The United States is preparing for a possible confrontation with Russia in case it invades Ukraine soon. According to reports published last weekend, Washington has opened a dialogue with Qatar, the world’s leading natural gas exporters, to supply gas to the European continent in case supplies from Russia are reduced or stopped.
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Talks are set to begin with a planned visit by Amir Qatar, Sheikh Tamim bin Hamad a-Thani to the White House later this month. The visit is expected to anchor the change that has taken place in Qatar over the past year. From a country that was considered relatively marginal during the Trump administration, certainly compared to Saudi Arabia and the United Arab Emirates, it has become the closest US ally in the Arab world. Biden has been with a Gulf leader since taking office.
Nearly a third of Europe’s energy economy is based on gas imports, with total consumption estimated at about 550 billion cubic meters per year. This market is dominated by a small number of sources, with Russia leading with about 30% -40%, followed by Norway with about – 15%, Algeria, about 8%, and Qatar about 5%, according to data from 2019. The gas component in the energy market varies from country to country, while in Hungary, Slovakia, Italy and Austria, gas imports account for more than a third of inputs.
The desire of Europeans to diversify the sources of gas imports beyond Russia was not born with the current crisis in Ukraine. In recent years, Russia has turned gas into a political instrument and sought to reduce the quantities supplied whenever it wanted to put pressure on Europe on political and economic issues. Europe finds itself at a disadvantage as it is torn between its political strategy designed to narrow Russia’s steps, especially after the annexation of the Crimean peninsula in 2014, and the economic interest in the form of access to available and relatively cheap Russian gas.
In talks with senior US administration officials in recent weeks, EU leaders have expressed concern that the imposition of harsh sanctions on Russia due to the Ukrainian crisis will cause President Vladimir Putin to respond by cutting gas supplies to Europe. This is in the middle of winter and in the background an economic recovery is expected with the damping of the omicron wave.
In 2011, the Russian Gazprom built Nord Stream 1, the longest underwater pipeline in the world, which is currently responsible for about 40% of the natural gas exported to the European Union. A parallel pipeline, Nord Stream 2, which has already been set up, has not yet received all the approvals from Germany, and the EU claims that the reduction in gas flow from Russia last year was due to the Kremlin’s desire to pressure the EU to approve its launch.
About a third of the Russian gas supplied to Europe comes through pipelines passing through Ukraine, but in view of the murky relations with neighboring Russia, it has begun to build bypass pipelines in the last two decades. As part of the route bypassing Ukraine, Russia flows gas to Europe via the Yamal pipeline through Belarus, and from there to Poland and Germany. Turkey also serves as a transit point for Russian gas through two pipelines – the newer Turkish Stream, and the Blue Stream, which passes through the Black Sea. These pipelines tightened ties between Moscow and Ankara.
The question is whether Qatar will be able to fill the gap that Russia will leave in the European market in a relatively short time if gas supplies from it continue to decline. Although Qatar is one of the largest producers of liquefied natural gas in the world, it markets 75% of it to Asian countries, with an emphasis on China, Japan and South Korea. In Europe, as mentioned, Qatari gas accounts for only about 5% of consumption.
These figures suggest that Qatar will find it difficult in the immediate term to meet the needs of the European market, given the extreme scenario of halting gas supplies from Russia. This is not to say that Qatar will not be able to shift some of its output to Europe in the coming weeks to provide a point-by-point response. For example, in 2011, following a devastating tsunami, Qatar increased its gas supply to Japan.
But in the long run, Qatar may bite a chunk of Russian gas. Qatar is in the midst of a mega-project to expand gas production capacity and strengthen its tanker fleet. In October 2021, Katargas announced the official launch of a project to build four liquefied natural gas (LNG) production lines in the industrial city of Ras Lapan. The goal is to increase production capacity by 43% from 77 million tons per year to 110 million tons per year. 2027, which will reposition it as the world’s largest natural gas exporter.
Last month, the US topped the list with about 7.7 million tons, ahead of Australia and Qatar. The Americans also increased the pace of exports to Europe to try and help it cope with the crisis and reduce prices. Today, Qatar and the US are interested in cooperating, It will be a challenge for Americans in the European market, as the Qataris will be able to offer large quantities, and at a cheaper price.
The expansion is being carried out with an investment of about $ 28 billion in the northern field located in the coastal area in the northeast of the small Gulf state. This field, discovered in 1971, is common to Qatar and Iran, but the latter has failed to realize its reserves due to the sanctions imposed on it. The field reserves are estimated at 900 trillion cubic feet (for comparison, in the Tamar field they are estimated at 10 trillion feet), an amount that constitutes about 10% of the natural gas reservoirs discovered so far in the world.
Qatar has increased its fleet of gas tankers to 74, concentrating about 12% of the world’s capacity to transport LNG. And of course to the European continent.
For Qatar to become a leading EU supplier, it will have to overcome a legal hurdle. In 2018, as part of a bid to unify the EU gas market, European authorities launched an investigation against Qatar on suspicion of signing contracts restricting its customers from selling the gas or directing surpluses to other buyers. A similar investigation has been opened in the past against Gazprom as well. Given the current distress in the European gas market, there are hints that Brussels is ready to act to close the investigation against the Qataris.
Currently, about 70% of the amount of gas that will be added to Qatar’s production capacity is not yet anchored in new contracts, leaving Europe open to contract with it. The one that is already working to secure the gas flow from Qatar is the UK, to which Brexit has allowed a separate agreement to be signed. The long-term agreement, which will enter into force in 2025 and last for 25 years, is intended to ensure ongoing supply in the face of fierce competition with Asia and Europe, and to prevent a crisis in the energy economy, such as the one in the kingdom in 2021.