Source: Zhitong Finance

Currently, four months have passed since a liquefied natural gas tanker passed through the Mander Strait, which separates the Arabian Peninsula from Africa, proving how violent attacks in that narrow strait disrupted global energy trade.

The Zhitong Finance App learned that although dozens of such ships passed through the Mander Strait every month before the Israeli-Gaza war escalated, attacks by the Houthis in Yemen have reduced this number to zero since mid-January.

Ships are forced to bypass Africa to transport fuel between the Atlantic and Pacific basins, leaving buyers with a limited number of suppliers unless they are willing to pay higher shipping costs. As a result, the global LNG market is becoming increasingly fragmented.

Patrick Dugas, head of Total's LNG trading, said at a conference last month: “Currently, dividing goods from these two basins is more difficult than ever before, and moving goods from one basin to another will be more challenging economically.”

To save on transportation costs, traders have to look for supplies closer to the place of production. These efforts are likely to intensify when fuel demand rises before next winter, when shipping costs usually rise.

Solutions include exchanging goods, such as transporting liquefied natural gas from the US to Europe, and finding equal supplies in Asia to meet contractual obligations to buyers there. According to a ship tracking data, in the first quarter of 2024, Qatar's liquefied natural gas exports to Asia reached the highest level since at least 2017, while Russia delivered even more liquefied natural gas to Europe.

Previously, the Red Sea and its Suez Canal accounted for about one-tenth of global shipping trade, providing Qatar with the shortest route to Europe. Europe began accepting liquefied natural gas since it lost its pipeline gas supply to Russia.

According to data from Clarkson Research Services, the world's largest shipbrokerage company, ships now have to travel longer distances, which limits their capacity and increases global demand for oil products and gas transportation by around 4%.

Thousands of miles away, traffic on the Panama Canal has been reduced due to an unprecedented drought, and the number of boats crossing the Panama Canal has also been drastically reduced. At this point, another shorter US LNG route to Asia has actually been closed. Total's Dugas said that this congestion may be structural because it is expected that the US supply of liquefied natural gas will increase by the end of this decade, which may not help ease the burden on this channel.

The daily cost of renting a tanker has remained flexible so far, and has even declined since the Red Sea incident escalated in January. This reflects good supply conditions in markets such as Europe, where the region experienced mild winters and weak industrial fuel consumption.

“However, this is what we call the 'shoulder month' period for liquefied natural gas,” said Per Christian Willoch Fett, head of liquefied natural gas and global head of LNG at the shipbrokerage firm Fearnleys AS. “Let's see how the situation develops as we enter the upward phase and fall.”