Experts believe LNG is here to stay amid global efforts to slash carbon emissions.
Energy security and liquified natural gas (LNG) have dominated headlines over the last year. Among the discussions stands a large, yet geographically small, player — Qatar.
The Gulf state has been at the centre of energy discussions, particularly during the onset of Russia’s invasion of Ukraine, as Europe scrambled to seek an alternative to its heavy dependence on Moscow’s gas.
The demand for energy reflected well on Qatar’s oil and gas sector, with state-owned QatarEnergy recording a net profit of $42.47 billion (QAR 154.6 billion), representing a 58% year-on-year increase.
“Qatar managed to increase production slightly last year in order to help meet increased global demand for LNG following the reduction of Russian pipeline exports to Europe, underlining its role as a secure source,” Jamie Ingram, Senior Editor at Middle East Economic Survey (MEE), told Doha News.
Since the early detection of its gas resources, energy has evolved into a potent instrument of Qatar’s soft diplomacy, propelling the nation towards achieving global production dominance.
Rise to prominence
In 1971, Qatar entered the realm of natural gas by making its inaugural non-associated gas discovery off the north-east coast, eventually establishing what is currently recognised as the North Field. This would mark a pivotal moment for the Gulf state.
The gas-rich area, which Qatar shares with Iran, carries more than 900 trillion standard cubic feet of gas reserves and represents 20% of the world’s proven reserves.
Qatar’s proven reserves witnessed a steady increase over the years, jumping from 2,265 billion cubic meters in 1981 to 8,500 billion cubic meters in 1996.
It was not until the late 1990s when the country made its first sale and purchase agreement with Japan’s Chubu Electric for 4 tonnes of LNG per annum, marking the beginning of a decades-long gas industry friendship between Tokyo and Doha.
Prior to the discovery of gas, oil was the primary driver of Qatar’s wealth until it became clear to the country that natural gas is the future. Qatar had utilised the years of low oil demand, especially during the 2007 global financial crisis, as an opportunity to grow its use of LNG.
The Gulf state recorded a major milestone in 2010 when its production of LNG reached 77 mtpa (million tonnes per annum), climbing up the industry ladder to become the world’s largest LNG producer.
Despite having already topped the global LNG race, Qatar has continued to increase its annual LNG production, promising to reach 126 mtpa by 2027 through the North Field Expansion project—the largest of its kind on a global scale.
Qatar’s announcement of the North Field campaign came at a critical time in its economy in 2017, during which the Gulf state found itself grappling with an unexpected embargo was led by its neighbours—Saudi Arabia, the United Arab Emirates, Bahrain and Egypt.
More than a year into the rift, by 2019, Qatar made the surprising decision of exiting the Organisation of the Petroleum Exporting Countries (OPEC), which Saudi Arabia and the UAE hold major influence in.
Qatar’s energy minister Saad Sherida Al Kaabi said at the time that the country wanted to shift its focus towards natural gas, a move that has since solidified its position in the LNG world.
Four years after its withdrawal from OPEC, Qatar became the star of the show in the energy sector, with analysts pointing to the $30 billion North Field expansion project’s major role in turning the Gulf state into a reliable partner in the gas industry.
“Qatar’s decision to invest in expanding capacity helps reassure importers that it is committed to being a reliable supplier for decades to come. Countries such as China can continue to invest in expanding gas-fired power plant capacity safe in the knowledge that new supplies are coming onto the market,” Ingram said.
Europe gas demand
Before Russia’s invasion of Ukraine, Qatar had already established itself as the leading global exporter of LNG in 2021, surpassing its strong competitors in the market, namely Australia and the United States. Even prior to these events, Qatar had been meeting 5% of Europe’s gas demand, with Italy standing out as its largest consumer within the region in 2021.
In 2022, the Gulf nation’s substantial investments in the gas sector caught the attention of its European partners. This interest was further sparked by concerns about potential shortages, which were heightened by the Ukraine crisis.
Just weeks before the full-blown invasion, the US administration held discussions with Qatar on providing Europe with gas supply, particularly given that the Russian pipeline made up 40% of the region’s gas supply at the time.
