Qatar’s influence over global energy supplies increases thanks to Russia’s war

Since Qatar started exporting liquefied natural gas more than 20 years ago, it has grown to play a significant role in the world’s commodity markets.

The Gulf state’s influence over global energy flows is now expected to increase due to Russia’s invasion of Ukraine and a number of agreements to develop a new gas field.

In recent weeks, QatarEnergy, the country’s state-owned gas producer, announced joint venture agreements with five of the largest worldwide oil firms to develop the massive $29 billion North Field East project.

The project seeks to help Qatar surpass Australia as the second-largest producer of the fuel after the US by increasing its annual export capacity from 77 million tonnes to 110 million tonnes by 2026.

The agreements with Shell in the UK, ExxonMobil and ConocoPhillips in the US, TotalEnergies in France, and Eni in Italy were years in the planning and were not the result of a hurry to find alternate energy sources after Russia’s conflict in Ukraine.

The fact that major western energy companies were so eager to participate in the project, however, is evidence of Qatar’s rising significance as a gas superpower. Eni CEO Claudio Descalzi told the Financial Times that entering Qatar is a significant milestone for the company.

In the Gulf to the northeast of the peninsula, Qatar and Iran jointly found the North Field in 1971, which is one of the greatest gas deposits in the world. In 1996, it shipped its first shipment of LNG to Japan.

According to Wood Mackenzie, Qatar produced 55 million tonnes of LNG in 2010, making it the largest LNG producer in the world at the time.

According to Carole Nakhle, CEO of the advice company Crystol Energy, after competing with Australia and the US for the top rank for ten years, the turmoil caused by Russia’s war is assisting Qatar in reclaiming its significance.

“A new environment is emerging due to the increase in demand for non-Russian gas,” she claimed. “After the [US] shale revolution, Qatar lost its top-tier reputation, but it now has the chance to reclaim that position on the international stage, both as a significant player in the gas markets and by being able to gain political advantage through strengthened ties with the west.”

By 2027, the North Field South second phase could boost export capacity to 126 million tonnes annually.

The tiny nation of Qatar, home to barely 3 million people, has long strived to preserve a variety of bilateral ties in order to defend itself from Iran and Saudi Arabia, the two major powers in the area with which it shares a land border.

Since the early 2000s, US forces, including its regional military headquarters, have been stationed in Qatar, which has been ruled by the Al Thani family since the 19th century. In May, US President Joe Biden designated Qatar as a significant non-Nato ally.

Qatar has invested its gas wealth into its sovereign wealth fund, the Qatar Investment Authority, since taking on significant debt to develop the first North Field project in the 1990s. The Qatar Investment Authority has raised the country’s profile abroad by making high-profile investments like the 2011 purchase of the French football team Paris Saint-Germain.

The 2022 Fifa World Cup will be staged in November for the first time in the Middle East, and gas earnings will assist in covering the associated costs.

According to Frank Harris, an LNG expert at Wood Mackenzie, Qatar has historically sold the majority of its LNG to Asian utilities on long-term contracts and has established a “excellent reputation” as a trustworthy provider.

As several European cities are ready to move their reliance on one petroleum state, Russia, to another, this might help ease their anxieties.

According to the Energy Aspects consultancy, although around two-thirds of Qatar’s exports under long-term contracts go to Asian customers, the Gulf state is eager for the supply split for the North Field East project to be more balanced, with roughly half going to Europe.

According to Harris, there is currently a protracted conflict between Qatar and the US about supremacy.

Leo Kabouche, an analyst at Energy Aspects, claimed that because to its position, Qatar was more suitable than the US to supply Europe and Asia.

Germany said in May that it had inked a preliminary energy agreement with the Gulf state, which it said would be a “door opener” for the continent’s largest economy. However, talks between QatarEnergy and German enterprises are still underway. Days later, the QIA announced that it will spend £10 billion in the UK as a way to deepen links between Doha and London.

The fact that Qatar has historically preferred long-term contracts with a set delivery destination over the flexible contracts given by US suppliers, which permit the customer to send the petroleum anywhere and are often preferred in Europe, presents a difficulty for European buyers.

Given the uncertainties surrounding the future role of gas in what most leaders believe would be a decarbonizing world, European purchasers are also thought to be less willing to sign 25-year contracts.

Helping to market the extra volumes will be a crucial responsibility for Exxon, Total, Eni, and the other foreign partners. Qatar took at least three years to execute a partnership agreement, and in its five joint ventures, it has only given away a total of 25% of the project.

“North Field East” shows the significance of having partners, but Qatar is obviously in charge, according to Harris, who added that country was “doing a lot” to reduce greenhouse gas emissions.

By using carbon capture technology, QatarEnergy hopes to reduce the carbon intensity of its LNG plants by 35% by 2035, ensuring a market for its gas even if its customers do reduce their emissions to net zero between now and 2050.

The energy revolution will take time, as we can already see, especially in Europe, and LNG will serve as a bridge fuel, according to Kabouche. “In this way, businesses and importers have a critical need for a regular, dependable supply, whether they are in Europe or Asia.”