While the US and China are indirectly involved in the ongoing Russia-Ukraine and Israel-Hamas wars, the conflict itself between the world’s two largest Western powers has yet to escalate. Many senior officials on both sides believe it is only a matter of time before it does, but the consensus is that at least the first phase will follow the template of conventional warfare seen in the current Ukraine conflict. As recently as March, Admiral John Aquilino, commander of the US Indo-Pacific Command, said that the Chinese military will be ready to invade the disputed territory of Taiwan by 2027. Given this, liquefied natural gas (LNG) is likely to remain the world’s emergency energy source, just as it was after Russia invaded Ukraine. This is something I analyze in detail in my book on the new global oil market order. LNG is readily available in the spot market and, unlike pipelined gas and oil, can be moved quickly to where it is needed. Unlike pipeline energy transport, transporting LNG does not require the construction of vast pipelines across various terrains or the development of large-scale infrastructure to support them. Against this backdrop, competition between the US and its allies, and China and its partners for upcoming long-term LNG contracts from Qatar will be fierce.
According to oil and gas giant Shell, global LNG demand is projected to grow by more than 50% by 2040, even without any new major conflicts in the coming years. Before the United States became the world’s largest LNG exporter late last year, Qatar had long held that position, only occasionally ceding the top spot to Australia. With the outlook for U.S. LNG exports unclear and approval of permits for new LNG projects remaining suspended, Qatar is set to become even more important. In addition to this, U.S. LNG exports to countries with which it does not have a free trade agreement also remain suspended indefinitely. Many of these are in Asia, and recent comments from the Asia Natural Gas and Energy Association have suggested that a prolonged suspension of LNG exports would have devastating consequences, forcing these countries to continue using coal for power generation or to increase their reliance on supplies from the Middle East and Russia. Europe is currently well-supplied with LNG, but even without further escalation of the conflict with Russia in the East or increased demand competition from Asia, the balance of the supply chain remains complex and delicate. Related: Oil price crash hits BP, Shell shares
According to recent comments by the Qatari government, under current circumstances, Qatar will account for at least 40% of new LNG supplies worldwide by 2029. These projections are in line with independent industry figures, with the major increase in production planned to come from the continued expansion of the North Field project. The 6,000-square-kilometer field is one of two sites that make up the world’s largest gas field. The other 3,700-square-kilometer section is Iran’s South Pars gas field, which accounts for about 40% of the Islamic Republic’s estimated total gas reserves of 33.8 trillion cubic meters (tcm) and about 75% of its gas production. Qatar’s North Field expansion plan will see six major new developments at North Field East (NFE) and North Field South (NFS) by 2029. Four new “trains” (production facilities) of 8 million metric tonnes per annum (mtpa) each will be built at the NFE site, and two more (with the same capacity) will be built at the NFS site, for a total of 48 million metric tonnes per annum of new LNG production. At the end of February, Qatar Energy announced another set of projects focused on North Field West (NFW), which will boost LNG production from the current 77 million metric tons per year to 142 million metric tons by the end of the century. This compares with 404 million mtpa of LNG traded globally in 2023, a figure that the industry expects to reach around 625-685 million mtpa in 2040. Qatar has been keeping an eye on these NFW sites, and has very recently announced that it will soon sign further long-term LNG supply agreements, on top of the 25 million tonnes sold it secured last year.
However, there is no guarantee that the UAE will award the contract to the West. The UAE has long been forced to perform a delicate diplomatic balancing act between the two major Middle Eastern powers (Saudi Arabia and Iran) and their main superpower sponsors (the United States, until relatively recently, China), and it is directly located between the two major players in the region. Leading up to the Russian invasion of Ukraine, China was engaged in a flurry of activity to expand its gas sources and delivery methods, which I also analyze in detail in my book on the new global oil market order. This began in March 2021 when China Petroleum & Chemical Corporation (Sinopec) and Qatar Petroleum (QP) signed a 10-year sales contract for 2 million tonnes of LNG per year. Another large long-term contract was signed in December 2021 for Qatar to supply LNG to China. The contract, signed between Qatar Energy and Guangdong Energy Group Natural Gas Co., Ltd., covers 1 million tonnes/year of LNG from 2024 to 2034, with the possibility of extension. Apart from ensuring diversification of gas supplies (and rapid delivery when needed), these contracts (and subsequent ones) with China subtly moved Qatar, in the eyes of the US, into the Sino-Russian-Iranian sphere of influence at that time. This was of particular concern to Washington, as it represented an alliance between the world’s largest LNG exporter at the time (Qatar) and one of the world’s largest gas reserve holders (Iran), both of which, together with Russia, were founding members of the 11-nation Gas Exporting Countries Forum (GECF). The deal further strengthened the link between this huge global natural gas resource and China, which has been the world’s largest buyer of energy products for the past two decades.
As a result, at the end of March 2022, the first of a series of strategically crucial meetings for Washington and its allies was a meeting with Qatari officials aimed at securing urgently vital LNG supplies for the West and integrating Qatar more decisively into the US sphere of influence. After a meeting in March with Qatar’s Emir Sheikh Tamim bin Hamad Al Thani and German Economy Minister Robert Herbeck, President Joe Biden reiterated his January view of Qatar as a “major non-NATO ally.” As detailed in my new book, the US has prepared several more business and political “carrots and sticks” for Germany and Qatar to ensure that a Russian invasion of Ukraine in 2022 will not be as innocuous as its 2014 invasion of the country. In May 2022, Qatar signed a letter of intent with Germany on energy cooperation, aiming to become a major supplier of LNG. These plans will run in parallel with, but are likely to be completed significantly sooner than, Qatar’s plans to supply bulk LNG to Germany from its Golden Pass terminal on the Gulf Coast of Texas. Qatar Energy holds a 70% stake in the project, with the remainder held by US-based ExxonMobil. Following these developments, two sales and purchase agreements were signed in December 2022 between Qatar Energy and US-based ConocoPhillips to export LNG to Germany for at least 15 years from 2026.
The fact that these LNG deliveries to Germany involved major US companies working with major Qatari energy companies communicated three important things to the energy markets, and to China and Russia. First, from the point of view of European energy buyers, Washington was not going to allow a return to a situation in which the continent and its de facto leader, Germany, funded much of the Russian state through its vast imports of gas and oil. Instead, they could rely on the US and its networks to provide them with whatever they needed. Second, Washington was also not going to sit idly by while China siphoned off all available energy supplies at the expense of both the US and its allies. And third, that the new world oil market order had reached a tipping point and it was time to choose a side. Nevertheless, given its precarious geographic and geopolitical position, Qatar’s new LNG orders cannot be taken for granted. Last November, Qatar signed a 27-year supply contract with China’s Sinopec for 3 million tonnes/year.
Article by Simon Watkins of Oilprice.com
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