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Russia’s war helps Qatar boost its influence over global energy flows

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Qatar has built an outsized role in global commodity markets since it first began exporting liquefied natural gas more than two decades ago.

Now, following Russia’s invasion of Ukraine and a series of deals to develop a new gasfield, the Gulf state’s influence over international energy flows is set to grow even larger.

QatarEnergy, its state-owned gas producer, has in recent weeks announced joint-venture agreements with five of the world’s biggest international oil companies to develop a vast $29bn project known as North Field East.

The project aims to increase Qatar’s annual export capacity from 77mn tonnes to 110mn tonnes by 2026, helping it to overtake Australia as the second-biggest producer of the fuel behind the US.

The deals with Shell, ExxonMobil and ConocoPhilips of the US, France’s TotalEnergies and Italy’s Eni were years in the making and not a result of the rush for alternative energy supplies following Russia’s war in Ukraine.

However, the fact that big western energy companies were so keen to join the project is a testament to Qatar’s growing importance as a gas superpower. “Entering Qatar is a major milestone for us,” Eni chief executive Claudio Descalzi told the Financial Times.

Qatar discovered the North Field, one of the world’s largest gas reserves which it shares with Iran, in the Gulf north-east of the peninsula in 1971. It delivered its first LNG cargo to Japan in 1996.

By 2010, Qatar was the biggest LNG provider in the world, producing 55mn tonnes that year, according to Wood Mackenzie.

After vying for the top spot with Australia and the US for a decade, the upheaval from Russia’s war is helping Qatar reassert its importance, said Carole Nakhle, chief executive of Crystol Energy, an advisory firm.

“The jump in demand for non-Russian gas is creating a new landscape,” she said. “Qatar lost its prime image after the [US] shale revolution but now it has the opportunity to be back on the international scene, both as an important player in gas markets and also by being able to score political points through improved relations with the west.”

A second phase called North Field South could increase its export capacity further to 126mn tonnes a year by 2027.

Column chart of Annual production (million tonnes) showing Qatar’s share of global LNG

Qatar has long sought to maintain diverse bilateral relations as a means of protecting itself against the region’s main powers — Saudi Arabia, with which it shares its only land border, and Iran.

Ruled by the Al Thani family since the 19th century, Qatar has hosted US forces from the early 2000s, including its regional military headquarters. US president Joe Biden in May named Qatar a major non-Nato ally.

Since borrowing heavily to develop the first North Field project in the 1990s, Qatar has funnelled its gas riches into its sovereign wealth fund, the Qatar Investment Authority, which has boosted the country’s international profile through marquee investments such as the 2011 deal to buy the French football club Paris Saint-Germain.

Gas revenues will help fund the cost of hosting the 2022 Fifa World Cup in November — the first time football’s flagship international tournament has been held in the Middle East.

Qatar has historically sold most of its LNG to Asian utilities on long-term contracts and has developed an “outstanding reputation” as a reliable supplier, according to Frank Harris, an LNG expert at Wood Mackenzie.

This may help allay concerns in some European capitals as they prepare to switch their energy dependence from one petrostate, Russia, to another.

Although about two-thirds of Qatar’s exports under long-term contracts are to Asian buyers, according to the Energy Aspects consultancy, the Gulf state is keen for the supply split for the North Field East project to be more balanced, with roughly half flowing to Europe.

“There’s a long-term battle now between Qatar and the US for supremacy,” Harris said.

Leo Kabouche, an Energy Aspects analyst, said Qatar’s geographical location made it better suited than the US to supply Europe and Asia.

Amid the hunt for alternatives to Russian gas, Germany said in May it had signed a preliminary energy agreement with the Gulf state that would be a “door opener” for Europe’s biggest economy, although discussions between QatarEnergy and German companies are ongoing. Days later, the QIA pledged to invest £10bn in the UK, in a sign of strengthening ties between Doha and London.

One challenge for European buyers is that Qatar has traditionally preferred long-term contracts that stipulate a fixed delivery destination, rather than the flexible contracts offered by US producers that allow the buyer to ship the fuel anywhere and are generally favoured in Europe.

European buyers are also thought to be more reluctant to sign up to 25-year contracts given uncertainty about the future role of gas in what most leaders hope will be a decarbonising world.

A critical role for Exxon, Total, Eni and the other international partners will be to assist in marketing the additional volumes. Qatar waited at least three years to sign a partnership deal and has only given away a combined 18.75 per cent of the project across the four joint ventures.

“North Field East demonstrates there’s value of having partners but Qatar is very clearly in control,” Harris said, adding it was also “doing a lot” to bring down greenhouse gas emissions.

QatarEnergy aims to reduce the carbon intensity of its LNG facilities by 35 per cent by 2035 through carbon capture technology to ensure a market for its gas even if its customers do cut their emissions to net zero between now and 2050.

“As we are seeing right now, especially in Europe, the energy transition is going to take time and LNG is going to be a bridge fuel,” said Kabouche. “In this sense companies and importers, whether it’s in Europe or in Asia, have an important need for regular, reliable supply.”

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