Page 5 - GLNG Week 04 2022

GLNG COMMENTARY GLNG

led by senior adviser for energy security Amos diversions were carried out with the approval of
Hochstein. Qatar’s European buyers.
“Amos is going to big LNG producing com-
panies and countries like Qatar to see if they can What next?
help the United States,” an anonymous source If some cargoes do end up being diverted amid
was quoted as saying. an escalation of the Ukraine crisis, this could dis-
Officials in the administration of US Pres- rupt deliveries in other parts of the world. Asian
ident Joe Biden were cited as making similar buyers are among the world’s largest importers of
comments earlier this week about their gov- LNG – especially China, Japan and South Korea
ernment being in discussions over a potential – and it is therefore likely that a supply diversion
diversion of LNG to Europe. However, a will- would hit them relatively hard.
ingness to help reroute LNG supplies may not This may not be a major challenge for China,
be enough, as questions of availability also need which has stockpiled enough gas to start resell-
to be considered. ing some of its LNG cargoes. (See GLNG Week
03) However, for Japan and South Korea, a dis-
Availability ruption could be more serious, and questions
Indeed, while some diversions of supply are pos- have been raised over their contingency plans
sible, finding additional volumes will prove chal- in the event of a major diversion.
lenging, given that a number of leading exporters Additionally, if Europe tries to shift a larger
of the super-chilled fuel are already producing as proportion of its gas imports to LNG, this will
much LNG as they currently can. cause spot prices for the super-chilled fuel to
For example, Bloomberg reported on January surge, leaving those who depend on the spot If some cargoes
25, citing three sources familiar with the matter, market for a significant part of their imports
that Qatar would not be able to help much, as vulnerable. do end up being
it was already producing LNG at full capacity, Ultimately, capacity and logistical constraints diverted amid an
with most of the volumes covered by long-term mean that LNG alone would not be enough to
contracts. These cargoes are mostly sent to Asia, replace all of the supply that would be lost if Rus- escalation of the
and according to the sources, the Middle East- sian exports to Europe are cut off. At this point,
ern country does not want to strain relations such a scenario is seen as being highly unlikely Ukraine crisis,
with its Asian partners even if such a move were in any case.
to benefit its standing with the US and Europe. “Even with Russian-Ukrainian tensions fur- this could disrupt
Other LNG producers will find themselves in ther escalated, gas exports might not be affected deliveries in
a similar situation, where they can only divert based on a near half-century history of Russian
a small number of cargoes, which will typically gas exports to Europe, even during the Cold other parts of the
be cargoes destined for the spot market anyway. War. Turkey’s downing of a Russian jet in 2015
In some cases, customers will allow for cargoes did not affect Russian gas exports to Turkey,” world.
under long-term contracts to be diverted, either Citigroup said in note to clients on January 25.
because of contractual terms, or because of Such expectations suggest that Europe and
exceptional circumstances. An example of the its allies do not need to be too worried just yet.
latter is Qatar’s diversion of some cargoes from Nonetheless, a potential disruption is being
Europe to Asia in 2011 after Japan suspended taken seriously enough to be considered pos-
the operation of its nuclear power plants (NPPs) sible, and the situation in Ukraine appears
in the wake of the Fukushima disaster. Those unlikely to be resolved any time soon.™

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