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WoodMackenzie released a new report on Wednesday following the announcement of a two-week-long ceasefire between the US and Iran, and the potential gradual opening of the Strait of Hormuz.
The 11 million b/d of upstream production currently shut-in across the Middle East can only be restored when export logistics normalize, Wood Mackenzie said.
“A ‘workable system’ of transit and shipowner confidence in the security of the transiting vessels is essential,” said Alan Gelder, SVP refining, chemicals and oil markets at Wood Mackenzie.
“This includes availability of insurance for transiting vessels, facilitating commercial trade financing, sustained outbound vessel transits through the Strait of Hormuz making current oil on water available to the global refining market, and sustained inbound vessel transits through the Strait making ballasting vessels available to load crude at Gulf load ports. There also needs to be confidence in viability of transit during and beyond the current two-week ceasefire,” Glelder said.
Laden vessels have every incentive to transit the Strait of Hormuz as quickly as insurance and security assurances allow, but it is unclear what rate of transits can be achieved safely.
“Ballasting vessels are unlikely to enter via the Strait of Hormuz any sooner than a ‘just in time’ logistics basis, at risk of becoming trapped if hostilities resume,” Gelder added.
“Onshore storage drawdown remains constrained by over-the-jetty load rates, onshore inventories cannot be instantaneously transferred to ballasting vessels,” he said.
Trapped laden LNG carriers
WoodMackenzie said that the two-week ceasefire in the Middle East is bearish for global gas prices, but as of noon London time on Wednesday, little has fundamentally changed with regards to LNG supply.
“The ceasefire means it may be possible for the 14 trapped laden LNG cargoes in the Gulf to exit the Strait of Hormuz and provide some relief to the global gas market,” said Tom Marzec-Manser, Europe gas and LNG at Wood Mackenzie.
“But for there to be a real structural change in supply the Ras Laffan site in Qatar would need to restart its 12 operable trains. It is unclear if QatarEnergy would consider doing this during a ceasefire, however,” he said.
Satellite imagery shows that two mega-trains at the Ras Laffan’s North site still have heat signatures, so may be able to fully restart relatively quickly, according to WoodMackenzie.
As with oil, it remains to be seen how quickly any ships leave the Strait, as visual checks by Iranian authorities may still need to take place between Larak island and the Iranian mainland, it said.
“If ballast LNG vessels were able to enter the Gulf, loading would also be possible immediately for 10+ vessels, even if LNG production at Ras Laffan has not yet resumed,” said Marzec-Manser.
“There have been a number of loadings for delivery to Kuwait while the conflict has been ongoing,” he said.
End of August
QatarEnergy recently announced that it expects the damage to its 77 mtpa Ras Laffan LNG complex caused by missile strikes to cost about $20 billion a year in lost revenue and to take up to five years to repair, impacting supply to markets in Europe and Asia.
The firm said that it will be compelled to declare force majeure for up to five years on some long-term LNG contracts as two liquefaction trains were damaged during the attacks.
QatarEnergy stopped producing LNG at its giant Ras Laffan complex on March 2 due to military attacks on its operating facilities. The LNG producer declared force majeure to its affected LNG buyers on March 4.
Wood Mackenzie assumes that if QatarEnergy began restarting Ras Laffan at the start of May, it would take all the way to the end of August for the 12 trains to return to full service.
A restart of just the 41 mtpa North site would take just over a month. It would be the South site which takes through to the end of the summer to restart,” Wood Mackenzie said.
It is the South site which originally had a 36 mtpa capacity that have sustained damage. These two additional trains will not return to service for a number of years and reduce the site’s capacity to 24 mtpa, it said.
Wood Mackenzie assumes the Adnoc’s 5 mtpa Das Island LNG plant in the UAE will be able to return to service “fairly quickly.”
“Outside LNG, domestic gas infrastructure in the UAE has been harder hit than oil, and that recovery process could require longer-term repair work,” Marzec-Manser added.
“Sustained disruption at Habshan would have wide-ranging implications for domestic gas availability, compelling the UAE to reduce reinjection volumes or increase piped imports via the Dolphin pipeline,” he said.