Qatar to Become Largest LNG Exporter Worldwide butCannot Replace Russian Gas for Europe
The Gulf country partners with Italian energy giant ENI totake on the world’s biggest natural gas field
QatarEnergy and Italian energy multinational Eni will partner inthe expansion of the world’s largest liquefied natural gas (LNG)project, under a deal signed at the state-owned Qatari company’sheadquarters in Doha on Sunday.
QatarEnergy, which operates all oil and gas activities in Qatar,including exploration, production, refining, transport, andstorage, will own 75% of the new joint venture company, whileEni will own 25%.
The joint venture will hold a 12.5% interest in the entire NorthField East project, the world’s biggest natural gas field.
The $28.7 billion North Field East project, launched byQatarEnergy in the summer of 2019, is under construction. Itwill significantly enhance Qatar’s gas export capacity from thecurrent 77 million tons per year to 110 million tons per year.
The project will also focus on minimizing carbon emissions anddamage to the environment.
Europe is seeking to diversify its energy sources amid thesanctions placed on Russia after it invaded Ukraine. In addition,the European Union is trying to reduce its use of carbon-intensive coal.
Qatar, which has the third-largest natural gas reserves afterRussia and Iran, is partnering with international companies toexpand its production and export capacity. This will position theGulf state as the world’s largest LNG exporter.
“It is a strategic move for Eni, which expands Eni’s presence in the Middle East and gains access to a world-leading LNG producer,” the company said in a statement.
Amal Hamidallah, executive director of the Arab GulfFoundation, explained to The Media Line that the expansion wasplanned years ago but since the energy crisis hit Europe, Qatarhas helped Britain with extra supplies and announced acooperation deal with Germany.
“This explains why Italy and other EU companies want to beinvolved in this project,” she said.
Francesco Sassi, a researcher in energy geopolitics and marketsat Ricerche Industriali ed Energetiche, a research center andconsultancy based in Bologna, Italy, told The Media Line that inthe future Qatar will be able to add considerable quantities ofLNG to Europe’s supply.
He added, however, that for now, its capacity to increase exports is rather limited.
Hamidallah noted that filling the gap left by the reduction in theRussian gas supply to Europe is “not practically possible” rightnow, quoting Qatar’s Energy Minister Saad Sherida al-Kaabi.
Hamidallah said this is due to three main reasons.
First, Qatar’s current gas capacity can’t replace the 40% of EUnatural gas imports that came from Russia, she explained.
Second, continued Hamidallah, the transportation of the gas isan issue. “There are no gas pipelines from Qatar to Europe, soQatar’s gas would have to be shipped to Europe in liquefiedform,” she added.
And third, long-term contracts with partners such as those in Asia, mainly South Korea, Japan, and China, which are the main buyers of Qatari LNG, must be taken into account.
“Diverting cargoes from those long-term customers may incurcompensation claims from those buyers,” said Hamidallah.
Sassi added that Qatar’s strategic decision several years ago toheavily invest in the expansion of gas production, when themarket was oversupplied, will likely provide it with the abilityto choose whichever market suits its export plans.
On this issue, he said, “As things stand, I consider the Asianpartners much more reliable in commercial terms compared tothe EU ones.”
Right now, continued Sassi, “the overall point may be better formulated as: Are European countries ready to compete with Asian buyers in terms of pricing indexation and timing in order to secure Qatar’s LNG?”
The Asian buyers have been loyal buyers over the years, whilein the past, Europe avoided long-term contracts with the Gulfcountry, Hamidallah pointed out.
In the past, EU countries rejected the long-term deals that Qatarseeks for its energy due to the costs and carbon emissions, butthe Ukraine conflict has probably forced a change in attitude,she explained.
NATO Secretary-General Jens Stoltenberg said Sunday theconflict in Ukraine could last years, Hamidallah said.
Sassi added that by the time sanctions on Russia are lifted, “theworld’s energy order will be rather different compared to the onewe have been used to.
“Importers will have to struggle to find a new balance betweensecurity of supply and energy affordability,” he said.
Energy interdependence, and especially regarding gas, is the lastbridge standing of the EU-Russia relationship, he explained.
“When it will be politically viable, and it may take much timefor this, countries in Europe will attempt to cross this bridgeagain and a new interest in Russia’s competitive supplies couldemerge,” Sassi said.
One thing is for sure, Hamidallah said, the EU and leadingworld economies will need to redouble their efforts and joinforces to find alternative sources of LNG and reduce the overalldemand for natural gas moving forward toward the transition toclean energy.
Liquefaction of natural gas is energy-intensive, she pointed out,which emits carbon and that offsets climate benefits.
Rather than rush to secure gas supplies, “the internationalcommunity would do better to speed up the pace of energytransition as this is the only viable long-term answer to thecurrent world crisis,” Hamidallah said.