Observation | Russian gas supply cut is imminent, can Qatar become Europe's "energy savior"?

The Paper's reporter Yu Xiaoxuan

As Qatar Airways flights approach the Doha airport, passengers look down to see the new World Cup 80,000-seat stadium rising up in the desert, and they may notice another spectacular sight: tankers lining up in the Persian Gulf to load cooled liquefied natural gas.

On February 24, as Russian troops entered Ukraine, Ukrainian President Žrensky called a company of foreign leaders. Surprisingly, Qatari Emir Tamim is one of them. Before that, U.S. President Joe Biden met with Tamim at the White House on Feb. 1 — the first Gulf leader to meet with him after Biden took office, with the priority of his agenda being securing U.S. promised natural gas supplies to Europe in the event of a Russian supply disruption.

Everything may seem coincidental, but it is enough to show the extent to which the small Gulf state of 300,000 citizens has entered the inner circle of the global gas market and geopolitics, as evidenced by frequent visits by European politicians in recent months. While Qatar may not have much room to help Europe at the moment, qatar could play an important role in the future if the conflict in Ukraine continues to disrupt Russian gas supplies to Europe.

Bold natural gas expansion strategy

In April 2017, Saad Al-Qabi, then CEO of Qatar Petroleum Corporation (later renamed Qatar Energy) and now Qatar's Energy Minister, announced the end of a ban on the development of north field, the world's largest natural gas field. The gas field is jointly owned by Qatar and Iran, which Qatar calls the Northern Gas Field and Iran calls the South Pars Gas Field. Almost all of Qatar's natural gas production and about 60 percent of its export revenues come from the field.

After the surge in production in the northern gas field, people began to worry about the stability of the gas field, so in 2005 Qatar announced a moratorium on the development of the northern gas field, giving the government time to study the impact of rapid production on natural gas reserves. Ultimately, geological studies proved that it was possible to increase production without destroying the structure of the gas field. While the market expects qatar to intensify competition in the gas market by restarting northern gas field development, Qatar's initial potential is overshadowed by rapidly growing LNG production in Australia and the United States.

Qatar has since opted for a bold gas expansion strategy. At the end of 2018, Qatar suddenly announced its withdrawal from OPEC, when the Gulf "severance of diplomatic relations" had not yet ended, Qatar was "blocked" by the GCC, but Qatar said at the time that the move was not politically motivated, but a "technological and strategic" shift, and the country wanted to focus on developing and increasing natural gas production.

"Qatar is different in that although it is a small country, it is a truly global power in the gas sector. Although they are all located in the energy-rich Gulf region, Qatar's neighbors are also oil powers, such as Saudi Arabia, the United Arab Emirates and Kuwait, which need to import natural gas to meet domestic electricity needs. Stephen Wright, associate professor of international relations at Khaled bin Khalifa University in Qatar, told www.thepaper.cn, "In addition, Qatar relies on a large fleet of LNG tankers rather than relying on a pipeline network to supply natural gas globally, making it a global strategic supplier." ”

In recent years, Qatar has sought equity partners, developed design contracts, and eventually envisioned the construction of six new LNG production lines, with an expected increase of 48 million tonnes per year between 2025 and 2027. A report by the Arab Gulf States Institute, a Washington-based think tank, notes that this is about 20 percent more gas than Russia's Nord Stream-2 gas pipeline can transport, bringing Qatar's total gas exports to 126 million tons a year, on par with Russia's total pipeline and LNG supply to Europe.

The question qatar has faced over the past five years has been how to find buyers for these additional gas outputs. Like Russia, Qatar prefers to sell gas on long-term contracts rather than spot. But in the early days, the natural gas market was not optimistic, especially after weak demand due to the COVID-19 pandemic in 2020 and the collapse of LNG spot prices to record lows below $2 a barrel, and LNG projects in many parts of the world were cancelled or postponed. At the same time, some customers in Qatar have also tried to negotiate lower prices or reduce the supply of contracts, and many existing contracts are about to expire.

Even with these headwinds, Qatar is insisting on continuing its gas production expansion because its production costs are relatively low in the world and can be profitable at much lower prices than other LNG projects. It wasn't until 2021 that the situation in the gas market began to turn around, and European import prices began to soar as Gazprom (GAZM) refused to sell to Europe more than the contracted supply. Moreover, europe was almost worried about whether Russia would act against Ukraine in the second half of 2021, when a geopolitical premium for natural gas already existed.

As it turns out, Qatar has caught up with the good timing. After Russia launched a special military operation against Ukraine on February 24, the price of natural gas in Europe almost doubled. A Bloomberg report on April 20 said Qatar was in discussions with natural gas buyers on whether to further expand LNG capacity.

Wright pointed out to the surging news that as the global energy transition is underway, most countries have committed to achieving carbon neutrality by 2050 or 2060, and achieving this goal requires a gradual shift to cleaner fuels and renewable energy, liquefied natural gas, although not a long-term goal, but a transitional fuel, countries will become more dependent on it as they move towards a cleaner energy structure.

"In view of this, Qatar's long-term potential in the global energy market has been maintained for some time, but the geopolitical instability triggered by the Russo-Ukrainian war has affected the energy security considerations of the European Union, which relies on Russian energy." Steven White said.

Can Qatar help Europe?

"It's always good to be needed, and everyone in Europe tries to talk to us." Qatar's Energy Minister Saad Al-Qabi stressed in an exclusive CNN interview on March 25 that Europe has always been a destination and an important market for Qatari natural gas.