President Joe Biden met with Qatar’s Amir Sheikh Tamim bin Hamad Al Thani in Washington in January last year, where he named the Gulf state its Major Non-Nato Ally (MNNA).
After the US’ initial meeting, European countries also began engaging in discussions with Qatar as they attempted to ditch Russian gas, with some industry officials visiting Doha throughout 2022.
“Globally, Qatar is seen primarily as a reliable supplier of huge volumes of reasonably-priced LNG – it is one of the largest suppliers and one that is committed to further expansion,” Ingram said.
In May last year, Sheikh Tamim embarked on a tour around Europe, where energy talks were reportedly at the centre of the agenda. The tour included country’s such as Slovenia, Spain, Germany, the United Kingdom and France.
One key outcome of the tour was the signing of an agreement with Germany’s energy ministry in the sector. Then in November the same year, Germany signed a 15-year LNG agreement with Qatar, with flows expected to start in 2026.
While Qatar repeatedly expressed its willingness to extend a helping hand to its European partners, it also maintained that it cannot unilaterally bridge the supply gap.
Qatar already holds long-term fixed contracts with several Asian customers— Japan, China, India and South Korea—who make up the majority of its exports, rendering the country’s capacities to divert only 10%-to-15% of its existing LNG production to Europe until its new projects are operational.
“Qatar’s success in increasing exports from its existing facilities was key in helping Europe pivot to LNG. While the additional volumes weren’t huge, when coupled with rising US exports this helped prevent even more severe price spikes in 2022,” Ingram told Doha News.
More than one year into the Ukraine crisis, Ingram believes that Europe has “largely achieved” its plans to abandon Russian gas, with the current level of imports representing “a fraction of pre-2022 levels”.
“Especially as LNG import capacity increases, with Germany for instance committing to the fuel. This is more expensive than relying on Russian pipeline gas, but for now there is political commitment to the strategy. A return to the level of reliance on Russian gas seen up to 2021 is highly unlikely,” the analyst said.
Future of LNG
Beyond geopolitical crises, Qatar’s expansion of LNG production goes in line with global efforts in cutting emissions, with the Gulf state promoting the gas as a green transitional fuel.
Qatar announced the national Climate Change Action Plan in 2021, aiming to reduce around 25% of its greenhouse gas emissions by 2030, in line with Qatar’s National Vision 2030.
The Gulf state is also a founding member of the Net-Zero Energy Producers Forum, a group that represents 40% of global oil and gas production.
The use of LNG also falls in line with the Paris agreement, which aims to limit global warming through the reduction of emissions.
Last year, the EU proposed rules to label various gas and nuclear power plants as sustainable investments based on a set criteria under the Taxonomy Complementary Climate Delegated Act.
Analysts had told Doha News at the time that the EU’s move is believed to work in Qatar’s favour as the demand for natural gas as a transitional fuel will rise.
“The LNG sector is ultimately a cleaner fuel than oil and other fossil fuels, but at the same time it does come with emissions. But I think if they’re labeling it as green energy, that ultimately would encourage further demand in LNG,” Steven Wright, Associate Professor of International Relations at Hamad Bin Khalifa University, told Doha News.
Unlike compressed gas, LNG requires less storage space and reduces greenhouse emissions by 30-40%. The gas also remains the cleanest and safest to transport due to its ability to evaporate in the event that it is accidentally released in the process.
From a birds-eye view of the gas market and beyond the industry’s changes, analysts believe LNG is here to stay.
“LNG’s role in the global energy sector will continue to grow for the foreseeable future. It has an important role to play in the energy transition as gas is a much cleaner burning fuel than coal, and so replacing coal with gas has significant environmental benefits,” Ingram said.
The industry analyst also noted that “there is little doubt that the role of renewables is also rising, so there is a limit to the growth potential for LNG.”
While Qatar’s mega North Field expansion has yet to go online, analysts believe the Gulf state is poised to remain at the forefront of the LNG race for the foreseeable future, and is set to be heavily relied on globally.