Navarik Market Update

July 6, 2017


We previously reported on Saudi-led attempts to blockade Qatar and push up energy prices via geopolitical volatility. After demands were formally issued the market had concerns whether or not Qatar would obey, but it is becoming increasingly apparent that immovable market forces will once again disrupt OPEC’s best laid plans.   Simply put, the market for LNG in India, Bangladesh, Pakistan, and Sri Lanka is too big for Qatar to ignore and probably large enough to compensate for potential losses on their oil exports if they ignore the demands and suffer through the embargo.

India in particular is so thirsty for natural gas to power its economy (and with enough room to grow gas’ market share as a power source) that the country is simultaneously making overtures to the US and Iran and investing heavily in developing import terminals as well as in-country transportation networks. Iran is an inescapable part of the equation, as not only has Qatar been pushed politically into Iran’s arms by the embargo, Iran’s recent announcement of the 10-year deal with Total on the South Pars project has forced Qatar’s hand to do the same. The field, known as the North Field in Qatar, is jointly managed by the two countries in an agreement much less coordinated than OPEC, and hence game theory required that Qatar increase its own production as well to avoid losing out on revenues from sales to south Asia.

With mid-development countries such as India expected to remain the primary driver of global energy demand in the coming years, this is a threatening prospect for countries like Saudi Arabia. If India’s shift away from coal as its major fossil fuel turns out to be a shift towards predominantly natural gas as opposed to natural gas and oil, a major release valve of the global crude oil glut will remain closed. India’s projected energy demand has therefore made Saudi Crown Prince Muhammad bin Nayef’s task to diversify the Saudi economy away from oil more important and yet more challenging.

Further Reading:
Bloomberg, July 5 2017
Reuters/CNBC, July 4 2017
RT, July 3 2017
First Post, July 1 2017
Hellenic Shipping News, June 27 2017

 

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Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.

To reach a Navarik Oil & Gas analyst email tradeflow@navarik.com. To reach Colin directly call 778-327-6917 or email cmccann@navarik.com.

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