In the face of Qatar's refusal to send gas to Europe, markets are holding up and the price of gas has fallen, even though world trade in the Red Sea could be constrained for months

Natural gas: a new challenge for world trade

Barco cisterna Lalla Fatma NSoumer llegando para entregar GNL (Gas Natural Licuado) al muelle de carga de la terminal Cavaou en Fos-sur-Mer (AFP/CLEMENT MAHOUDEA)
photo_camera Tanker Lalla Fatma NSoumer arriving to deliver LNG (Liquefied Natural Gas) to the loading dock of the Cavaou terminal in Fos-sur-Mer (AFP/CLEMENT MAHOUDEA)

The tensions caused by the Houthis in the Red Sea are affecting liquefied natural gas (LNG) prices. Since the Qatari proposal to temporarily suspend gas exports to Europe, traffic through the Bab El Mandeb strait has decreased by 90%. 

  1. Problems with alternative routes
  2. Risks to international trade
  3. The role of China and the US
  4. Morocco and Spain among the biggest beneficiaries
  5. How will this affect the rest of Europe?

The Gulf state is the largest supplier of gas to the United States and Europe. Last year, exports accounted for about 13% of Europe's gas consumption. 

Between 12 and 15% of the world's maritime traffic transits the Bab El Mandeb strait

Falling demand and excess traffic have affected industry forecasts. By 2024, trade was expected to fall in cost after slowing during the pandemic, but this has been disrupted as attacks by Yemen's Houthi rebels on ships transiting the Suez Canal passage intensify. 

Un buque cisterna de gas natural licuado (GNL) es remolcado hacia una central térmica en Futtsu, al este de Tokio, Japón 13 de noviembre de 2017 (REUTERS/ISSEI KATO)
A liquefied natural gas (LNG) tanker is towed to a thermal power plant in Futtsu, east of Tokyo, Japan 13 November 2017 (REUTERS/ISSEI KATO)

Problems with alternative routes

According to Reuters, if the Red Sea route remains dangerous, ships will round the Cape of Good Hope, seeking not to stop vessel traffic. The longer route around the Cape of Good Hope in Africa, chosen by many shipping lines, can add about nine days to a typical 18-day European voyage. 

On average, gas transport to countries such as the UK will increase from 18 to 27 days

As a result, many companies have had to delay production due to the arrival of shipments needed for production operations. China is also concerned about the impact on its key commercial interests in the Suez Canal. The journey to Africa via the Cape of Good Hope adds some 6,000 km to the length of the voyage. This delays the arrival of goods to hydrocarbon-importing countries such as Spain. 

Esta foto de archivo sin fecha muestra un buque cisterna de gas natural licuado (GNL) qatarí siendo cargado con GNL en el puerto marítimo de Raslaffans, al norte de Qatar (PHOTO/AP)
This undated file photo shows a Qatari liquefied natural gas (LNG) tanker being loaded with LNG at Raslaffans seaport in northern Qatar  (PHOTO/AP)

Concerns generated by Iranian-backed Houthi resistance have forced, among others, the Qatari company Qatar Energy to detain three tankers (Al-Ghariya, Al-Huwaila and Al-Nuaman) at the gates of the Mandeb Strait, while waiting to decide whether to continue with the route or make an alternative. 

El director ejecutivo de QatarEnergy y ministro de Energía de Qatar, Saad al-Kaabi, habla durante una conferencia de prensa después de una ceremonia de firma mientras QatarEnergy se une a TotalEnergies  (REUTERS/MOHAMED AZAKIR)
QatarEnergy CEO and Qatari Minister of Energy Saad al-Kaabi speaks during a press conference following a signing ceremony as QatarEnergy joins TotalEnergies (REUTERS/MOHAMED AZAKIR)

Importance of the Bab El Mandeb

Houthi attacks have already reduced the number of ships transiting the Bab el-Mandeb Strait and diverted them to the Cape of Good Hope around Africa. More than 21,000 ships and large tankers pass through Mandeb each year, with an average of 58 tankers per day. However, recent attacks by Houthi militias have significantly reduced their numbers.

The attack disrupts a key trade route linking Europe and North America to Asia via the Suez Canal and drives up shipping container costs as companies attempt to deliver goods via alternative, often longer, routes.

Gráfico que muestra el cambio en el número de buques de carga y petroleros que utilizan el canal de Suez, el estrecho de Bab al-Mandeb y el Cabo de Buena Esperanza, en comparación con hace un año (PHOTO/AFP)
Chart showing the change in the number of cargo ships and tankers using the Suez Canal, the Bab al-Mandeb Strait and the Cape of Good Hope, compared to a year ago (PHOTO/AFP)

Because of the current situation, US Secretary of Defense Lloyd Austin announced an international maritime mission to protect commercial shipping in the Red Sea, underscoring the importance of the strait that provides access to the Red Sea to the global economy. 

Risks to international trade

The long-term impact will depend on the duration of the disruption and how the risks posed by this important trade route are managed. The crisis has particularly affected container shipping, with traffic through the Gulf of Aden falling by 90 per cent on the first day of 2024 compared to the same week last year. 

