The world’s top liquefied natural gas (LNG) exporter, Qatar, has long occupied a political position in the Middle East that has neither been decisively aligned with the U.S.-Israel-Saudi axis of power nor with the Iran-China-Russia one. More recently, though, there appears to have been a move further away from the U.S.-led sphere of influence and towards the China-led one. This was partly due to the three-year freeze in diplomatic relations with key U.S. allies Saudi Arabia, UAE, Bahrain, and Egypt based on accusations that Qatar supports terrorism and partly due to the practical consideration that Qatar shares its most important hydrocarbons resource with Iran – the 9,700 square kilometre supergiant non-associated natural gas field that on Qatar’s side is the North Dome and on Iran’s side is South Pars. In the last week or so, this move to the China-Iran sphere of influence appears to have taken a step further with the signing of LNG supply agreements with Iran ally, Pakistan, and moves to target the key end user of the U.S.-Israel Middle East alliance (including the UAE and Bahrain), India.
The U.S. regards India as having the potential – for a variety of reasons - to be a key focal counterpoint for Middle Eastern hydrocarbons producers to China’s huge buying presence in the international oil and gas sectors and has been increasingly pushing this idea to those countries who sign up to its relationship ‘normalisation deals’ concept. Qatar’s recent LNG deals with India, then, given its uncertain allegiances, may be cause for concern for Washington, with the most recent of these being a 147,000 cubic metre cargo loaded at the Ras Laffan port in Qatar and delivered towards the end of February to Indian Oil LNG Private Ltd, a subsidiary of the Indian Oil Corp, at the Ennore terminal, near the southern Indian city of Chennai. It was Qatargas that helped commission the US$735 million Ennore terminal in February 2019 by supplying LNG volumes, which were delivered by international commodity trading house, Gunvor. In fact, Qatargas began supplying LNG to India as long ago as July 1999, serving Petronet. Related: World’s Top Oil Trader: OPEC+ Controls The Market
Shortly after this cargo arrived in India, a 10-year sale and purchase agreement for Qatar Petroleum to supply the Pakistan State Oil Company with up to 3 million tons per annum (mtpa) of LNG to various ports in the country was signed, beginning next year. Initially, the delivery focus will be on Pakistan’s two main operational LNG receiving terminals - the Engro LNG Receiving Terminal in Port Qasim and the Pakistan GasPort LNG Receiving Terminal – but further terminals can be added to the final delivery points list. This agreement builds on the earlier deal signed in 2016 for Qatar to supply Pakistan with 3.75 mtpa of LNG and came at around the same time as close Pakistan ally, Bangladesh, made a similar deal with Qatar. This agreement involves Qatar Petroleum entering into a long-term sale and purchase agreement with Vitol for the supply of 1.25 mtpa of LNG to Vitol’s final customers in Bangladesh, with first deliveries beginning later this year.
More important than these individual deals with Pakistan and its close ally Bangladesh is what they might indicate about where Qatar may slide in its political and practical oil and gas alliances in the coming years. Although it is true that January this year saw the resumption of diplomatic relations between Qatar and the four Arab states that had imposed an embargo on it since 2017, this rapprochement appears to be superficial. The most senior figures in Qatar have little regard for their counterparts in Saudi Arabia and, by extension, the U.S., the former point underlined by Qatar’s decision to leave the Saudi-led OPEC on 1 January 2019, and the latter point highlighted by Qatar’s continued hosting of an office in the capital for the U.S.’s long-running enemy in Afghanistan, the Taliban.
