A deterioration in the security situation in the Red Sea poses a key geopolitical risk for energy commodities this year, Rystad Vice President Kaushal Ramesh said in the company’s latest gas and LNG market update, which was sent to Rigzone on Thursday.
“The deterioration in recent weeks of the security situation in the Red Sea, where Yemen-based Houthi militia in support of Palestine have disrupted global trade by launching drone and missile attacks on vessels, poses a geopolitical risk to LNG prices,” Kaushal noted in the update, adding that Qatar Energy suspended shipments through the Red Sea from mid-January “and has begun rescheduling shipments with European buyers”.
Kaushal highlighted in the update that it has now been more than two months since the first attack on a commercial vessel, “with indications that the attacks could last at least until the Israel-Gaza conflict is resolved – an essentially uncertain duration”.
“Since mid-January, the U.S. and UK have been drawn into military action in the region, striking Houthi targets inside Yemen,” Kaushal said.
“However, the U.S. are in a difficult position, balancing relations with Israel while avoiding the conflict spillover over into the wider Middle East region,” Kaushal added.
“Recently, the U.S. admitted that Houthi rebels are unlikely to stop their attacks regardless of U.S. action,” Kaushal continued.
For the LNG market, an extended shut-in of the Red Sea route from the Middle East poses a supply risk to Europe, Kaushal stated in the update. The Rystad VP added, however, that the price impact will be delayed until Europe’s gas storage has been drawn down sufficiently.
In a gas and LNG market update sent to Rigzone on January 11, Rystad Senior Analyst Masanori Odaka revealed that underground storage facilities in Europe were down 0.5 percent to approximately 96.97 billion cubic meters, “or 84.4 percent full”.
“In 2023, around 15.5 million tons of LNG was sent through the Red Sea from the Middle East to Europe – a crucial 12.9 percent of the continent’s LNG supply last year,” Kaushal highlighted in the recent update, which showed that Italy’s share of LNG from the Middle East last year was over 40 percent.
“Re-routing vessels through the Cape of Good Hope adds around 12.5 days to the voyage each way at 16 knots – which could require an additional 15-20 vessels to deliver the same volume over the year,” Kaushal added.
“This could take the steam off the current bearish pressure on the shipping market, considering spot charter rates have dropped 23 percent across the month (two-stroke, East of Suez),” Kaushal continued.
“However, it will take an increase in LNG prices before we see an increase in charter rates – more than 70 vessels could be delivered this year, representing fleet growth of more than 10 percent whereas LNG production will only grow three percent,” the Rystad representative continued.
It is unclear if the prospect of sustained additional voyage time would be acceptable to Qatar, or the prospect of lost canal fees would be acceptable to Egypt, Kaushal noted in the update.
Military Action
The militaries of the U.S. and UK – at the direction of their respective governments, with support from Australia, Bahrain, Canada, and the Netherlands – conducted an additional round of proportionate and necessary strikes against eight Houthi targets in Yemen, a joint statement from all countries involved noted this week.
The strikes were “in response to the Houthis’ continued attacks against international and commercial shipping as well as naval vessels transiting the Red Sea”, the statement, which was posted on the U.S. Department of Defense website outlined.
In a statement posted on its X page on January 24, U.S. Central Command (Centcom) noted that, at approximately 2pm Sanaa time that day, “Iranian-backed Houthi terrorists fired three anti-ship ballistic missiles from Houthi-controlled areas of Yemen toward the U.S.-flagged, owned, and operated container ship M/V Maersk Detroit, transiting the Gulf of Aden”.
“One missile impacted in the sea. The two other missiles were successfully engaged and shot down by the USS Gravely (DDG 107). There were no reported injuries or damage to the ship,” Centcom added.
In an earlier statement posted on its X page the same day, Centcom said that, on January 24 at approximately 2.30am Sanaa time, U.S. Central Command forces conducted strikes against two Houthi anti-ship missiles “that were aimed into the Southern Red Sea and were prepared to launch”.
“U.S. forces identified the missiles in Houthi-controlled areas of Yemen and determined that they presented an imminent threat to merchant vessels and the U.S. Navy ships in the region,” it added.
“U.S. forces subsequently struck and destroyed the missiles in self-defense. This action will protect freedom of navigation and make international waters safer and more secure for U.S. Navy vessels and merchant vessels,” Centcom continued.
In a statement posted on his X page this week, Grant Shapps, the UK Secretary of State for Defence, said the UK is upgrading the Royal Navy’s “drone killing missiles”, which he said have been used “decisively in the Red Sea to destroy Houthi drones”.
“[This] GBP 405 million ($515.7 million) investment will upgrade their warhead and software to make Sea Viper even more lethal against new and growing threats from hostile drones and missiles,” he added.
To contact the author, email andreas.exarheas@rigzone.com