Mapa del Mar Rojo y el Golfo de Adén, que muestra dos barcos alcanzados por misiles el 15 y 16 de enero de 2024 e incidentes reportados desde noviembre de 2023 en la región  (AFP/PAZ PIZARRO Y SYLVIER HUSSON)
Map of the Red Sea and Gulf of Aden, showing two ships hit by missiles on 15 and 16 January 2024 and reported incidents since November 2023 in the region (AFP/PAZ PIZARRO Y SYLVIER HUSSON)

The current Red Sea crisis poses serious challenges to maritime trade, oil prices and the stability of the supply chain. According to data provided to EFE by Clarkson Analytics, ship traffic carrying liquefied petroleum gas (LPG) fell by 68%, maritime traffic by 67% and LNG transport by 47%. 

Shipping rates rise 173% due to Red Sea threats

In contrast, oil prices have recently returned to around 79 dollars a barrel due to uncertainty over demand and signs of oversupply. Despite the increase, it is still below the fourth-quarter average after BP and others suspended supply. 

Logotipo de Qatar Energy (REUTERS/Agencia de Noticias de Qatar via REUTERS)
Qatar Energy logo (REUTERS/Agencia de Noticias de Qatar via REUTERS)

The blockade of routes has also affected shipping rates, increasing Suez MAX (ships that can transit the Suez Canal) stocks for crude oil transport by 25%. Not only has the Red Sea war caused problems for Qatar, a major supplier on the route, but Russia also sends ships to China via the Red Sea. 

The role of China and the US

China's National Energy Administration said on Tuesday that oil and gas production will reach record levels in 2023 due to increased exploration and development of fossil fuels by Chinese companies. 

Un tanque de almacenamiento de gas natural licuado (GNL) en la terminal receptora de PetroChina en el puerto de Rudong en Nantong, provincia de Jiangsu, China (PHOTO/REUTERS)
A liquefied natural gas (LNG) storage tank at PetroChina's receiving terminal at Rudong port in Nantong, Jiangsu province, China (PHOTO/REUTERS)

Crude oil production reached 208 million tonnes, an increase of about 3 million tonnes (about 1.46%) over 2022. The organisation reported a "significant" increase in offshore oil production to 62 million tonnes. 

Modelo de buque metanero delante de la bandera china (REUTERS/DADO REUTERS)
Model LNG carrier in front of Chinese flag (REUTERS/DADO REUTERS)

In contrast, the United States announced that it will punish and tax methane emissions from oil and gas. The US government decided to impose a tariff of 900 dollars for every tonne of methane produced above the limit. 

As long as the war between Israel and Hamas continues, the risk of disruption to shipping in the Red Sea remains high. The incident increases pressure on the US to intervene in drone attacks by Houthi rebels beyond its own ship, including the destroyer USS Carney. 

El destructor de la Armada estadounidense USS Carney (DDG 64) en el Bósforo en Estambul, Turquía (REUTERS/YORUK ISIK)
The US Navy destroyer USS Carney (DDG 64) in the Bosphorus in Istanbul, Turkey (REUTERS/YORUK ISIK)

However, the Biden administration is encouraging the escalation of war in the region, and the simultaneous development of wars. Besides LNG, naphtha, diesel, cereals, oilseeds (for oil production) and chemicals are at risk. 

Morocco and Spain among the biggest beneficiaries

The Strait of Gibraltar is important not only from a military point of view, but also from a commercial point of view. The authorities have been alarmed by the Iranian government's threat to expand the conflict to the Strait. This is because stagnation or chaos in this region could have devastating consequences for world trade. The current situation is creating a major puzzle for shipping lines who are plotting the new routes that the Houthi conflict has forced them to establish. 

Una bandera iraní ondea en el petrolero iraní Adrian Darya 1, anteriormente llamado Grace 1, en Gibraltar, España, justo antes de su lanzamiento el 18 de agosto de 2019 (REUTERS/Jon Nazca)
An Iranian flag flies on the Iranian oil tanker Adrian Darya 1, formerly named Grace 1, in Gibraltar, Spain, just before its launch on August 18, 2019 (REUTERS/Jon Nazca)

This is where Morocco's role in the coming weeks will be of great importance. The optimisation of the port of Tangier Med is in Europe's sights because of its capacity and proximity to the Strait of Gibraltar. In important passages such as the Strait of Gibraltar, the second most important passage connecting Asia and Europe after the Suez Canal, there is some concern about possible collapses. 

PHOTO/AFP - Vista de las grúas de contenedores en la terminal I del puerto de Tánger Med en la ciudad norteña de Tánger
View of the container cranes at Terminal I of the port of Tangier Med in the northern city of Tangier (PHOTO/AFP)

How will this affect the rest of Europe?

The Suez Canal is an important hub for the global LNG trade, which consists mainly of exports from Qatar to Europe and exports from the United States and Russia to Asian countries. 

Although LNG imports have increased in the last two years due to the disruption of Russian pipelines following the Russian invasion of Ukraine in February 2022, they still account for only around 14% of the 136 billion cubic metres of LNG imported by the EU in 2023. 

PHOTO/PIXABAY - Parlamento Europeo
European Parliament (PHOTO/PIXABAY)

Given that Europe will consume less gas than expected in 2023, large amounts of gas could be saved through, among other things, programmes to increase sustainable development, demand management and energy efficiency. 

According to industry body Gas Infrastructure Europe, gas storage in the EU will be 79.7% full on 13 January 2024, and is expected to remain at more than half capacity by the end of the cold season.

Europe faces new risks and is heading towards a potential energy crisis, but so far conditions have been favourable for managing them. However, escalating conflict, weather and other external factors may influence and change the pace of conflict. However, this risk could be reduced if Europe continues with its projects to reduce gas consumption. The volatility of prices and political stability in certain regions leaves the future open to infinite possibilities. 

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