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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Qatar Walks The Diplomatic Tightrope With Latest Deal For Japan

  • Qatar Energy and Japan's Cosmo Energy Holdings struck a new 5-year energy agreement to continue developing crude from offshore oilfields in Qatar.
  • The deal with this key U.S. ally may be regarded as a show of good faith to the U.S.
  • Most of the LNG deals done this year and towards the end of last year have been done with China.
Doha

Qatar’s geographical position tells one all one needs to know about its energy export policy. Situated between Saudi Arabia on one side and Iran on the other, Qatar has to be very careful not to side too overtly with either the U.S. and its allies (including up until recently, Saudi Arabia) on the one hand, or China and its allies (including Iran) on the other. Its latest deal, with Japan, is evidence of this precarious position, in light of the deals leading up to it. The deal itself, struck just before Christmas Day, is a new five-year agreement between Qatar Energy and Japan’s Cosmo Energy Holdings for Japan’s third-biggest oil refiner to continue its operation in the Al-Karkara and A-Structures oil fields. The previous agreement between Japan’s Qatar Petroleum Development (QPD) – 75 percent owned by Cosmo Energy Exploration & Production and 25 percent by trading house Sojitz Corp – had run for 25 years from its signing in December 1997, allowing the company to develop and produce crude oil from the offshore fields since then.  

The oil deal for a company associated with the U.S.’s key ally in Asia can be taken two ways, as befits Qatar’s enigmatic diplomacy. It might be regarded as a show of good faith to the U.S. and its allies that further deals may be struck in the sector for which Qatar is best known – liquefied natural gas (LNG) – to augment a recent understanding in this area reached with U.S. heavyweight oil company ConocoPhillips on behalf of Europe. Alternatively, it might be seen as a further demarcation of Qatar’s hydrocarbons resources between the U.S. and its allies on the one hand, and China and it allies on the other, given the recent deals made between Qatar and Beijing.

Related: BP To Significantly Boost Investment In U.S. Oil

On the first of these possibilities, the talks between Germany and various emergency gas suppliers that OilPrice.com has been tracking for the past couple of months or so recently resulted in two sales and purchase agreements signed between QatarEnergy and ConocoPhillips to export LNG to Germany for at least 15 years from 2026. At the time it is true that German Economy Minister, Robert Habeck, stated that he was “happy” with the term of 15 years. However, given continued constraints on Russian supplies, he did add, less happily: “I wouldn’t have had anything against 20 [years] or longer contracts”. 

Nonetheless, these deals between Berlin and Doha will provide Germany with 2 million metric tonnes per annum (mtpa) of LNG, sent from Ras Laffan in Qatar to Germany’s northern LNG terminal of Brunsbuettel, according to a statement from QatarEnergy’s chief executive officer (also Qatar’s Energy Minister), Saad al-Kaabi. “[The two sales and repurchase agreements] mark the first ever long-term LNG supply agreements to Germany, with a supply period that extends for at least 15 years, thus contributing to Germany’s long-term energy security,” al-Kaabi added in a joint news conference with ConocoPhillips’ chief executive officer, Ryan Lance. The U.S.’s ConocoPhilips is involved as one of its subsidiaries will be the entity that purchases the LNG from Qatar that will then be delivered to Brunsbuettel, which is currently still under development.

On the second of these possibilities, it remains a fact that most of the LNG deals done this year and towards the end of last year have been done with China. The latest such deal was the US$60 billion+ agreement between QatarEnergy and the China Petroleum & Chemical Corporation (Sinopec) for the supply of 4 million mtpa of (LNG) every year for a period of no less than 27 years, starting in 2026. It is China’s longest LNG supply contract and one of its largest in terms of volume. This deal followed a string of similar deals in recent months that began in earnest in March 2021 with a 10-year purchase and sales agreement between Sinopec and Qatar Petroleum for 2 million mtpa of LNG. December 2021 saw another deal between China and Qatar, also covered in depth by OilPrice.com, this time between QatarEnergy and Guangdong Energy Group Natural Gas Co for the supply of 1 million mtpa of LNG starting in 2024 and ending in 2034, although it can be extended. 

Having said this, it is apposite to note that the new LNG deals for Germany are to be sourced from Qatar’s North Field East (NFE) project and the U.S. has a stake in this, via ConocoPhillips. More specifically, the U.S. firm holds a 3.125 percent share in Qatar’s key NFE gas project and a 6.25 percent share in the North Field South project, which are planned to start up in 2026 and 2027, respectively. The NFE is the first and larger of the two-phase North Field expansion plan, which includes six LNG trains that will ramp up Qatar’s liquefaction capacity to 126 million tonnes per year by 2027 from 77 million. 

The North Field (synonymically, the ‘North Dome’) is one half of the two parts that constitute the world’s biggest gas field – a 9,700 square kilometre reservoir that holds an estimated 1,800 trillion cubic feet (51 trillion cubic metres) of non-associated natural gas and at least 50 billion barrels of natural gas condensates. Qatar’s 6,000 square kilometre section – the ‘North Field’ – is the cornerstone of its world-leading LNG exporter status. Iran’s 3,700 square kilometre section – ‘South Pars’ – already accounts for around 40 percent of Iran’s total gas reserves – mostly located in the southern Fars, Bushehr, and Hormozgan regions – and about 75 percent of its gas production.

The U.S. also very pertinently still has its huge Al Udeid airbase in Qatar functioning as a forward operating headquarters of its Central Command (CentComm). Whilst Saudi Arabia was still considered by Washington to be its key ally in the Middle East and Riyadh still had in place a blockade against Qatar (that ran from June 2017 to January 2021), the U.S.’s ability to influence Qatar was reduced. With Saudi Arabia now effectively downgraded in the U.S. list of allies, Washington is seemingly able to pursue a freer energy and security policy across the Middle East, including towards Qatar. It may be, therefore, that for 2023 more gas deals brokered by the U.S. for Europe are seen, and Qatar shows more flexibility to such arrangements than it did earlier this year when al-Kaabi stated: “Qatar will not divert gas that is already under contract with Asian buyers to Europe this winter”.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on January 05 2023 said:
    Qatar was one of only two countries in the world that the ended the disastrous COVID year of 2020 with its economy growing 2.3 percent. The other country was China with a similar rate of growth.

    The spectacular thing is that Qatar managed to remain with its head above the water despite the siege imposed on it by Saudi Arabia. UAE, Bahrain and Egypt.

    With brilliant leadership and a great sense of acuteness in geopolitical matters, Qatar will be able to navigate the global geopolitical minefield with all countries big and small in the pursuit of its national interests.

    Therefore, it’s latest deal with Japan is a case in
    Point.

    Dr Mamdouh G Salameh
    International oil economist
    Global energy expert

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