Qatarisolation!
Everyone including me is curious and surprised to see the diplomatic isolation of Qatar in line with that of Iran. Though neutral, we got to be a little sceptical in our approach.
India and Qatar share a cordial business relationship with total bilateral trade of @US$ 15.67 billion. The balance of trade is heavily in favour of Qatar as India is the third largest export destination for Qatar (behind Japan and South Korea), a major customer for Qatari crude oil/products. Petronet LNG, India's biggest liquefied natural gas (LNG) importer, has a contract to import 8.5 million tonnes of LNG annually from Qatar. Qatar is one of the biggest producers of natural gas in the world and India has a long-term contract to purchase natural gas from Qatar.
The LNG is mostly consumed by Fertilizer and Power sectors whose Domestic Gas deficit is balanced by imported Gas supply. However such Long Term Contract has its own limitations as market dynamics are continuously changing and apart from subsidized products like Urea, sustainability in consumption is always ambiguous. Non utilization of Contracted volumes leads to surmountable penalties. Prior to CY2016, the RasGas contract was unaffordable as there was a huge differential between the price and that available in the SPOT Market. Considering that the LNG market has matured over time in India, the Gas supply scenario is not the same as it was in CY2004 when the Contract was signed.
Owing to the recent developments in the Middle East and isolation of Qatar from other OPEC members in Gulf region, it may be prudent to seek diversification in supply. PLL may seek to renegotiate the Contract or surrender partial volumes and enrich the Gas basket with cheaper sources. With restrictions on use of land/ sea/ air routes through neighboring countries, there would be significant surge in Qatari Gas availability. As compared to Japan, the sea route to India is much closer and hence more affordable for India to secure the geo-political opportunity.
The isolation of Qatar also signals a shift in trade politics from Arab dominated OPEC to US controlled and Saudi dominated cartel. As expected, Gas plays a major role in international ties and US might be inclined to pushing sales of it's shale Gas beyond its boundaries. HENRY HUB prices have long being subdued for producers to make a living, this in fact would help bully the largest exporter of Natural Gas, Qatar into a isolation.
The positive side to this is that the Buyer's market has more options and India being one of the big buyers would certainly make the most of it!
- @abhiktushardas
Views are personal.
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14+ yrs of experience in - Oil & Gas Value Chain - LNG Procurement - Contract (Agreement) Negotiation - Commercial
7 年Main beneficiary of this crisis will be USA. A good reading on the subject. https://www.globallnghub.com/reports-presentations/qatar-lng-new-trading-patterns-but-no-cause-for-alarm.html