With Saudi Arabia on one side of it and Iran on the other, Qatar had for a long time to play a delicate diplomatic balancing act between the two great Middle Eastern powers and their principal superpower sponsors. In Saudi Arabia’s case, its key superpower backer for decades was the U.S., of course, and in Iran’s case over the same period it was Russia and then China as well. Following the recent landmark relationship resumption deal between Saudi Arabia and Iran, brokered by China, analysed in depth in my new book on the new global oil market order, there have been fears in Washington that Qatar might slip firmly as well into the China-Russia sphere of influence. This would jeopardise the informal understanding reached between the U.S. and Qatar after Russia’s invasion of Ukraine in February 2022, which was that Qatar would continue to provide the West with vital new supplies of gas to substitute those lost from Russia. According to sources close to the U.S.’s and European Union’s energy security complexes spoken to exclusively by OilPrice.com last week, Qatar is firming up another huge long-term deal to supply liquefied natural gas to China.
The latest deal involves two parts. The first is a 27-year agreement for Qatar – the world’s largest exporter of LNG – to supply China (in the shape of the China’s National Petroleum Corporation, CNPC) with 4 million tons of LNG per year. The second is an agreement for CNPC to also take a 5 percent equity stake of one LNG train of QatarEnergy’s North Field Expansion gas project. On the first part, as also analysed in depth in my new book, from just over one year before Russia’s invasion of Ukraine, China had been engaged in a flurry of activity to expand its sources and methods of gas supply. This began in earnest with Qatar in March 2021 when a 10-year purchase and sales agreement was signed between the China Petroleum & Chemical Corp (Sinopec) and Qatar Petroleum (QP) for 2 million tonnes per annum (mtpa) of LNG. December 2021 saw another major long-term contract for Qatar to supply China with LNG, on that occasion a deal between QatarEnergy and Guangdong Energy Group Natural Gas Co for 1 mtpa of LNG, starting in 2024 and ending in 2034, although it could be extended. A sceptic and/or realist might infer from these deals alone that Chinese President Xi Jinping has been given advanced warning of Russia’s invasion plans for Ukraine by his counterpart Vladimir Putin.
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Following the invasion in February 2022, China did nothing for a while that might be construed as truly provocative by the U.S. and its allies, particularly those in Europe close to Ukraine. Beijing knew very well that the U.S. had decided to try to rally its NATO allies in drawing a line across Europe over which it would tolerate no further Russian military advances. The key to this, as examined in depth in my new book on the new global oil market order, was to ensure that Europe had sufficient gas and oil supplies to substitute for those they had lost from Russia. In particular, it was crucial that Germany had access to these supplies, as it was not only a huge buyer of Russian gas, and oil, but it was also politically and economically the de facto leader of the European Union alliance. Without Germany’s support for wide-ranging sanctions on Russian gas and oil, the U.S. plan would never work, and Russia’s 2022 invasion of Ukraine would be met with no real consequences, exactly as happened when it annexed Crimea in 2014. Urgency of replacing these supplies was vital at that point, and LNG is the ‘swing supply’ of the gas sector. It can be bought and shipped at very short notice, unlike the costly and time-consuming infrastructure required to move gas through pipelines.
As highlighted in my new book, plans were quickly put into place for Europe to reduce its gas and oil needs for Russia over time, and in the interim to attempt to reduce their energy usage as winter 2022 approached. Qatar emerged as a top candidate to meet these new supply demands for Europe, for two key reasons. The first was that it already had the third-largest gas reserves in the world (after Russia and then Iran), at 872 trillion cubic feet (Tcf). The second was that at the time it had no particular allegiance to either of the major Middle Eastern powers that flanked it, or to China or Russia. May 2022, then, saw Qatar sign a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag on 19 May 2022. This would include the deployment of four floating LNG…
Read More: What Qatar’s Latest Megadeal With China Means For Global LNG Markets