The Taliban and Al-Qaeda have also historically used Pakistan as a backdoor escape route from Afghanistan from U.S. and coalition forces when required, and notably Pakistan’s Abbottabad was the location of the long-term home of Al Qaeda founder and ‘9/11’ principal planner, Osama bin Laden. At the same time as this, Qatar itself has supported political Islamist movements in Gaza, Libya and similar Middle Eastern flashpoints, notably the transnational Muslim Brotherhood that the UAE views as an existential threat to its monarchy. Qatar has long sustained a close direct relationship as well with Iran, which Saudi Arabia’s ruling Al-Sauds also view as an existential threat to them, as does the ruling family of Saudi’s close ally, Bahrain. Related: Russia’s Gazprom Boasts First Carbon-Neutral LNG Delivery In Europe
This already close relationship between Qatar and Pakistan – and Iran – was strengthened further in 2017 when the Saudi-led blockade of Qatar was imposed when Pakistan very publicly stood by Qatar, vowing no changes to its long-term LNG supply agreement with the country. At the same time, Pakistan reiterated its commitment as well to moving ahead with the Iran-Pakistan gas pipeline (IPP) and it is important to note that Qatar’s LNG supply contracts with Pakistan were always seen by Pakistan, Iran, and Qatar as being a stopgap measure until the Iran-Pakistan pipeline was completed. Pakistan’s commitment to Iran was re-stated clearly again after the U.S. unilaterally withdrew from the Joint Comprehensive Plan of Action (JCPOA) with Iran in 2018 when Pakistan’s Foreign Office spokesman Muhammad Faisal said that: “Pakistan, being a sovereign state, reserves the right to pursue legitimate economic and commercial interests while respecting the international legal regime.” Pakistan’s then-new prime minister, Imran Khan, stated shortly thereafter that he is personally in favour of the game-changing IPP and has made it a priority project.
In practical terms, Pakistan needs all the energy sources it can get. As it stands, the country has seen domestic natural gas production stagnate at around 4 billion cubic feet per day (Bcf/d) against demand of more than 6 Bcf/d, which has led to repeated load shedding in many major cities of up to 15 hours a day. According to Pakistan’s Ministry of Energy (MoE), the planned 0.75 Bcf/d of gas (for five years, in the first instance) that would flow from Iran’s supergiant South Pars natural gas field would add around 4,000 megawatts (MW) of electricity into the Pakistan grid, via a direct IPP. The original agreement for the IPP, signed between Iran and Pakistan in 1995, was predicated on the pipeline running from South Pars into Karachi but the most recent iteration of the route involves the gas running from Iran’s Asalouyeh and into Pakistan’s Gwadar and then on to Nawabshah. The latest projection of the cost of the pipeline is around US$3.5 billion, according to industry sources, although US$2.5 billion of this has already been invested in the 900 kilometre stretch on Iran’s side that has already been completed.
Given the geopolitical importance of both Iran and Pakistan to Russia and China, though, finding the money for the remainder of the project will not be a problem. For China, there is a threefold motivation. First, it plans to integrate the IPP into the US$50 billion-plus China Pakistan Economic Corridor (CPEC) project, with Gwadar earmarked to be a key logistical node in China’s ‘One Belt, One Road Initiative’. Second, it wants to keep Iran as one of its key suppliers of oil and gas in the future. And third, it regards supporting those who the U.S. opposes as being a central plank of its foreign policy, over and above the short-term tactic of wrong-footing the U.S. in the ongoing trade war.
For Russia, the motivations are no less imperative and its initial pledge to assist Pakistan has been on the table since March 2012. Back then, officials from Pakistan’s MoE went to Moscow for talks with state-controlled gas giant, Gazprom, to discuss a range of co-operation agreements, and it was agreed that the Russian gas giant would help finance and construct the IPP. A key part of Russia’s willingness at that point to see this pipeline taking Iranian gas to Asia was Moscow’s wish to keep the gas market in Europe dependent on Russian oil and no one else’s, and this strategy remains in place. Added to this is that Russia sees the IPP as offering surrounding countries a viable alternative to the U.S.-backed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. A pipeline for Iranian gas, and later oil, running through Central Asia remains a core strategy for Russia to exert its influence in the Middle East, and to consolidate its presence in central and eastern Europe to the one side and Asia to the other.
By Simon Watkins for Oilprice.com
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Qatar’s natural gas and LNG will soon be helping its former antagonists Saudi Arabia and UAE diversify their economies.
Therefore, Qatar’s LNG deals with China are no more than satisfying the import needs of an important customer and ensuring that it remains the top exporter to the Asia-Pacific region.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London