LNG imports by countries in the Middle East and North Africa (MENA) rose m/m in May to 0.78 Mt. Imports should average around 1.0 Mt per month over the peak summer period (June–September), but this would still be lower y/y by around 0.3 Mt a month on average. Exports from the region are on the rise, with Egyptian loadings hitting a multi-year high in May. Attacks on two more crude tankers in mid-June have raised concerns about the safety of the Strait of Hormuz, which is a critical route for LNG trade flows. But the effects should be restricted to freight cost increases tied to higher insurance premiums unless US-Iran tensions escalate to outright conflict, which neither country wants to happen.
In May, imports of LNG by MENA countries rose m/m to 0.78 Mt, which narrowed the y/y decline to just 0.05 Mt, the smallest since December 2017. The UAE received its first cargoes of 2019, importing 0.22 Mt, while Kuwait raised imports m/m to 0.42 Mt. Meanwhile, Jordan received 0.15 Mt, confirming our expectation that it will still require some volumes to meet peak summer demand in 2019 before pipeline flows from Egypt completely displace LNG next year.
Over the rest of the summer, we expect MENA imports to nudge a little higher due to peak summer demand for cooling across the region. But the total will struggle to rise much above 1 Mt per month, in contrast to 2018 when imports averaged 1.3 Mt per month thanks to a final spurt of import demand from Egypt. Kuwait is now the largest importer in the region during summer, but we are only assuming it will take the same volumes as last summer (0.57 Mt on average over June–September) as there is little evidence of outright growth this year.
Exports strong despite geopolitical tensions
MENA exports of LNG rose to 9.79 Mt in May, the highest reading since January 2018. All producers contributed to the roughly 0.9 Mt m/m increase, led by a 0.7 Mt hike in Qatari exports to 6.8 Mt, although that level of exports is around average for the country. Egyptian loadings rose marginally m/m to 0.39 Mt, a level last exceeded in September 2013, as Egypt proves it has sufficient gas production to maintain exports even during summer when domestic demand peaks. This is in line with our forecasts for Egyptian loadings following the upward revision that we made last month (see E-mail alert: Egyptian LNG export tenders for June/July lead us to increase export forecasts, 17 May 2019). Egyptian exports are still loading only from the 7.2 Mtpy Idku liquefaction terminal as the 5.0 Mtpy Damietta terminal remains mothballed until EGAS reaches a deal to address the $2 billion of damages awarded to the operator Eni and its partners in an arbitration ruling.
The other significant development during June has been rising freight costs as a result of additional insurance premiums imposed following the two sets of tanker attacks in May and June. Geopolitical tensions between the US and Iran show no signs of fading and President Trump is trying to pressure US allies to play more of a role in maintaining freedom of navigation in the Gulf, so insurance costs will likely remain elevated for some time. Over 80 Mt of annual LNG exports from Qatar and the UAE need to pass through the Strait of Hormuz and cargoes from Oman may also be subject to higher costs given its proximity to the choke point. Imports flowing through the Strait are much smaller (below 5 Mt in 2018). At present we do not anticipate any significant disruptions to the shipping route, as neither the US nor Iran want an outright military conflict. But this situation is likely to create some complications and additional costs at the margin for cargoes heading into or out of the Gulf region.
Finally, returning to a topic we highlighted several months ago, Japan’s decision not to renew its long-term contract with the UAE when it expired in April has substantially altered Emirati export flows. India has become the main buyer in recent months, with Pakistan also purchasing a couple of May-loading cargoes.
|Fig 1: LNG flows through Strait of Hormuz, Mt||Fig 2: UAE exports by destination, Mt|
|Source: Bloomberg, Energy Aspects||Source: Kpler, Energy Aspects|