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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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U.S. Played A Key Role In Germany’s Huge Gas Deal With Qatar

  • The latest deals between Berlin and Doha will provide Germany with 2 million metric tonnes per annum of LNG.
  • U.S.’s ConocoPhilips is involved as one of the subsidiaries that purchases the LNG from Qatar that will then be delivered to Brunsbuettel.
  • LNG supplies from Qatar into Europe will not compensate for lost Russian gas and oil.

The talks between Germany and various emergency gas suppliers that OilPrice.com has been tracking for the past couple of months or so last week have resulted in two sales and purchase agreements signed between QatarEnergy and the U.S.’s ConocoPhillips to export liquefied natural gas (LNG) to Germany for at least 15 years from 2026. Although German Economy Minister, Robert Habeck, stated that he was “happy” with the term of 15 years, even he implied that this deal falls short of what Germany and Europe will need in terms of future energy needs, given continued constraints on Russian supplies. These supply pressures are likely to become much worse very soon, given the G7 agreement on a US$60 per barrel cap for Russian seaborne oil and Russia’s likely reaction to this. In parallel with this, the European Union (EU) is still discussing the details of the imposition of a price cap on Russian gas. Russia’s state-owned gas behemoth, Gazprom, has stated that if the EU introduces this gas price cap, it will suspend all exports of its gas to EU countries.  However, these latest 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 last week 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.

Related: What Will Cash Flow Look Like For Big Oil Next Year?

The fact that these LNG supplies to Germany involve a major U.S. company tells the energy market – and anyone else who is interested – two key things. First, from the perspective of energy buyers in Europe, Washington is not going to allow them to return to a situation in which the continent – and its effective leader, Germany – are bankrolling much of the Russian state through huge imports of Russia’s gas and oil. In this context, the message is clear: no more wide-ranging deals with Russia in the future, even if Russia withdraws from Ukraine – you can place your trust and your energy future in U.S. hands. Second, from the perspective of energy sellers in the Middle East, Washington is also not going to stand by while China hoovers up all available energy supplies at the expense of both the U.S. and its allies in Europe.

In both contexts, it is exceptionally apposite to note that these new LNG deals for Germany will be sourced from Qatar’s North Field East (NFE) project. 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.

In the lead up to this deal in which the U.S.’s ConocoPhillips is so critically involved, Qatar appeared to be edging further into China’s sphere of influence, and away from the U.S. and its allies. The latest iteration of this idea was the very recent US$60 billion+ deal between QatarEnergy and the China Petroleum & Chemical Corporation (Sinopec) for the supply of 4 million mtpa of (LNG) every year for 27 years, starting in 2026, as analysed in depth by OilPrice.com. 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. 

The U.S.’s ConocoPhillips holds a 3.125 percent share in Qatar’s key North Field East 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 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.  

This said, as previously analysed in depth by OilPrice.com, LNG supplies from Qatar into Europe will not compensate for lost Russian gas and oil. 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.

Germany and Europe, therefore, need to ensure that it secures huge contracts with other gas suppliers between now and when the North Field Expansion plan comes to fruition somewhere between 2026 and 2027. 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 Brunsbuettel. 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. 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. 

By Simon Watkins for Oilprice.com


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