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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’s Careful Balancing Act In Energy And Geopolitics

  • Qatar continues to play a diplomatic balancing act between East and West.
  • Recent developments surrounding the ongoing Israel-Hamas War appear to have cemented the U.S. view that Qatar can now be regarded as a trusted ally of the West.
  • Qatar Energy closed a 27-year LNG supply deal with China’s Sinopec for 3 million metric tons per annum.
Qatar

Qatar has long been forced to play a delicate diplomatic balancing act between the two great Middle Eastern powers and their principal superpower sponsors, positioned as it is with Saudi Arabia on one side of it and Iran on the other. In the lead up to Russia’s invasion of Ukraine on 24 February 2022, a series of huge deals for Qatar to supply China with liquefied natural (LNG) – which, after the invasion, became the world’s key emergency energy source – were a serious concern for the U.S, coming as they did after a shift by several Middle Eastern countries away from its own sphere of influence and into that of China and Russia. Washington’s concerns prompted new initiatives by several U.S. companies to strengthen relationships with Qatar and these have yielded significant results for the U.S. and its allies. Recent developments surrounding the ongoing Israel-Hamas War appear to have cemented the U.S. view that Qatar can now be regarded as a trusted ally of the West, and its key mediator in the Middle East both with indigenous countries and with the interests of China and Russia in the region. This is why news of another long-term LNG deal just signed between Qatar and China – a 27-year supply and purchase agreement between QatarEnergy and Sinopec for supply 3 million metric tons per annum (mmtpa) - has not prompted any public or private reaction from Washington.

It was a very different story last year. Just over 12 months before Russia’s invasion of Ukraine, China had been engaged in a flurry of activity to expand its sources and methods of gas supply, as analysed in full in my new book on the new global oil market order. This began in earnest with a series of major deals in March 2021 with Qatar, the world’s top LNG supplier. LNG requires much less infrastructure for delivery than gas delivered through a pipeline, meaning not only that it costs a buyer less to establish the facilities needed to benefit from a regular LNG supply but also that quantities can be increased and decreased at very short notice. In essence, it was very clear that going forward LNG supplies would be the ‘swing gas supply’ for China, and all other countries, in the event of any global gas supply emergency. March 2021, then, had seen the signing of a 10-year purchase and sales agreement by the China Petroleum & Chemical Corp (Sinopec) and Qatar Petroleum (QP) for 2 mmtpa of LNG. December 2021 saw another major long-term contract for Qatar to supply China with LNG, on that occasion a deal between QatarEnergy and Guangdong Energy Group Natural Gas Co for 1 mmtpa of LNG, starting in 2024 and ending in 2034, although it could be extended. Quite aside from ensuring a diversity of gas supply – and very quick supplies if necessary – these deals (and later ones) with China subtly shifted Qatar at that point into the China-Russia-Iran sphere of influence, as far as the U.S. was concerned. The deals brought together in this loose alliance the world’s top LNG exporter (Qatar) and one of the world’s top holders of gas reserves (Iran), given that the two countries share the world’s largest gas field (North Field on Qatar’s side and South Pars on Iran’s). Additionally, both countries were founding members of the 11-member Gas Exporting Countries Forum (GECF), together with Russia. The deals also further inextricably linked this huge combined global gas resource with the world’s biggest buyer of energy products over the past two decades or more - China. 

Shortly after Russia invaded Ukraine, significant pressure on Qatar began to be exerted by the U.S., which understood that in order to finally draw a line across Europe across which NATO would not tolerate any further Russian military aggression, Europe needed to be provided with an alternative to Russian energy – and fast, as also analysed in full in my new book. No meaningful repercussions for Russia had followed its 2014 invasion of Ukraine and subsequent annexation of the Crimea region precisely because Europe – especially its de facto leader, Germany – did not want to lose the cheap and plentiful supplies of oil and gas from Russia upon which it had built much of its economic boom for the previous two decades. Consequently, the end of March 2022 saw the first of a series of strategically crucial meetings for the U.S. and its allies with senior representatives from Qatar aimed not only at securing vital LNG supplies urgently for the West and East but also at moving the Emirate more decisively into the U.S.’s sphere of influence. Following one such meeting in March between Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, and German economy minister, Robert Habeck, U.S. President Joe Biden reiterated his view expressed in January of Qatar as a “major non-NATO ally”. Several more business and political ‘carrots and sticks’ were laid out by the U.S. separately to both Germany and Qatar specifically designed to ensure that the same consequence-free invasion was not handed to Russia again, as analysed in full in my new book on the new global oil market order. May 2022, then, saw Qatar sign a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag around that time. This would include the deployment of four floating LNG import facilities on its northern coast, and two permanent onshore terminals, which were under development.

These plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. QatarEnergy holds a 70 percent stake in the project, with the U.S.’s ExxonMobil holding the remainder. The Golden Pass terminal’s estimated send-out capacity is projected to be around 18 mmtpa of LNG and the facility is expected to be operational in 2024. Following on from these developments, December 2022 saw two sales and purchase agreements signed between QatarEnergy and the U.S.’s ConocoPhillips to export LNG to Germany for at least 15 years from 2026. These deals between Berlin and Doha provided Germany with 2 mmtpa of LNG, sent from Ras Laffan in Qatar to Germany’s northern LNG terminal of Brunsbuettel, according to QatarEnergy’s chief executive officer (also Qatar’s Energy Minister), Saad al-Kaabi. He also stressed the broader political significance of these deals at the time: “[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.” 

As also analysed in depth in my new book, the fact that these LNG supplies to Germany involved a major U.S. company working with Qatar’s major energy firm told the energy market – and China and Russia – three key things. First, from the perspective of energy buyers in Europe, Washington was not going to allow them to return to a situation in which the continent – and its effective leader, Germany – was bankrolling much of the Russian state through huge imports of its gas and oil. Instead, they could rely on the U.S. and its network to provide whatever was needed. Second, from the perspective of energy sellers in the Middle East, Washington was also not going to stand by while China hoovered up all available energy supplies at the expense of both the U.S. and its allies in the West and in the East. And third, that the new global oil market order has reached a tipping point, so it is time to pick a side. Qatar’s role as the West’s most trusted mediator in the Middle East was further underlined recently when, having played the role the U.S. wanted in the release of five American hostages from Iran, the Emirate then agreed to stall the payment of the funds that had been earmarked for Iran, following incendiary comments following the 7 October attacks on Israel.

By Simon Watkins for Oilprice.com


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