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Four months on, Qatar rides out the embargo storm

14 Sep 2017, 12.57 pm GMT

Four months on, Qatar rides out the embargo storm

Dubai, 14 September (Argus) — Four months into a campaign by Saudi Arabia, the UAE, Bahrain and Egypt to isolate Qatar, the government in Doha says crucial oil and gas exports are unaffected, an assertion repeated yesterday by energy minister Mohammed bin Saleh al-Sada.

Lack of publicly available official data makes the claim difficult to test with precision, but what evidence is available indicates Qatar is successfully riding out an embargo that has limited access to sea lanes and bunkering facilities.

Qatar has the world's third-largest gas resources, after Russia and Iran, and is the world's biggest exporter of LNG with 77mn t/yr of export capacity. In July, foreign minister Mohammed bin Abdulrahman al-Thani declared: "We have not missed a single shipment of LNG". The government maintains that today and market participants concur. Customs data from South Korea and Japan — leading purchasers of Qatari LNG — indicate a month-on-month dip in imports in July. But year-on-year July numbers show increases. Other major customers Argentina and China show year-on-year growth although Thailand's take has fallen.

Qatari-flagged LNG vessels have been banned from docking in Suez Canal economic zone ports but are still granted passage through the strategically vital canal, which is protected under the Constantinople Convention.

As a member of Opec, Qatar is subject to the crude production constraints applied in January this year, limiting it to output of 620,000 b/d, and it has been broadly compliant with this. Production does not equate to exports but the evidence is these have been untroubled by the embargo. Initially, there were concerns co-loading would be prevented but this has not occurred.

Shipbroker BRS said today: "The fact that this dispute remains low on the agenda hints at the minor impact it has had on oil trade, where it has been treated as a logistical inconvenience rather than a crisis. Since the start of the tensions in June, tankers have resumed co-loading Qatari crude cargoes with those from Saudi Arabia and the UAE, although Qatari-flagged tankers remain blocked from ports in the aforementioned countries."

Again, data is patchy, but even incomplete July returns show global imports of Qatari crude to be approaching those of June. With major buyers yet to report, the eventual number is likely to be higher.

State-owned Qatar Petroleum (QP) has been able to place all Al-Shaheen spot cargoes — ranging between two and five of 500,000-600,000 bl — into Asia-Pacific each month. Al-Shaheen values have risen in recent months along with other medium-sour crude grades from the Mideast Gulf. Last month, the grade's spot premium to the Dubai benchmark reached a nine-month high; so far this month the spot values for Al-Shaheen are at 15-month highs. Some traders in Asia-Pacific said QP's sometimes uncompetitive official price setting for its Qatar Land and Qatar Marine exports has a greater effect on regional demand for the grades than the fallout from the diplomatic crises.

Shortly after the campaign against Qatar began, price reporting agency Platts put Qatari crude exports under review for its market-on-close assessment process. Platts resumed use of loadings from Qatari ports less than one month later, another indication of a swift return to normal trade.

Dubai's state-owned Enoc has a term contract to lift one 500,000 bl cargo of Qatari condensate each month. It is no longer taking that condensate into its Jebel Ali splitter but is still lifting and selling on. Enoc is scheduled to lift a condensate cargo on 18 September from Ras Laffan, Qatar, to head to Singapore or Japan.

Abu Dhabi's state-owned Adnoc stopped lifting Qatari condensate in June. Adnoc had been lifting Deodorized Field Condensate (DFC) and Low Sulphur Condensate (LSC) on term from QP to supply two splitters at its Ruwais refinery with a capacity of 146,000 b/d each. Abu Dhabi's production of Thamama and Uweinat condensate covers most of its requirements, but Adnoc has been issuing tenders to buy condensate on the spot market. The firm bought Eagle Ford condensate of 52°API from BP in July, the first time it had taken the US grade. Adnoc has also been taking some spot volumes of Saudi Khuff condensate from Saudi Aramco.

Qatar's product exports continue. BP booked a tanker last week to take a 60,000t jet cargo to either northern Europe or Singapore. Market participants say a trading firm has even sent one of its bunkering barges from Fujairah, UAE, to Qatar to facilitate exports.

Qatar is an important exporter of LPG to Asia-Pacific. These shipments have been uninterrupted, running at around 80,000-90,000 tonne/month.

Maintaining hydrocarbon exports is crucial to Qatar's economy. The hydrocarbon sector contributes about 50pc of Qatar's GDP, 90pc of government revenues and 85pc of exports. Qatar's ministry of development planning and statistics, in its most recent monthly bulletin, reported the value of oil and gas exports at 13.7bn Qatari rials ($3.7bn) during July.

Yesterday, oil minister al-Sada noted the country continues efforts to diversify in order to reduce its dependence on oil. Even so, plans are underway to expand gas production. State-controlled Qatargas is working to boost output by 30pc over the next 5-7 years, to around 100mn t/yr. It aims to develop 4bn ft³/d (41.2bn m³/yr) of untapped gas reserves at its North Field to raise LNG exports, double the level announced in April.

Even if the embargo is not affecting oil and gas sales and deliveries, it may affect investment appetite. It is already increasing the cost of goods and services and ratings agencies have issued warnings about Qatar's economic outlook.

Moody's estimates the dispute has severely affected trade, tourism and banking in Qatar, and increased the country's financing costs. It estimates Qatar has injected almost $40bn out of a total $340bn of its financial reserves to support its economy and financial system during the first two months of the crisis.

Amid the spat, Qatari-flagged or owned vessels have been banned from any ports belonging to the quartet of countries imposing sanctions, forcing Qatar to supply bunker fuel to vessels calling at the port of Ras Laffan, as the government tries to offset the effects of a blockade.

There is no end in sight to the diplomatic row, despite mediation efforts by the US and Kuwait. Tensions were further inflamed last month when Qatar reinstated an ambassador in Iran, almost two years after withdrawing in protest at attacks on a Saudi Arabian diplomatic mission in Tehran. Dialogue was very briefly re-established through a phone call between Saudi Arabia's crown prince Mohammed bin Salman and Qatar's emir Sheikh Tamim bin Hamad al-Thani on 8 September. But Saudi Arabia suspended further talks the following day after accusing Doha of distorting facts.

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