Despite Blockade, Doha is Becoming the Saudi Arabia of Natural Gas

Published September 13th, 2018 - 11:34 GMT
A Qatari Gas Rig (AFP)
A Qatari Gas Rig (AFP)

In June 2017, a blockade was imposed on Qatar by a coalition of Arab states - spearheaded by Saudi Arabia and the UAE. The leading Gulf states hoped to isolate Qatar from dealing in international business, and from alliances with world powers. Fifteen months later, the blockaders show no signs of relenting. 

Yet Qatar also shows no signs of being significantly affected by it. It has been less of a devastating blow to the small but wealthy emirate, and more of an annoyance. And if recent developments in Qatar’s energy sector are anything to go by, it is well prepared to carry on, and to prosper even if the blockade continues. 

In the past week, Qatar has announced a major deal to supply Liquefied Natural Gas (LNG) to China for the next 22 years. Beijing will buy 3.4 million tonnes every year for this period from Doha. This is a hugely significant development for Qatar’s energy sector, since it helps cement the country’s position as a leading LNG exporter for the long term. Gerd Nonneman, Professor of International Relations and Gulf Studies at Georgetown University’s School of Foreign Service in Qatar told Al Bawaba:

“Qatar has had the advantage of huge LNG reserves and is the established no. 1 supplier position to date, but also has a clear long-term orientation and success in making the supply deals to underpin long-term success. The 20-year supply deal just signed between QatarGas and PetroChina is just the latest in a number of developments consolidating Qatar’s current and future role as a key global energy player. Indeed, with Qatar’s planned LNG production expansion from 77 million to 100 million tonnes per annum within the next 5 years, it may well regain the position as the world’s top LNG exporter (which Australia is set briefly to take over in the mean time).”

 

Meanwhile, Berlin has also announced plans to build a LNG terminal in Germany. And Qatar Petroleum is in talks about supplying the gas for it. The particulars of the German case go to show that LNG is becoming an increasingly powerful presence in geopolitics as more and more countries invest in it. Germany is heavily reliant on LNG, and got into a spat with US President Donald Trump at the most recent NATO summit because of its planned gas pipeline with Russia.

The pipeline, known as Nordstream 2, was highly controversial given that it would hugely increase Germany’s dependence on Russia for energy, at a time when European and Russian relations are extremely strained. One way that Berlin could mitigate its dependence on Russia is through the construction of an LNG terminal, and a major deal to buy Qatari gas.

Natural gas, as its name suggests, is turned into energy from its gaseous form, and so would normally need to be piped directly from the source. However, it is possible to cool the gas to the point that it liquefies, at around a temperature of -160°C. In this state, it can be shipped rather than piped, and so as long as a country builds the processing infrastructure, the consumer country does not need to depend on a functioning pipeline.

Thus Germany’s LNG terminal is partly a conciliatory gesture to Trump, and partly a precaution against over-reliance on Russian gas. And it is Qatar that stands to gain. Not only is it the world’s largest exporter of LNG, but it has heavily invested in overseas LNG markets as well. Even if another country ends up supplying the fuel or the infrastructure, Qatar will probably benefit. 

LNG looks set to become an even more significant source of global energy in the medium term. Though a fossil fuel, natural gas is much cleaner in terms of emissions than oil. As the world looks to transition away from pollutants and towards renewable energy sources, LNG is an obvious intermediary energy source. 

Doha has long hoped to fashion itself “the Saudi Arabia of natural gas”, by maximizing the power potential of its largest energy asset. >

Some caution is required here. Qatar has done its best to carve out both freedom from the fickle oil market, and a foreign policy independent of its Gulf neighbours since the oil price bust and the Iran-Iraq “tanker wars” of the 1980s. Doha has long hoped to fashion itself “the Saudi Arabia of natural gas”, by maximizing the power potential of its largest energy asset. But despite the rapid expansion of the LNG market, it is not going to “replace” oil in the near future, and Qatar is not going to eclipse Saudi Arabia on the energy market with gas. 

A specialised LNG container ship (AFP)

Professor Steffen Hertog, an expert in Gulf political economy at the London School of Economics and the author of “Princes, Brokers and Bureaucrats: Oil and the State in Saudi Arabia” told Al Bawaba:

“Many energy analysts see LNG as a transition fuel that fills the gap between oil and renewable energies, which still will require a few decades to dominate electricity production. However, LNG is mostly used for electricity production and heating, not as a transport fuel (although there are some gas to liquid projects trying to change this). Oil is used for electricity generation only in exceptional circumstances and is also only a secondary fuel for heating. So as an LNG exporter, Qatar gains in relative terms, but it’s not like Qatari gas can displace Saudi oil on any significant scale.”

LNG does give Qatar a chance to safeguard its medium to long-term economic wellbeing, as well as to solidify important relations with global powers. Germany and China are cases in point that many countries see LNG as a preferable source of electricity generation, since they are prepared to make the long-term commitments that LNG use requires. But these commitments yield long term benefits for the buyer as well. James Dorsey, a Senior Fellow at the S. Rajaratnam School of International Studies at Singapore’s Nanyang Technological University told Al Bawaba:

Long term contracts are the nature of the LNG business. You don’t have a natural gas spot market like you have an oil spot market. Natural gas always means longer term contracts. At the same time, it allows countries like China and Germany to be able to lock in its energy supplies and serve its needs and to guarantee energy security in the long term. This is a particularly major issue for China.”

It will not be smooth sailing for Qatar all the way. Its large North Field of gas overlaps the Iranian South Pars gas field. As Qatar steps up production, it is repeatedly forced to deny cooperation with Iran. Given that suspected Iranian links tend to provoke harsh and unpredictable responses from Riyadh and its allies, it will probably have to keep doing so, and there is no guarantee that denials will be enough to protect Qatar from further aggression.

Qatar’s energy supplies give it an economic lifeline, and strong links with international powers for the forseeable future. China’s huge investments in natural gas will irritate Saudi Arabia. Not only does Qatar stand to benefit, but so – potentially – does Iran, which has vast deposits that it can also begin to pipe over the next five years. China, the country in the strongest position to evade American sanctions, is the most likely contender.

 

Saudi Arabia knows that demand for its oil supplies is finite, hence the emphasis of its Vision 2030 reform plan on renewable – and especially solar – energy. Qatar is not Saudi Arabia’s direct energy competitor. Rather, both countries are set to shake up global energy consumption as both they, and the planet, try to keep up with the realities of climate change. Neil Bhatiya, a Research Associate in Energy, Economics and Security at the Center for a New American Security told Al Bawaba:

Natural gas is a much more direct threat to global coal usage. The thing that truly threatens oil's dominance would be the widespread adoption of electric vehicles. Even in that case, oil has a longer shelf life as an aviation fuel and in the manufacture of plastics.”

Nevertheless, Saudi plans to sink Qatar economically or diplomatically haven’t worked so far. And as the demand for LNG grows around the world, the likelihood of them working in the future goes down.  


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