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Egypt Unrest May Drive Up LNG Trading Costs for Asia, Europe

Unrest in Egypt may drive up the cost of importing liquefied natural gas should the crisis disrupt the operation of the Suez Canal, a transit point for at least 13 percent of the global output of the fuel, two analysts said.

LNG tankers may take twice the time to make the voyage from the Middle East to Europe via the Cape of Good Hope, creating an immediate shortage of ships and increasing delivery costs, Zach Allen, an analyst at Raleigh, North Carolina-based PanEurasian Enterprises Inc., said in an e-mailed note yesterday. The route around South Africa adds 6,000 miles (9,600 kilometers) to the journey, Goldman Sachs Group Inc. said.

Last year 368 laden LNG vessels transited the Suez from the Middle East to the Mediterranean carrying 30.3 million metric tons of the cleaner-burning fuel, PanEurasian said. That’s nearly equivalent to the annual consumption of South Korea, the world’s second-biggest LNG buyer.

“They have to go through the Cape of Good Hope, adding to the shipping costs,” said Divay Goel, head of Asia operations at Drewry Shipping Consultants Ltd. in Singapore. Circling the Cape may add 16 days to a voyage, increasing charter costs by $1 million.

The crisis in Egypt, which controls the Suez Canal, has sent crude, a benchmark to price LNG in Asia, up by 7.6 percent since the Egyptian protests escalated on Friday. About 2.5 percent of global oil production is shipped through Egypt via the Suez Canal and the adjacent Suez-Mediterranean Pipeline, according to a Goldman report yesterday.

Insurance Charges

It costs about $70,000 a day to charter LNG vessels for spot supplies, and any delays in rerouting adds to fuel and other operating costs, Goel said. Insurers may ramp up rates on LNG vessels calling at Egypt or transiting the canal, prompting shippers to reconsider using the route, Tony Regan, a Singapore-based analyst at Tri-Zen International, said in a note.

Royal Dutch Shell Plc, BP Plc, Eni SpA and BG Group Plc are among companies shutting offices or evacuating workers and their families from Egypt as the effects of protests against President Hosni Mubarak ripple through the oil industry. BG Group Plc and Statoil ASA said they halted drilling in Egypt.

Ships are passing normally through the Suez Canal, which is handling 45 to 50 vessels a day, said Ahmed El Manakhly, the head of traffic for the Suez Canal Authority, the waterway’s operator. He called the volume “normal.”

In addition to its role as a gateway to Europe, Egypt produces about 3 percent of the world’s LNG from two export plants at Gas Natural SDG SA’s Damietta and BG’s Idku LNG facilities, according to Goldman and Energy Intelligence Group’s World LNG Review.

Egypt Shipments

Egypt exported about 9.3 million tons of LNG in 2009, about 72 percent of its total capacity, and 5.5 billion cubic meters of pipeline gas, according to BP Plc’s Statistical Review of World Energy 2010. Egypt’s North African neighbors Libya and Algeria shipped a combined 41 billion cubic meters of pipeline gas and 21.6 billion of LNG in 2009, according to the BP report.

Egypt supplied at least 21 spot cargoes of LNG to Japan and South Korea, the world’s two biggest buyers of the fuel, last year, according to official data.

The U.K. received 23 cargoes of the fuel in January, of which 13 came from Qatar, accounting for about 67 percent of the cargoes in volume terms, Allen said.

“Protests are focused in urban areas and there are unlikely to be interruptions near the plants unless there was a major power outage,” Regan, who worked as an executive in Shell’s LNG business, said in an e-mail today.

Gas Natural, Spain’s biggest natural gas company, said yesterday the Damietta natural plant was operating normally. A commercial office in Cairo has been closed.

“As Europe increases its dependency on LNG from the Middle East, the Suez Canal increases in importance as a vital link in the supply chain,” Allen said.

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