As Europe heads into winter and sanctions remain in place on Russian gas and oil after its invasion of Ukraine, the de facto leader of the European Union (EU), Germany, has accelerated talks with the world’s top liquefied natural gas (LNG) exporter, Qatar, to substitute for lost Russian gas supplies. According to comments last week from Qatar’s Deputy Prime Minister and Minister of Foreign Affairs, Sheikh Mohammed bin Abdulrahman Al Thani, the country is in talks with several German companies about new LNG supplies and sources spoken to last week by OilPrice.com confirmed that included among them are utilities giants, RWE and Uniper. However, the sources added, the delivery timelines and volumes under discussion will offer only a partial solution to the gas crunch Europe faces and even this will not occur any time soon. These specific deals, more of which in a moment, follow on from two major initiatives implemented by Germany in the wake of the sanctions on Russia. The first of these is focused on enhancing gas delivery mechanisms into Europe, with a declaration of intent on energy cooperation signed in May between Germany and Qatar aimed at ramping up LNG supplies going into Germany through existing importation routes augmented by new infrastructure approved by the Bundestag on the nineteenth of that month. This includes the deployment of four floating LNG import facilities on its northern coast, and two permanent onshore terminals, which are under development, according to sources within the E.U.’s energy security apparatus exclusively spoken to by OilPrice.com. These plans, said one of the sources, will run in parallel with plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas, in which QatarEnergy holds a 70 percent stake, with ExxonMobil holding the remainder.
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The second of these initiatives is aimed at boosting gas production on the ground in Qatar that can then be supplied to Europe and follows the signing in June of separate partnership deals between the emirate and France’s TotalEnergies, and then Italy’s Eni, for the US$30 billion North Field (or ‘Dome’) Expansion of the world’s biggest LNG project. According to statements from Qatar’s Energy Minister, Saad al-Kaabi, the French oil and gas supermajor will have a 25 percent stake in the project, with no other company to have a higher stake and the selection process for partners now finalised. The same terms were announced for the Eni partnership deal. Overall, the long-awaited North Field Expansion plan includes six LNG trains that are aimed at increasing Qatar’s liquefaction capacity up from 77 million metric tonnes per year (mtpy) to 110 mtpy, with the addition of four more trains from 2025, and then to 126 million mtpy with the addition of two further trains by 2027.
The latest deals being discussed between the German utilities giants and Qatar are also dependent on the timeline for the North Field Expansion plan, which leaves a major supply gap between the time when Europe aims to replace all Russia gas (and oil) imports, which is the middle of 2024, and the time when Qatar is likely to finish the North Field Expansion plan, which is between 2025 (four trains) and 2027 (another two trains). Compounding the problem for Germany and, by extension, for the rest of the EU, is that Qatar knows that it is a seller’s market right now and will remain that way until energy sanctions on Russia are removed, which does not look like it will happen anytime soon. Given its advantageous bargaining position, Qatar is reportedly looking to lock in very high prices for its LNG from an historical pricing perspective and to secure them over term deals lasting at least 20 years. It is apposite to note in this context that RWE’s last major deal with Qatar, for up to 1.1 million tonnes of LNG a year, ran from 2016 to 2023 only.
As highlighted by OilPrice.com, though, some time ago, Qatar’s ability to act as the perfect substitute for the EU’s lost Russian gas supplies is highly limited. Last year, Germany alone imported 142 billion cubic metres (bcm) of gas in 2021, down 6.4 percent from 2020, an average of around 12 bcm per month. This figure comes from data sources that do not quantify the individual sources of these supplies, but as a guide, according to data from Independent Commodity Intelligence Services (ICIS), for the month of December 2021, natural gas coming via pipelines from Russia amounted to 32 percent of Germany’s total imports that month. Using this December percentage gives a figure for the entire year of just over 45 billion cubic metres of natural gas being imported by Germany from Russia, which equates to just under 33 million metric tons of LNG. As it stands then, Germany’s imports of LNG from Russia alone – disregarding all other EU states, and all of Qatar’s other long-term contracts with other suppliers, especially in Asia – amount to nearly 43 percent of all Qatar’s produced LNG per year.