According to Saad Kabi, Qatar has invested $28 billion to expand the Northern Oilfield project, and natural gas capacity is expected to grow by more than 60 percent over four years. Thereafter, about half of the northern oilfield's capacity is expected to be supplied to Europe. But about 80 percent of Qatar's natural gas currently goes to Asian buyers, many of whom have signed long-term contracts that don't allow them to transfer supplies to other buyers.

Recently, some analysts believe that Asian customers may give special permission to transfer some contracted LNG supplies to Europe in the event of a crisis. A report from the Arab Gulf Institute said it was one of the agreements reached between Biden and Tamim in February, and the United States had reached out to Japan on the issue in early February. Still, this only makes up for a small portion of the supply in the European spot market. After the Gas Exporters Forum at the end of February, Saad Kabi said Qatar could only supply Europe with a maximum of 10 to 15 percent of LNG.

Russia has the world's largest gas reserves, almost twice that of Qatar, and its supply accounts for 40% of the entire EU's use. "For the EU, it will take until the expansion of Qatar's northern oilfields is completed in 2026 to achieve considerable production." Wright told The Paper. "Given the size of Russia's gas supply to the EU, no other country currently has the ability to fully replace Russia's role in energy trade, which is why the EU is still importing Russian oil, gas and coal," he said. ”

Even with excess capacity, there are many technical difficulties in transporting natural gas to Europe. Russia's gas supply to Europe is transported by pipeline, but there is currently no gas pipeline from Qatar to Europe, so Qatari gas must be shipped to Europe in liquefied form.

Yusuf Alshamari, a senior researcher at Imperial College London, previously pointed out to CNN that the liquefaction of natural gas is energy-intensive, and that carbon emissions offset the climate benefits of using natural gas, and that Energy policymakers in Europe may be embarrassed. The Financial Times reports that Qatar aims to reduce the carbon intensity of its LNG facilities by 35% by 2035 through carbon capture technology to secure its gas market.

European efforts to find alternatives to Gazprom are also likely to be limited by rising global demand. Bloomberg reported that Japanese energy companies are eager to find a usable supply of LNG due to the heat wave that has swept across Asia in recent days. In addition, workers' strikes have hampered the loading of Shell's LNG export facilities in Australia, exacerbating global gas shortages. Shell CEO Van Burdon said in June that the world was entering a "turbulent period". "The supply of LNG into Europe will increase, but will there be a lot of additional new supply to fill the gap? I don't think so. Van Bergerden said.

Delicate balance

Due to the refusal to pay rubles to Gazprom, more and more European countries have been "cut off" by Russia, and Germany, which is most dependent on Gazprom, has no choice but to "hypocritically" use dual accounts to evade sanctions and continue to point to Gazprom to "continue life".

The current energy mix is difficult to change for a while, but Europe has begun to multi-pronged in order to diversify the sources of natural gas imports in the future, with Azerbaijan, Algeria, the United States all within the options, and Qatar being the most striking. German Economy Minister Robert Habeck traveled to Doha in mid-March to meet tamim and pledged to build the first Qatari LNG import terminal on the Greek-Bulgarian border. Countries such as Estonia are also considering the establishment of new facilities.

On June 12, French energy giant Total became the first foreign partner of qatar's northern gas field project, with a 6.25% stake in the project. A few days later, Italian energy company Eni also announced its entry, holding about 3% of its shares. In addition, media reports revealed that ExxonMobil, Shell, Conoco Faw and other companies are also on the list of cooperation in Qatar.

The Doha Forum Foreign Policy Conference in March attracted nearly 4,000 participants, including EU Chief Diplomat Borrelli. Ukrainian President Žrensky also appeared at the venue, and in a video speech, he said qatar could prevent Russia from using energy as a "weapon to blackmail the world", which received a round of applause from the audience.

But Qatar does not seem to rejoice in this "compliment" and is careful to avoid reacting to the current situation in any way that might antagonize Russia. In the Russian-Ukrainian conflict, Qatar has defended Ukraine's territorial and sovereign rights as a principle, but it does not support Western financial sanctions against Russia. The Qatar Investment Authority, which holds a 19 percent stake in Rosneft, has seen its investment value drop sharply due to sanctions and political risks, but there is no indication that Qatar intends to divest significantly.

"A distinctive feature of Qatar's energy sector and sovereign wealth investment is that it is based on commercial rather than political factors." Wright believes qatar's business-centric approach has been effective so far, maintaining relations with Russia while also further increasing gas exports to Europe in the future.

Qatar's ability to maintain good relations with rival countries and groups has also made it a constant mediator in regional issues. Qatar has hosted Taliban officials and hosted afghan peace talks on several occasions. Recently, under the mediation of Qatar, negotiations to resume the Iranian nuclear agreement resumed in Doha.

"Qatar's long-standing approach has been to seek positive relations with all countries. In many ways, Qatar seeks to engage on a win-win basis with the countries concerned, which will help it to achieve a lasting partnership. "Because Qatar is also a global strategic energy provider and has become an influential investor through its sovereign wealth fund, its influence extends far beyond its geographic scope." ”

Amid differences over multiple regional issues, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt announced in 2017 that they had severed diplomatic relations with Qatar and economically boycotted it. This has greatly damaged Qatar's economy and forced it to establish better ties with Europe and the United States. With the Gulf breaking the ice and relations between the countries of the Middle East warming up, Qatar may now be "enjoying" the rewards. Citing Citigroup data, Bloomberg said Qatar's $200 billion economy will grow by 4.4 percent this year, the highest growth since 2015, and GDP per capita will rise to nearly $80,000, on par with countries like Switzerland.

Editor-in-Charge: Zhang Wuwei

Proofreader: Luan Meng