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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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The LNG Giant Navigating A Geopolitical Minefield

  • The Emir of Qatar’s visit to Washinton at the start of this year did a lot to relieve fears that one of the world’s largest natural gas producers was moving into China’s sphere of influence.
  • Qatar appears to be determined to stay as neutral as it can when it comes to its relationships with the U.S. and China, eager to maintain its position as a leading gas provider.
  • Qatar is now focused on filling as many of the supply gaps left by Russia as possible, with its ultimate goal to increase natural gas capacity to 126 million metric tons per year

The visit at the beginning of this year of Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, to the White House, and his meeting in March with German economy minister, Robert Habeck, point to the emirate continuing to navigate a relatively neutral course between the power blocs of the U.S. and its allies on the one side, and China and its allies on the other. These visits followed concerns in Washington that a series of developments, highlighted by OilPrice.com, indicated that Qatar was shifting decisively towards the China power axis, leveraged by its key proxy in the Middle East, Iran. This course for Qatar is intended above all else to keep it out of direct conflict with either side in the ongoing struggle between the superpowers and to allow it to maintain its status as a leading gas power through its liquefied natural gas (LNG) capabilities. Given the current supply and demand dislocations in the oil and gas market, its timing is impeccable.

For a considerable time, Qatar was the number one exporter of LNG around the world based around its 6,000 square kilometer North Dome site. This site, together with the neighboring 3,700 square kilometer area of Iran’s South Pars field, comprises by far the largest non-associated natural gas field in the world. By conservatives estimates, the entire 9,700 square kilometer site holds at least 1,800 trillion cubic feet of non-associated natural gas and at least 50 billion barrels of natural gas condensates. Despite this, for a period it lost the top spot to relative newcomer Australia, which shipped an estimated 77.514 million tonnes of LNG on an annualized basis from the country’s 10 LNG projects during 2019. The figure from Australia nonetheless marked an 11.4 percent increase on the 2018 number, driven mainly by production increases at the giant Darwin-based Ichthys LNG Project, and came as a reminder to Qatar that its global competition in the LNG sector had moved up a gear. 

Qatar’s response was to announce its intention to increase its LNG production capacity by 64 percent over the next seven years, to a new target of 126 million metric tons per year (mtpy) by 2027, up from its then-capacity of around 77 million mtpy. This superseded the longstanding target of 110 mtpy (although this remained an interim target for Q4 2025), in line with the discovery of further productive layers of gas deposits attached to the main North Dome site but located about 12 kilometers onshore from the coast onshore in Ras Laffan. According to Qatar’s Energy Minister, Saad Sherida Al-Kaabi, at the time, this would allow the emirate to move ahead with engineering work on two further LNG production facilities, with a combined capacity of 16 million mtpy (‘mega-trains’). Prior to this expansion announcement, Qatar had revealed that it was already planning to build four new LNG trains. 

One key sticking point that had to be overcome in order to achieve these aims was to come to a workable accommodation with neighboring Iran on how the North Dome/South Pars site would be developed. From 2005 until the end of the first quarter of 2017 Qatar had placed a moratorium on the further development of its North Dome site in order to conserve its principal hydrocarbons (and indeed financial) resource but the resolve to continue with this self-imposed prohibition was finally removed for two key reasons. First, it was overtaken as the top global LNG exporter by Australia, and second, Qatar’s moratorium on its side of the supergiant gas field had only seemed to act as an accelerator on Iran’s development of its side of the 9,700 square kilometer site. This prompted frequent complaints from Doha that its neighbor’s no-holds-barred development of its South Pars site would damage the future recovery rate in Qatar’s own North Dome. 

