Oct 2022

Qatar makes a killing

As the fallout from Russia’s war in Ukraine hammers economies across the world, Yvonne Gill focuses on one nation that is doing very well from the conflict

The Russian invasion of Ukraine, or its ‘Special Military Operations’, is having far-reaching ramifications for the global economy. Together with its serious security implications and the threat of a cataclysmic nuclear war looming large, national economies are facing crippling stagflation, primarily caused by an unprecedented energy crisis. Adding to these woes are shortages of wheat, edible oil and fertilisers due the sanctions imposed on Russia, which, together with Ukraine, is the largest exporter of these commodities.

While the poorest of the poor suffer most, some of the largest energy companies on our planet are making billions, cashing in on the global crisis. Rising oil prices are proving to be a boon for oil-producing countries such as Saudi Arabia, Kuwait and the United Arab Emirates (UAE). The shale gas barons of America, too, are making unbelievable profits.

Meanwhile, the tiny state of Qatar, analready super-rich Persian Gulfemirate with a population of less than three million, is emerging as the world’s largest supplier of Liquefied Natural Gas (LNG). The emirate, in size just 160 km from north to south, and around 80 km from east to west at the broadest point, is already the world’s third largest exporter of LNG and had the fourth highest per capita income in 2021. Due to the big spike in prices, ithas already raked in a whopping $100 billion from exports this year. 

In retaliation against NATO’s arming of Ukraine and the wide-ranging Western sanctions imposed on it, Russia has stopped gas supplies to Europe. With storage running low and winter approaching, European countries are rushing to find alternatives to Russian gas, even if that means paying higher prices. In the gas war among major suppliers such as the US and Australia, Qatar, with its strategic location, is bidding for first place. The emirate currently exports most of its LNG to Japan, China, South Korea, India and other Asian countries with which it has long-term contracts. But in view of the big demand coming from Europe, it is now making large investments to drastically increase its LNG production.Gas prices, experts maintain,are likely to remain around $40 per million British Thermal Unit (BTU) or more, which is five to ten times higher than prices prevailing over the last five years. As there is no alternative to piped natural gas available, the only option for Europe is to go for LNG. And the biggest winner in this game will be Qatar.

Russia’s‘Special Military Operations’ in Ukraine are impacting the global economy

Shell, the British oil multinational, discovered offshore North Field gas and oil reserves in the Persian Gulf in 1971. At 6,000 sq. km, it is the world’s largest natural gas field, holding more than 13 per cent of all conventional natural gas reserves. North Field is shared by Qatar and Iran.

In the 1970s, gas was a secondary product of petroleum extraction and had no value. The construction of large infrastructure and pipelines was needed for the gas to reach consumers. As oil was cheaper then, it was not feasible to lay pipelines over long distances. However, the energy scenariohad changed by the late 1980s. As Qatar’s petroleum reserves were too small, the Sheikhdom started making big investments to develop natural gas liquefaction and regasification facilities. These included pipelines from offshore wells, liquefaction plants, large methane tankers for transportation by sea, storage facilities and regasification plants. By liquifying the gas at very low temperatures, it can be compressed to 1/600 of its volume, making it convenient to ship via large methane tankers.

The state-owned Qatargas sent the first shipment of LNG to Japan in 1996. Qatar soon became one of the world’s largest exporters of natural gas and a major supplier to countries like Japan, India, South Korea, Taiwan and China. (Europe, however,had opted for cheaper piped gas from Russia, the world’s largest producer.)Later,Australia also jumped into the LNG market, followed by the US, which jacked up its shale gas production to become the world’s largest LNG supplier, although it had started shipping LNG only in 2016. Qatar is estimated to have proven gas reserves of some 25 trillion cubic meters, that is, around 13 per cent of all the reserves discovered to date. Its cost of extraction and liquefaction of LNG is one of the lowest, too.

