Most likely, this partnership – mainly built on energy ties – will go beyond this traditional oil and gas element, spreading to other areas of mutual interest as well.
On March 22, an international energy deal of tremendous importance took place, largely without notice from the United States or the international community. Qatar Petroleum (QP) entered into a 10-year Liquified Natural Gas (LNG) Sale and Purchase Agreement (SPA) with China Petroleum & Chemical Corporation (Sinopec), arranging for Qatar to supply China with 2 million tons of LNG per year. While this agreement will undoubtedly have a major impact on the Sino-Qatari energy ties, its potential impact is likely to go beyond this partnership, and will probably also surpass the Gulf region as well. In effect, the agreement paves a way toward a future reshaping of the global geopolitics of hydrocarbons through the strengthening of the mutual interests connecting China, Russia, and Qatar.
The Qatari Position
Energy ties constitute the central pillar of the Sino-Qatari relations; as trade between the two nations expands, the relations will almost certainly become stronger and more diversified. Since September 2009, when the first tanks of Qatari LNG were delivered to China, the emirate has become one of China’s key suppliers of LNG, and the current agreement will additionally boost Qatar’s role in China’s LNG imports diversification mix.
For Qatar, the deal signifies three very important shifts. First, the deal represents a technological departure from the West. Since it entered the LNG market in the early 1990s, Qatar has been heavily reliant on western companies – in particular ExxonMobil, Royal Dutch Shell, and Total – which became Doha’s key providers with necessary technologies indispensable for the whole LNG industry. Now, it appears that the country is ready to move away from this dependency, increasing its technological ties with China and reducing them with the Western countries. Even though technological in nature, this shift will undoubtedly mean certain political transformations as well.
Secondly, Doha will continue to expand its economic and political partnerships as it pivots away from the West. It will continue strengthening its economic ties with China and Asia-Pacific region at large. This process, which began to take a pronounced form in 2014, acquired more weight after 2017. This trend was increased after the 2017 GCC rift, when Qatar was blockaded by Saudi Arabia, Egypt, Bahrain, and the UAE. When Qatar felt isolated and outnumbered, it began to use its economic power (via the nation’s Sovereign Wealth Fund) to increase investments in regional economies and major projects.
Thirdly, cooperation with China will be further prioritized and put on a qualitatively new level. Most likely, this partnership – mainly built on energy ties – will go beyond this traditional oil and gas element, spreading to other areas of mutual interest as well. At this juncture, it is worth noting that in the past several years Qatar has already invested in several non-energy projects in China, ranging from the healthcare, infrastructure and property sectors to luxury industry and banking. Also, given Qatar’s growing involvement in the Belt and Road Initiative (BRI), further facilitation of currency exchange, financial transactions and cooperation between respective central banks is likely to follow.
Qatar Can Satisfy China’s “Energy Hunger”
For China, the new energy deal with Qatar has strategic importance for two main reasons. First, given Beijing’s determination to achieve carbon neutrality by 2060 – of course, primarily stipulated by economic rather than environmental concerns – LNG, which emits less carbon dioxide than oil, is set to increase in importance for China’s economy in the next several decades. As a part of its “green” agenda, Beijing has already voiced its eagerness to start gradually moving away from oil and natural gas imports. However, as far as it is known, LNG remains (and will continue to remain) one of Beijing`s key priorities. In fact, according to some estimates, China is expected to overtake Japan as the world’s biggest LNG importer by 2022. Furthermore, as articulated in an analysis by Fitch, China’s craving for LNG has not been impacted by the COVID-19 pandemic and accompanying global economic crisis. On the contrary, Fitch stated that, “[T]hrough Q1 2021, China’s LNG imports are up by 10.3% […] The growth in LNG imports will outstrip that of pipeline gas due to its greater flexibility and scalability”, which is excellent news for China’s LNG suppliers and Qatar in particular. Incidentally, this aspect was underscored in an official statement by Qatar Petroleum (QP) announcing the energy deal, which argued that “China is a key and strategic energy partner for the State of Qatar throughout the entire energy value chain. It is also a main driver of the growth in the global LNG market as the government adopts increasingly progressive environmental policies.”
Secondly, China has allocated to Qatar a very important role – inseparable, of course, from China’s energy-related interests – in its strategic Belt and Road Initiative (BRI). This point was explicitly made in 2019 (well before the current deal was concluded) by China’s Ambassador to Qatar, Zhou Jian. Upon his appointment, Zhou pointed toward Beijing’s key regional goal of “integrat[ing] the Belt & Road Initiative with Qatar’s 2030 National Vision.” The ambassador further noted that Qatar was one of the first countries to join the BRI, and was also a founding member of the Asian Infrastructure Investment Bank (AIIB).
In his speech, Zhou expressed another fundamental idea to be used by Beijing in its approach to Qatar: “China’s development is Qatar’s opportunity. We can integrate our development strategies; enhance our cooperation with energy as the core, infrastructure as the key, financial investment as the new starting point and strengthening people-to-people exchanges. In this way, we can build a community with shared energy, shared interest and shared destiny.”
Looking Beyond China-Qatar Ties
While the energy deal between China and Qatar has critically expanded the relationship between both nations, it is likely to have an impact on other regional actors as well. Two of these actors are Australia and Russia, both of which are major players on the global LNG market with deep existing connections to China.
For Australia – whose economic ties, including LNG cooperation, with China have suffered as a result of a recent political debacle – the above-mentioned energy deal will have negative consequences. Aside from decreasing its LNG exports to China, Australia is facing a risk of general marginalization on the Asia Pacific market, especially in light of a new long-term supply deal concluded between Qatar and Bangladesh, as well as Pakistan. Considering this, Qatar will probably be able to surpass Australia as the world’s main LNG producer, which, coupled with America’s “green agenda”, will further strengthen its global positions in the LNG industry.
For Russia – another rising LNG superpower – the deal between Qatar and China could have a paradoxically beneficial effect. On the one hand, Qatar`s growing role as China’s primary LNG supplier paints a prospect of toughening competition with Russia. On the other hand, however, the agreement between China and Qatar, as well as Qatar’s growing pivot toward Asian markets, will allow Russia to secure a steady supply for its LNG and natural gas to the EU, which is still – despite recent hostile rhetoric – interested in Russian energy resources.
While the upcoming decade will shape the realities of the global LNG industry, the market will continue to be premised on strong competition of the four key players and additional emerging actors. Recent events, though, have suggested that the leading role is likely to belong to Qatar.
Dr. Sergey Sukhankin is a Fellow at the Jamestown Foundation, and an Advisor at Gulf State Analytics (Washington, D.C.). He received his PhD from the Autonomous University of Barcelona.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.