Related: Mid-Cap Energy Stocks Are Outperforming Supermajors

To seek to rectify this, senior figures from Iran’s Petroleum Ministry and Qatar’s Energy Ministry began a series of meetings to agree on a new North Dome-South Pars joint development plan, as analyzed in-depth in my new book on the global oil markets. These meetings covered two main areas, a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com. “First, Iran agreed to stop the aggressive recovery tactics that it had been using along the border areas [demarcating South Pars and North Field] and second Qatar agreed to sit down with the Chinese and the Russians to discuss the future co-ordination of gas export destinations for Iranian, Qatari and Russian gas flows, marketing and pricing,” he said. “At that time, Iran and China were talking about expanding the scope of the previously agreed 25-year deal between them, and Russia was keen to ensure the smooth continuation of its own gas supplies to China [principally via the US$400 billion 30-year deal agreed in May 2014] and to ensure that Iranian gas did not take the place of Russian gas – and influence – in Europe,” he added. These talks between Qatar and Iran and the subsequent plethora of deals between Qatar and China raised questions in Washington.

These concerns had already been stoked by Qatar’s fractious relationship with key U.S. ally in the Middle East at the time, Saudi Arabia. Following the Saudi-led blockade of Qatar that ran from 2017 to 2021, the Qataris’ view of how it regards Saudi Arabia’s future is best evidenced by the fact that it pulled out of the Saudi-dominated OPEC in January 2019 after 60 years as a member. It is also a reflection of the delicate balancing act that Qatar needs to maintain between the Middle East’s two leading powers – Saudi Arabia and Iran – given not just the fact that it shares the North Dome/South Pars site with Tehran but also that it is geographically positioned directly between Saudi Arabia on its west and Iran on its east. Qatar’s negative view of Saudi Arabia is no longer an issue for the Biden White House, given that President Biden has vocally expressed a similarly dim view of Saudi Arabia, and is reflected in the fact that around the same time as the Qatari Emir’s visit to Washington in January Biden designated Qatar as a “major non-NATO ally”.

Qatar is focused now on filling as many of the gas supply gaps left as a result of Russia’s invasion of Ukraine as it can. It is still producing around 77 million mtpy and its plans for 126 million mtpy by 2027 remain in place. It is also the majority owner of the Golden Pass LNG terminal in Texas with partner ExxonMobil, with the site having an authorized export capacity of up to 18.1 million mtpy and is expected to start up in 2024. In November, Qatar placed an order for six new LNG carriers with South Korean shipyards, aimed at handling its upcoming LNG expansion. This is part of a program announced last April that saw Qatar reserve LNG carrier construction capacity at three South Korean shipyards and China’s Hudong Zhonghua shipyard through to the end of 2027 to build as many as 100 new LNG carriers in a program worth more than US$19.2 billion. 

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on April 19 2022 said:
    Qatar is the giant of the LNG world. Unlike other LNG producers like the United States, Australia and Novatek of Russia, it is the only producer with a totally integrated LNG industry. It owns a fleet of ships to carry its LNG around the world, it has the world’s third largest proven gas reserves after Russia and Iran, it owns the liquefaction plants, it is the largest producer and exporter of LNG and also the cheapest producer. And all this has been paid for long time ago.

    Qatar is already expanding its LNG production capacity from the current 77 million tonnes (mt) to 110 mt by 2024/25 and 126 by 2027. This will ensure its global LNG dominance well into the future.

    And since China is Qatar’s largest export destination, it has more mutual interests with it than with the United States. Nevertheless, Qatar navigates strives a neutral stand between its geopolitical relations with the United States and its business relations with China. However, every now and then Qatar leans towards the China-Russia-Iran axis because of the importance of China as the world’s largest buyer of LNG, Russia because it has to coordinate policies and prices of gas and LNG with it and Iran because it shares with it the North Dome/South Pars gas field, the world’s largest.

    Still, Qatar admitted that it can only divert 10%-15% of its LNG exports to the EU because of long-term contractual arrangements with customers in the Asia-Pacific region. In fact, the combined LNG exports of the United States, Qatar and Australia and also Norway’s piped gas exports could barely replace Russia’s gas supplies of 200 billion cubic metres (bcm) and 15-16 mt of LNG to the EU.

    That is why the EU will continue to be dependent on Russian gas supplies well into the future despite talk about a diversification of supply sources.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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