On February 24, as Russian tanks rolled into his country, Ukraine’s president made several phone calls. One of them, perhaps surprisingly, was to Qatar’s emir, Tamim bin Hamad al-Thani, perhaps seeking mediation (Qatar’s foreign minister subsequently spoke with his Russian counterpart). Two weeks prior, Tamim was sitting in the White House with President Joseph R. Biden Jr., the first Gulf leader granted this honor. At the top of the agenda were U.S. efforts to secure additional gas supplies for Europe in the event of a disruption to supplies from Russia. Then February 22, just after Russian President Vladimir Putin ordered troops into the Donbas region of eastern Ukraine and Germany responded by suspending certification of Russia’s Nord Stream 2 natural gas pipeline, Tamim hosted the leaders of the Gas Exporting Countries Forum. Among them was Russia’s energy minister, Nikolay Shulginov, and Putin sent greetings to the event (pledging that Russia would “continue uninterrupted gas deliveries to global markets”); there had been rumors he might attend in person, but he was clearly occupied. Interestingly, the meeting also included Iran’s president, on a rare foreign visit just as nuclear talks in Vienna appeared to be nearing conclusion.

This sequence of meetings is a fresh reminder of the extent to which the tiny Gulf state of just 300,000 citizens is at the heart of global gas markets and geopolitics. Qatar has an important role to play. Although it may not have much spare capacity to help Europe right now, if the conflict disrupts the Russian gas that supplies 40% of European consumption, it could make a significant contribution in the future as it plans to expand its liquefied natural gas production by nearly two-thirds from 2025-27. Its offer for depoliticized security of supply looks more appealing than ever to energy consumers in Europe and beyond. It is unclear if Qatar will have any geopolitical involvement in the Ukraine conflict, although it will likely use strong relations with Russia, Ukraine, and the West to encourage de-escalation and dialogue, similar to its behavior in other conflicts.

Friends With the West and Russia

Qatar’s geopolitics strategy, since Tamim’s father became emir in 1995, has been to build wide-ranging relationships, which have often appeared contradictory but have also sometimes enabled it to play a uniquely useful role. For example, it hosts the United States’ Central Command forward headquarters for the Middle East but is also trusted by the Taliban. This enabled it to orchestrate evacuations from Kabul after the U.S. withdrawal in 2021. It is friendly with both rival Palestinian factions, Fatah and Hamas, and also has an effective working relationship with Israel (despite sticking to the Arab Peace Initiative as the criteria for considering normalizing ties), which has enabled it to repeatedly de-escalate conflict on the Gaza border and provide energy, housing, and humanitarian aid.

When it comes to Russia, Qatar has many points of contact. Qatar and Russia are the twin giants of the Gas Exporting Countries Forum, which, unlike OPEC, is a talking shop rather than a market influencer. (Qatar left OPEC in 2019 to focus on gas.) Soccer is another unlikely connection, as Qatar will host the FIFA World Cup beginning in November, as Russia did in 2018, when Putin symbolically handed Tamim, a guest of honor, the hosting mantle. Qatar Investment Authority has also become a major investor in Russia, including in partnerships with the Russian Direct Investment Fund (as have other Gulf funds). Qatar made the largest single investment, buying a 19% stake in Russian oil company Rosneft for about $11 billion in 2016 (via a complicated debt-backed vehicle, although the Qatar Investment Authority eventually took direct ownership of the stock in 2018). That may seem like a strange choice, but Qatar’s own crude oil production is in decline, so it could be seen as a sort of diversification of its gas-dominated hydrocarbon portfolio. Qatar invested in Russia’s second-largest bank, VTB Bank, in its 2013 initial public offering and remains the second-largest foreign investor with a 0.5% stake (the Russian government owns 92% and the United States sanctioned it on February 24) and bought a 25% stake in Moscow’s Vnukovo Airport in 2018.

Qatar has developed these links with Russia even while competing with it in gas markets (where Qatar also now competes with the United States) and strongly disagrees with it on several geopolitical issues, notably Syria, where Qatar has remained the most fervent Arab critic of the regime of President Bashar al-Assad. As noted, these tensions are a feature, not a bug, in Qatar’s diplomacy, and it is possible that Doha could play a role in the coming months, as it has in other conflicts. Other Gulf states that also straddle the Russia-West divide might also play a role, including Saudi Arabia, which with Russia jointly drives oil policy (a key decision on production increases is due at the March 2 OPEC+ meeting of the alliance of OPEC and non-OPEC countries), and the United Arab Emirates, which is Russia’s main trade partner in the Gulf Cooperation Council and currently a United Nations Security Council member.

A Bold Expansion

On a quiet day in April 2017, Saad Sherida Al-Kaabi, the CEO of Qatar Petroleum (which has since rebranded itself as QatarEnergy) and now also the minister of energy, announced the end to a 12-year moratorium on new gas exports. It was a policy he had masterminded, earning him the nickname “Mr. Moratorium,” back when Qatar was in the middle of a decade of exponential gas-based industrialization. That phase culminated in 2011 when Qatar’s LNG capacity hit 77 million tons per year, nearly one-third of the global total at the time, plus other gas-derived exports. However, there were concerns about field stability, following a five-fold surge in output from the North Field, the world’s largest gas field that is the source of most of Qatar’s supplies and is shared with Iran.

Eventually, geological studies provided reassurance that output could be increased without damaging field structures, and so the moratorium was lifted. In the following years, even as the gas market was overshadowed by rapidly rising LNG output in Australia and the United States, Qatar began to issue design contracts, court equity partners, and progressively increase its expansion plans, eventually envisaging six new LNG trains that will add 48 million t/y of capacity in 2025-27. For context, that is about 20% more gas than Russia’s stalled Nord Stream 2 pipeline can transport and will boost Qatar’s total exports to 126 million t/y, comparable with Russia’s total pipeline and LNG supplies to Europe (126 million t/y is equivalent to 174 billion cubic meters of gas, whereas Nord Stream 2’s capacity is 55 bcm and the Russian pipelines through Ukraine have a 40 bcm capacity). These plans were supported by a review of reserves, announced in November 2019, that extended the southern scope of the North Field and doubled the estimate of its “confirmed” reserves to 50 trillion cubic meters. Even the more conservative and long-standing “proven” reserves figure puts Qatar’s share from this field at as nearly as much as all the proven gas in Europe and the Americas combined. More Qatari-controlled LNG will also be coming from the Golden Pass terminal in Texas, a joint venture with Exxon that was originally built to import Qatari LNG into the United States, before the shale revolution, but has been reversed to instead export 16 million t/y starting in 2025.

The big question Qatar has faced during the last five years has been where it could find predictable customers for all this additional gas. Like Russia, Qatar prefers to sell gas on long-term contracts rather than the spot market. However, as it was looking for customers, many other LNG projects around the world, including in the United States, were being canceled or postponed amid weak expectations for the market, particularly after spot LNG prices crashed in 2020 to record lows of under $2 per million British thermal units. Some of Qatar’s customers also sought to negotiate down prices or wriggle out of contracted volumes so they could buy spot cargos for a fraction of the price. In addition to the need to preserve existing contracts and find buyers for the expansion, many of Qatar’s existing contracts are expiring; the largest, a 5.5 million t/y contract with Japan’s JERA since 1996, was not renewed in 2021. The few new contracts that were signed until early 2021 came with record low pricing formulas, such as a 10-year deal with Pakistan in February 2021, priced at a 10.2% “slope” to oil (meaning that if oil is $100 per barrel, LNG would be priced at $10.2 per million Btu), whereas past slopes had been as high as 17%. Despite all these headwinds, Qatar pressed ahead with the expansion because it has among the lowest production costs in the sector and so can be profitable at prices far below other LNG projects.

The Tide Turns on Gas

A glimmer of hope for the gas market came from BP’s Energy Outlook 2020, which was the first of the major outlook reports after the onset of the coronavirus pandemic and the first to model declining oil demand in its business-as-usual scenario, but which nonetheless saw scope for rising LNG demand. In fact, it saw even more LNG demand in a scenario in which the energy transition happens more rapidly. This is because gas releases about half the carbon dioxide of coal per unit of power and, therefore, if the world (particularly China) takes climate change more seriously, an increase in gas consumption could make sense. Qatar has a particular advantage here because its LNG production chain has a low carbon intensity relative to competitors, and it has committed to further reducing it by 25% by 2030 through cutting methane leakages, powering facilities with solar energy, and capturing carbon (the most aggressive 2050 net-zero scenarios, such as the International Energy Agency’s roadmap, see LNG declining sharply by 2050, but even if this were to transpire, Qatar’s low-cost low-intensity output should still find buyers).

The tide began to turn in the gas market in 2021 – since September, European import prices have averaged about $30 per million Btu (equivalent to $160 per barrel of oil), with a brief spike to twice this level in mid-December. Gazprom played a role in this run-up by refusing to sell additional volumes to Europe beyond those regularly contracted, which squeezed reserves. Moreover, there was a geopolitical premium on gas well before Putin ordered troops into Ukraine, given concerns about the potential disruption to supplies if Russia reduced exports or sanctions prohibited them or if pipelines were obstructed by conflict. However, external factors also contributed as global energy demand recovered from the pandemic and, unlike in the oil sector, there was not a large amount of untapped capacity to quickly bring online, which was compounded by periods of inclement weather and outages from some suppliers. Despite all this, as the northern hemisphere winter began to draw to a close, prices had begun to ease as they usually do in the spring, down to a 6-month low of about $24 per million Btu. However, after Russian troops entered the Donbas on February 21 and then launched a wider invasion on February 24, European gas prices nearly doubled.

Supplying Gas for Europe

So far, despite the crisis, Russian gas continues to flow as normal to Europe, but a closure of the pipelines through Ukraine, which supply about one-quarter of Russian gas to Europe, is looking more likely. If this were to happen, there is not much that Qatar could do about it in the short term due to the shipping time for LNG tankers and because almost all of Qatar’s gas is already contracted. In 2020, only 14% of Qatar’s LNG was sold on short-term contracts (under four years) or through individual cargo spot sales. By contrast, 37% of Australian, 68% of U.S., and 49% of other LNG was sold on the spot market or short-term contracts. The United States and Australia together sold 5-times as much spot or short-term LNG as Qatar in 2020, and the ratio is much higher now after the startup of new U.S. terminals, which have boosted its output to nearly 80 million t/y and will reach 100 million t/y by the end of 2022. In fact, the United States just surpassed Qatar to become the world’s largest LNG producer. This is why a record wave of LNG carriers have been crossing the Atlantic, sending three-quarters of U.S. LNG to Europe in January.

Qatari LNG, by contrast, goes mainly to Asia. This is partly because of historical ties with Japanese and Korean companies that helped finance the development of the existing LNG trains. However, additionally, a problem emerged in 2018 when the European Commission launched an anti-trust probe into Qatar’s contracts, objecting to standard “destination clauses” that require the buyer to use the gas themselves rather than reselling it. Japan and others have also complained about these clauses, but they present more of a problem in Europe’s common energy market.

In recent weeks, there has been talk of Asian customers potentially granting extraordinary permission to divert some of their contracted LNG from Qatar (and other suppliers) to Europe in the event of a crisis. This was part of the Biden-Tamim meeting, and the United States reached out to Japan about this in early February. These plans might soon be activated, in a reversal of the situation after the 2021 tsunami and Fukushima nuclear disaster, after which some European customers permitted Qatar to temporarily divert their shipments to Japan to compensate for its nuclear shutdown. Still, the amounts likely to be available would be a fraction of the U.S. spot-market supplies to Europe, let alone imports from Russia. Right now, Qatar, and indeed the LNG market as a whole, does not have the capacity to replace Europe’s imports of Russian gas. At the close of the Gas Exporting Countries Forum, Kaabi said that currently, Qatar could, at most, divert 10% to 15% of its LNG to Europe.

However, longer term, as Golden Pass and the North Field expansion come onstream, Qatar could play a pivotal role in diversifying European gas imports away from Russia. In a significant development, the European Commission probe into Qatar’s contracts has been dropped (albeit with denials that Russia was the reason for this). This removes a significant obstacle and, in his press conference after the forum, Kaabi pointedly stressed that the North Field expansion was intended for customers in Asia and Europe. Previously, QatarEnergy had put the emphasis almost entirely on Asia. In theory, the combination of the North Field expansion and Golden Pass could replace nearly half of Russian gas to Europe. U.S. and Qatari LNG together could entirely replace Russian imports if Europe builds sufficient LNG importing terminals. This maximalist scenario is unlikely, given strong LNG demand in China and elsewhere and a likely resolution with Russia before more of the new LNG comes onstream. However, the intensified demand in Europe should support Qatar in signing a raft of favorable long-term supply agreements this year for both its existing and future gas output.