European recipients than to any hindrance of Qatari LNG reaching the same markets.
Takahiro Honjo, leading the Japan Gas Association, recognized the potential perils at a recent press event but minimized the prospect of an imminent supply shortfall due to these maritime tensions.
To encapsulate, while the industry recognizes the inherent risks amidst the current instability in the Red Sea, the consensus suggests no immediate alarm. Market stakeholders are navigating the situation with prudence, prepared for a measured response to the shipping disturbances.
Source: Reuters
