Qatar will be world's largest LNG exporter, but can't replace Russia

A new deal signed in Qatar sees QatarEnergy partner with Italian energy multinational Eni to take on the world’s largest liquefied natural gas project.

 Buildings are seen from across the water in Doha, Qatar (photo credit: REUTERS)
Buildings are seen from across the water in Doha, Qatar
(photo credit: REUTERS)

QatarEnergy and Italian energy multinational Eni will partner in the expansion of the world’s largest liquefied natural gas (LNG) project, under a deal signed at the state-owned Qatari company’s headquarters in Doha on Sunday.

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What is the North Field East project?

QatarEnergy, which operates all oil and gas activities in Qatar, including exploration, production, refining, transport, and storage, will own 75% of the new joint venture company, while Eni will own 25%.

The joint venture will hold a 12.5% interest in the entire North Field East project, the world’s biggest natural gas field.

The $28.7 billion North Field East project, launched by QatarEnergy in the summer of 2019, is under construction. It will significantly enhance Qatar’s gas export capacity from the current 77 million tons per year to 110 million tons per year.

The project will also focus on minimizing carbon emissions and damage to the environment.

The goal: diversifying energy sources

Europe is seeking to diversify its energy sources amid the sanctions 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 after Russia and Iran, is partnering with international companies to expand its production and export capacity. This will position the Gulf 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.

“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,”

QatarEnergy

Amal Hamidallah, executive director of the Arab Gulf Foundation, explained to The Media Line that the expansion was planned years ago but since the energy crisis hit Europe, Qatar has helped Britain with extra supplies and announced a cooperation deal with Germany.

“This explains why Italy and other EU companies want to be involved in this project,” she said.

Francesco Sassi, a researcher in energy geopolitics and markets at Ricerche Industriali ed Energetiche, a research center and consultancy based in Bologna, Italy, told The Media Line that in the future Qatar will be able to add considerable quantities of LNG to Europe’s supply.

He added, however, that for now, its capacity to increase exports is rather limited.

Unable to replace Russia

Hamidallah noted that filling the gap left by the reduction in the Russian gas supply to Europe is “not practically possible” right now, 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 EU natural gas imports that came from Russia, she explained.

Second, continued Hamidallah, the transportation of the gas is an issue. “There are no gas pipelines from Qatar to Europe, so Qatar’s gas would have to be shipped to Europe in liquefied form,” 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 incur compensation claims from those buyers,” said Hamidallah.

Sassi added that Qatar’s strategic decision several years ago to heavily invest in the expansion of gas production, when the market was oversupplied, will likely provide it with the ability to choose whichever market suits its export plans.

On this issue, he said, “As things stand, I consider the Asian partners much more reliable in commercial terms compared to the 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 to secure Qatar’s LNG?”

The Asian buyers have been loyal buyers over the years, while in the past, Europe avoided long-term contracts with the Gulf country, Hamidallah pointed out.

In the past, EU countries rejected the long-term deals that Qatar seeks for its energy due to the costs and carbon emissions, but the Ukraine conflict has probably forced a change in attitude, she explained.

NATO Secretary-General Jens Stoltenberg said Sunday the conflict in Ukraine could last years, Hamidallah said.

Sassi added that by the time sanctions on Russia are lifted, “the world’s energy order will be rather different compared to the one we have been used to.

“Importers will have to struggle to find a new balance between the security of supply and energy affordability,” he said.

Energy interdependence, and especially regarding gas, is the last bridge standing of the EU-Russia relationship, he explained.

“When it will be politically viable, and it may take much time for this, countries in Europe will attempt to cross this bridge again and a new interest in Russia’s competitive supplies could emerge,” Sassi said.

One thing is for sure, Hamidallah said, the EU and leading world economies will need to redouble their efforts and join forces to find alternative sources of LNG and reduce the overall demand for natural gas moving forward toward the transition to clean 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 international community would do better to speed up the pace of energy transition as this is the only viable long-term answer to the current world crisis,” Hamidallah said.