With storage running low and winter approaching, European countries are rushing to find alternatives to Russian gas

Qatar exports around 110 billion cubic metres of gas in a year. Most of its exports are linked to long-term contracts, though there are spot buyers too. A part of the earnings from LNG exports are deposited with the country’s sovereign wealth fund,the Qatar Investment Authority, which has invested around $450 billion in companies, real estate and other projects around the world. The government’s annual budget is about $55 billion, the better part of which is spent on Qatari citizens, who make up less than 20 per cent of the population. Others are low-paid foreign workers and immigrants, who are not entitled to citizenship and many of the resulting privileges.

Qatar Energy, the state-owned gas producer, has announced joint-venture agreements with five oil giants to invest$29 billion to develop the North Field East project. The companies putting money into the project are the UK’s Shell, Exxon Mobil and Conoco Philips of the US, France’s Total Energies and Italy’s Eni. The project aims to increase Qatar’s LNG capacity from 77 million tonnes to 110 million tonnes by 2026. Qatar Energy is investing another $19 billion to expand its fleet of 70 LNG tankers to 170 to transport LNG anywhere in the world. Qatar is cleverly linking its expansion plans with deferred long-term contracts.

Over recent months, Western leaders have been flying to the Gulf States to ensure alternative supplies of gas and to ensure energy security in the face of the crisis that has arisen due to the unilateral sanctions imposed on Russia, the world’s gas behemoth. They included US President Joe Biden, former UK Prime Minister Boris Johnson and French President Emmanuel Macron. The last to tour the region was German Chancellor Olaf Scholz, who visited Saudi Arabia and the UAE before landing at Doha. The German utility company RWE says it will receive the first shipment of liquefied natural gas from the Abu Dhabi National Oil Company later this year. RWE is also partnering with UAE-based Masdar to explore further offshore wind energy projects, according to reports.

But the toughest bargain that Germany, Europe’s largest economy, is trying to strikeis with Qatar, which has the largest LNG facilities in the region. Qatar was thus Scholz’s final but most important destination. The official German release said that he met the emir, Sheikh Tamim bin Hamad Al Thani, and discussed bilateral relations, regional issues such as tensions with Iran, and Qatar’s hosting of soccer’s World Cup. But behind all that smokescreen were the negotiations on LNG supplies. Qatar is insisting on long-term contracts, while Germany wants more flexibility.

CONTINGENCY PLANS: German Chancellor Olaf Scholz (l) with Sheikh Mohamed bin Zayed Al Nahyan, President of the UAE, in Abu Dhabi on Sept. 25

Qatar is insisting on long-term contracts, while Germany wants more flexibility

Paradoxically, a day earlier the German Chancellor planted a tree at a mangrove park in the United Arab Emirates, as a token of Germany’s commitment to a clean environment. However, scientists point out that the extraction, transportation, liquefaction and regasification of LNG resultsin almost as many emissions as from burning of other fossil fuels. These extra emissions mean LNG’s greenhouse gas impact is only slightly smaller than that of petroleum and coal.Offshore gas drilling results in leakage of methane, itself a potent greenhouse gas that can trap heat in the lower layer of the atmosphere more efficiently than carbon dioxide. The large scale use of LNG, therefore, means the Earth will be hurtling faster toward a climate catastrophe with much higher accumulation of greenhouse gases in the troposphere than our present estimates.

Also, the big money that Qatar earns will go to line the deep pockets of the 8,000 Qatari royals whose collective assets are valued at $335 billion.The ruling Thani family have investments in properties including London’s Shard skyscraper, Olympic Village and Harrods department store, Barclays Bank, British Airways and Volkswagen, as well as New York’s Empire State Building,. The same is the case with other Gulf monarchies.

Even as people on the nearby African continent starve, the Qatari monarchy is lavishing funds on hosting the FIFA World Cup in Doha, scheduled for November. With Europe clamouring for more gas, the kings and emirs of the region will have enormous wealth to squander – thanks to the far-off war in Ukraine.

Yvonne Gill is a freelance journalist based in London