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Germany and Europe, therefore, need to ensure that it secures huge contracts with other gas suppliers very quickly (between now and when the North Field Expansion plan comes to fruition somewhere between 2025 and 2027), but clearly, as all suppliers know this needs to be done, the price for doing this will be extremely high. Moves are afoot from several of the big EU energy players to do just this, with German Chancellor, Olaf Scholz, recently travelling to Saudi Arabia and the United Arab Emirates, as well as Qatar. According to local UAE sources, following the visits of Scholz and Germany’s Economy Minister, Robert Habeck, as part of a new Energy Security and Industry Accelerator agreement signed between the UAE and Germany, the Abu Dhabi National Oil Company (ADNOC) will supply RWE with an LNG cargo in late 2022 to be used in the country’s floating LNG import terminal in Brunsbuttel. ADNOC has also earmarked several other LNG cargoes for German customers for delivery in 2023, the same sources said.
Other opportunities are also being worked on, with much of the groundwork for Europe having already been laid in the past few weeks, by France’s TotalEnergies and Italy’s Eni. The Italian company recently announced that its chief executive officer, Claudio Descalzi, met with his counterpart from ADNOC, Sultan al-Jaber, in Abu Dhabi, to discuss speeding up the development of the Ghasha sour gas project, and the Offshore Block 2 project. The Ghasha concession is the world’s largest offshore sour gas development, comprising not just the Ghasha field itself but also the Hail, Hair Dalma, Satah, Bu Haseer, Nasr, SARB, Shuwaihat, and Mubarraz fields as well. Offshore Block 2, the second of the major projects earmarked for fast-tracking recently, also features Eni as the major shareholder, and the end of July saw the discovery of a new, deeper reservoir that indicated 1.0-1.5 tcf of raw gas, almost doubling the discovered field volume, according to a comment from ADNOC at the time.
TotalEnergies, meanwhile, has been engaged in a flurry of activity since Europe’s sanctions on Russian energy supplies were phased in, with the recent signing of a partnership agreement with ADNOC that includes cooperation in trading, product supply and carbon capture, utilisation and storage. As highlighted and analysed by OilPrice.com recently, TotalEnergies is at the vanguard of France’s policy of attempting to reduce its own dependence on Russian energy imports by expanding and expediting the development of alternative energy supplies, particularly in the Middle East. As TotalEnergies stated at the time of the signing of the partnership agreement with ADNOC: “[The agreement includes] the development of oil and gas projects in the UAE to ensure sustainable energy supply to the markets and contribute to global energy security.”
This, in turn, followed the signing of the UAE-France Comprehensive Strategic Energy Partnership, which also focuses on securing energy supply for France going forward. Such concerns about the negative effects for France resulting from the staggered bans on Russian energy ahead were echoed again earlier in July by France’s economy minister, Bruno Le Maire, who said: “Let’s prepare for a total cut-off of Russian gas; today that is the most likely option.” Although France receives slightly less than 20 percent of its gas imports from Russia – much less than several other European Union (EU) states – its liquefied natural gas (LNG) imports fell by nearly 60 percent month-on-month (m-o-m) in June, to around 1.06 million metric tonnes, according to industry data.
By Simon Watkins for Oilprice.com
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Even Qatar’s LNG capacity expansion from 77 mt currently to 110 mt by 2024/25 will depend on the timeline for the North Field Expansion plan. And even then the maximum LNG volumes that Qatar could supply Germany and the EU won’t exceed 15 mt (20.6 bcm).
And since it is a seller’s market, Qatar will want to lock in very high prices in long term deals lasting at least 20 years.
Still, Qatar’s ability to offset a part of Russian gas supplies to Germany and the EU is limited.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert