Qatar-Germany LNG Deal: the End of EU’s “Russia Energy Dependency” Curse?

Qatar

Energy Policy

Commentary

Dr. Sergey Sukhankin

Following Russia’s invasion of Ukraine on February 24, the world’s largest economies collectively introduced several rounds of economic sanctions against Russia. In addition to other sectors of the Russian economy, the energy sector might soon become a target of the sanctions regime. While the United States has already imposed an embargo on imports of oil and gas from Russian energy, the situation in the European Union is much more complicated. However, awareness among both the EU’s leadership and its individual member states regarding the dangers of continued reliance on Russian energy has grown dramatically, with some EU members openly calling to sever all energy ties.

At this juncture, it is important to understand that the EU’s next steps in the upcoming – and, perhaps, inevitable, given Russia’s adverse actions – realignment of its energy security architecture will be tightly related to the position of EU’s largest economy, the Federal Republic of Germany. For Berlin, cutting energy ties with Russia – which account for two-thirds of its gas demand – is hardly an option right now. However, given the growing awareness of Eastern European security challenges and Germany’s bid for EU leadership, continuing its current dependence on Moscow’s oil and gas exports is also an unacceptable approach.

Following decades of heavy reliance on Soviet (and later Russian) non-renewable energy, recent events in Ukraine have seemingly had a sobering effect on the German political leadership, which has openly admitted the need to drastically decrease its imports of Russian energy. Initiating practical actions, Chancellor Olaf Scholz announced plans to build two liquefied natural gas (LNG) import terminals in Brunsbüttel and Wilhelmshaven, although it is clear that these cannot be immediately completed. Completion could perhaps be sped up via economic-technological cooperation with the Netherlands’ state-owned energy company Gasunie, yet, for now no concrete plans on the matter have been announced. However, the lack of suppliers who could promptly replace Russia’s oil and natural gas on the European energy market presents a far more daunting challenge to both Germany and the EU. A part of the solution could become the recently declared EU-U.S. “energy alliance,” which aims to replace “politically toxic” Russian energy with American imports. Increasing cooperation between the two actors could reportedly supply the EU with an additional 15 billion cubic meters (bcm) of LNG in 2022. This, however, will still not be enough to replace Russia’s exports to the EU that stood for 155 bcm in 2021.

Promising as it is, however, this consortium is not the solution to the main problem: U.S.-produced LNG alone is unlikely to satisfy the EU’s energy needs. To accomplish its main objective – decreasing and ultimately departing from energy dependency on Russia – the EU must consider other LNG producers. In this role, Qatar should become one of the key pivots in the EU’s new energy architecture.

Dealing with Doha

An important step in this direction was made on March 20, when, during his visit to Qatar, German Minister for Economic Affairs Robert Habeck (accompanied by representatives of large German businesses) met with the Emir of Qatar and Minister of State for Energy Affairs Saad Sherida Al-Kaabi. During the meeting, Habeck reportedly secured a long-term LNG deal – although its specific details have not yet been released – with the Qatari side. As Habeck stated after the meeting, “The good news is that [the gas] will be made available. Now it is up to the companies to sign the contracts.” Although this statement should reassure observers that energy relations between Germany and Qatar will at least partially substitute for Russian imports, the key question that must be addressed is: to what extent will Qatar in fact be able to replace Moscow as one of the EU’s key LNG suppliers, and – if so – how soon can this relationship actually be developed?

The answer is, unfortunately, unclear at the moment. What is certain is that Qatar’s increasing role in the EU’s energy markets is unlikely to become a “silver bullet” for the EU in the short term. Al-Kaabi admitted this, openly acknowledging in February that neither Qatar nor the United States could hope to replace Russian exports to Europe altogether. “Russia (provides) I think 30-40% of the supply to Europe,” al-Kaabi said. “There is no single country that can replace that kind of volume.”

Fortunately for Europe, while the next several months will be a tough challenge for Europeans in terms of their ability to solve immediate energy-related issues, a departure from reliance on Russia could become reality over the next half-decade. In order for this to be achieved, the EU must strengthen its energy ties with the United States, Europe’s most obvious energy partner in the short term. It must also meet three other main conditions.

Strange Bedfellows

First, in dealing with Qatar, the EU would need to depart from its dependency on short-term gas contracts. Doha relies almost entirely on long-term contracts, which provide stability and predictability in its energy relations with the rest of the world. This stability has allowed it to invest $28 billion in its North Field, and it has already declared its readiness to increase gas output by more than 60 percent in the next four years. However, Qatar would be reluctant to commit to a drastic expansion of business ties with the Europeans in the energy realm if it could not be assured of reliable and consistent demand. Fulfilling this condition is likely to clash with two longstanding EU policies: first, Europe’s above-mentioned reluctance to engage in long-term energy contracts; second, its much-prioritized climate agenda and “net-zero” carbon neutrality targets, which would probably be set back by a long-term supply of Qatari natural gas.

Secondly, the EU would have to make the most of its diplomatic skills in forging contacts with “rogue” but resource-rich nations – such as Iran, which boasts the second-largest natural gas reserves in the world, and Venezuela, which has the largest oil deposits. Relationships with Tehran and Caracas will undoubtedly clash with the EU’s values-based approach in the realm of foreign policy. At this juncture, the EU could also engage in dialogue with the Kingdom of Saudi Arabia (KSA), which, although it has been extensively criticized by the EU for human rights violations at home and in Yemen; moreover, partnership with Riyadh is a long-term prospect that is unlikely to materialize before 2030. Furthermore, if the EU is interested in increasing its energy imports from Algeria, the world’s sixth-largest gas exporter, European diplomats should do their best to heal the Algeria-Morocco rift. Generally speaking, increasing business ties with sub-Saharan African countries – including Tanzania, Nigeria, and above all Mozambique – could assist the EU to partially resolve its energy challenges.

Thirdly, the EU will have to intensify talks with Australia, one of the world’s key energy producers and a second pioneer in the LNG field. Fortunately, Canberra has already declared its readiness to increase its exports to Europe in place of Russia’s supplies, and lacks many of the long-term contracts that hold Qatar back.

In the final analysis, it needs to be said that while Qatar could – and probably will, given the EU’s precarious position in terms of energy security and worsening relations with Russia – become a key factor in the bloc’s departure from its increasingly perilous dependency on Russia, it cannot do this neither alone nor overnight. Therefore, the final solution to the EU’s “energy dilemma” is not fully contingent on the Germany-Qatar current energy deal; other steps must be taken to secure its supplies. European diplomats, lawmakers, and energy executives have a long road ahead.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.