Daniel Williams
25/01/2022
In 2021, Vladimir Putin announced Russia would increase gas supplies to Europe to mollify the turbulent energy market. This offered some respite to the continent after the energy crisis threatened to spiral out of control, however, recent developments urge reduced European dependency on Russia while demand for gas persists. In the UK, rising gas prices already led to the collapse of nine small energy firms as well as massive strain on the farming industry. However, this presents an opening for Qatar – the UK’s second-largest gas supplier – as demand for its liquid natural gas (LNG) rises amidst the crisis. This article will examine the roots of the crisis and opportunities for Qatar to capitalise.
The British Problem
Although British Prime Minister Boris Johnson has cited the world’s emergence from lockdown as the cause of the gas crisis, diminished reserves are likely a more realistic explanation. Government attempts to stimulate businesses and wider economies prompted steep rises in global demand for gas, hence, some degree of scrambling for energy is inevitable. Yet, this fails to sufficiently explain the problem. Europe collectively experienced a long and particularly harsh winter during 2020-21. An increased demand for heating homes meant gas reserves depleted faster than in previous years. Another issue is continent-wide maintenance delays on various parts of the gas transport infrastructure, principally pipelines.
Meanwhile, the UK is particularly exposed to the crisis due to higher dependence on wind energy compared to mainland Europe – the last year has not produced enough wind. A poorly timed fire on a critical power cable leading from France posed another obstacle. Additionally, severe structural imbalances between the “big six” energy companies and dozens of smaller firms engender high risks, with many smaller firms going bust during the autumn, unable to manage the squeeze between wholesale price hikes and a domestic price cap. With Storm Arwen causing widespread power outages in November 2021, Ofgem investigated gas and electricity security. Price predictions are inclined towards further price increases, likely to double, due to wholesale issues.
European Energy Exporters
The crisis dynamics are complicated by two of Europe’s biggest energy providers: Norway and Russia. Norway, where production dropped substantially over the past year, has faced significant setbacks due to maintenance problems. Meanwhile, geopolitical tensions illustrate damage due to dependency on Moscow.
In 2021, accusations surfaced of political motivations behind dwindling gas supplies from Russia to Western neighbours. Additionally, with Russia’s Nord Stream 2 pipeline running under the Baltic Sea to Germany, affected states have expressed concerns over the political leverage this development would afford Russia over the European Union, thus delaying its sanctioning. This was followed by a drastic reduction in energy flows to Europe from Gazprom, Russia’s state energy provider. Gazprom denies political motivations. Meanwhile, 2022 has brought fresh concerns for around the stability of Western Europe’s relationship with Russia amid an escalation between the latter and NATO over Ukraine.
Qatar’s Position
Yet, this on-going crisis for Europe offers leverage to other gas-exporting nations, such as Qatar, the UK’s second-largest gas provider. Amidst a highly volatile market, Qatar’s state provider, Qatar Petroleum, can offer LNG, which when cooled into its liquid state, can be easily stored in tankers and transported by ship instead of pipelines, allowing it to reach more remote networks. This is advantageous given Europe’s recent problems with pipelines and also means LNG can be stored strategically to replenish depleted reserves.
Qatar’s advantage has started to manifest over the last month as a last resort partnership between London and Doha appears to have surfaced with the UK struggling to mollify this crisis. However, the UK denies directly asking for additional supplies from the Gulf state.
With growing popularity comes greater competition for LNG, not only within Europe but also South America and parts of Asia, most notably Pakistan and China. It remains to be seen whether Qatar will fulfil growing levels of demand. For his part, the Energy Minister, Saad Bin Sherida Al-Kaabi conceded the small nation will not be able to satisfy everyone. One of the exceptions appears to be China – in early October, a new deal was announced around the supply of 3.5 million metric tonnes of LNG over the next 15 years.
With full awareness of its value, the Qatari state appears to be building its future around LNG, a claim corroborated by comments from Al-Kaabi, who stated they would not be re-joining the Organisation for Petroleum Exporting Countries and instead focusing efforts on LNG production. This follows Qatar’s agreement of the North Field East expansion project, the largest LNG development ever, which will further cement their dominance in the market and possibly squeeze out potential competition. Having already created a frenzy among eager-to-invest western energy companies, the project is projected to increase its output by 40 per cent by 2026, with the first gas likely to be produced in 2023.
The current clamour around gas and LNG provides an opening for Qatar to further cement itself as a critical player on the world stage. With global climate talks on-going, LNG’s popularity may be limited to the short-to-medium term. Though, it could still bring a significant victory to the hosts of this year’s men’s FIFA World Cup which has faced regional isolation since losing allies under terrorism claims in 2017. Moreover, following the controversy surrounding the ruling Al-Thani family’s feature in the Pandora Papers (claims of avoiding £18.5 million in taxes in the UK), Qatar’s monarchy would welcome a timely turn in their fortunes.
Concluding Remarks
The current energy crisis, while far from over, prompts serious questions around liberal assumptions of international relations and international political economy. Namely, is it in our interests to be so exposed to the volatility of international markets?
Similarly, negatively-affected countries may question the reliance on fossil fuels, given the pressing nature of the climate change question. With their oft-touted reliability as a source of energy now discredited, the value of fossil fuels ought to be further scrutinised. A more prudent response to the present challenges might be to transform to a greener, self-sustaining model of energy production. Indeed, the UK’s Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, has stated as much.
Meanwhile, for Qatar, the current scramble for LNG could mark another short-to-medium term victory for the tiny emirate, which has already overcome a Saudi-led blockade and facilitated the US’s long-awaited withdrawal from Afghanistan. In the long term, a Doha-London partnership amidst this gas crisis has potential for other development, such as in trade or green energy, following on from recent agreements between Qatar Foundation and Rolls Royce, for example. What’s more, a public relations victory could divert negative attention surrounding the Al-Thani family’s financial dealings, as disclosed in the Pandora Papers.
