In its hunt to replace Russian energy imports, Europe has found a new best friend: Qatar, the small Middle Eastern country that is rich in natural gas.
Before the invasion of Ukraine, European countries enjoyed a large and stable flow of Russian gas. In 2021, the EU relied on Russia for 40% of its natural gas, but the war has made this relationship increasingly untenable, and Europe is scrambling to find other suppliers.
The EU has already begun to sign long-term deals to increase gas imports from the U.S. But the necessary export infrastructure in the U.S. is insufficient to offset the loss of Russian gas imports.
Enter Qatar, which was the world’s sixth largest producer of natural gas in 2020. The country has recently made major investments to ramp up its natural gas production and infrastructure, and is poised to capitalize on the growing demand for natural gas.
A new natural gas leader
In its efforts to wean itself off Russian gas, Europe is trying to increase its liquefied natural gas (LNG) imports from non-Russian producers, including Qatar. LNG is a refrigerated form of gas that is more expensive but significantly easier to transport, as it can be loaded on ships and does not require building a new pipeline.
Qatar was the world’s biggest LNG exporter last year, and the country has big ambitions to grow its business even more.
In 2019, Qatar announced plans to increase its LNG exports 64% by 2027. This month, the country’s largest state-owned petroleum company struck a deal for a major expansion of its North Field reserve, one of the world’s largest natural gas deposits. The expansion will let Qatar ramp up its LNG production capacity to 110 million tons a year, up from 77 million in 2021.
European countries have been requesting additional LNG imports from Qatar since February, shortly before the war broke out. That includes Germany, the European country most reliant on Russian gas. A new European gas pipeline to be opened on the border between Greece and Bulgaria this summer will make it even easier for Qatari LNG shipments to reach the continent.
Qatar’s focus on expanding natural gas production comes as the country tries to compete with other major LNG producers, including the U.S. and Australia. But Qatar’s investment is coming at an opportune time as demand for LNG begins to spike worldwide.
Rising to meet demand
Europe clearly needs Qatar’s gas, but demand is rising elsewhere.
Almost 80% of Qatar’s current LNG exports go to Asia, with South Korea, India, China, and Japan being the biggest buyers. Qatar’s move to increase its production capacity was in part motivated by a need to stay competitive with Australian LNG exports to Asia amid the rising demand there for LNG.
China became the world’s largest LNG importer last year when it signed a 15-year deal with Qatar to import 3.5 million metric tons of LNG annually. The first shipment of Qatari gas arrived in China earlier this month.
The global LNG market is expected to be worth over $66 billion by 2027, and between expanded production capacity, growing demand in Asian markets, and an energy-starved Europe, Qatar could be poised for a huge windfall in the coming years.
