Doha: The European Union’s (EU’s) planned diversification from Russian gas could have important implications for Qatar and, more specifically, state hydrocarbons producer QatarEnergy, said S&P Global in its report. However, the gas major is unlikely to be able to play a major short-term role as the EU looks to reduce its reliance on Russian exports.
Reduced reliance on Russian gas would likely increase demand for Qatar’s LNG. Russia contributed 30%-40% of the EU and U.K.’s natural gas supply (about 158 billion cubic meters (bcm) in 2021, according to the International Energy Agency).
“We understand that approximately 80 percent of QE’s LNG sales are via long-term contracts, predominantly with Asian buyers. About 10 percent-15 percent of Qatar’s gas exports are divertible and could hypothetically be shipped to Europe. We estimate this at about 21 bcm (15.4 million metric tons per year[mmtpa]), assuming Qatar’s current LNG capacity is 106 bcm (77 mtpa),” the report said.
This would account for about 13% of the EU’s and U.K.’s gas supply from Russia. QE’s investment program will bring significant additional gas production volumes onstream by 2027, providing further medium-term upside to European gas supply. The completion of QE’s Golden Pass LNG Terminal in the U.S., which is in partnership with Exxon Mobil Corp, is scheduled for 2024, with total capacity of approximately 16 mmtpa. The terminal will export US LNG but is another conduit through which QE could support the EU’s diversification efforts, given QE’s 70 percent stake.
QE has a leading position in the global LNG market, with more a than 20 percent share by capacity (including foreign partners’ joint venture shares of Qatari LNG) and derives about 60 percent-65 percent of its proportionately consolidated EBITDA and assets from LNG. For now, we see modest monetary benefit to QE if it diverts LNG exports to Europe from Asia, given the the relatively small expected volumes, but there will be some upside given higher gas prices in Europe.
At the same time, there are potential limitations on Europe’s ability to take delivery of Qatari LNG, at least in the short term. The main one being the shortage of LNG regasification terminals to receive the additional capacity. There are also potential supply chain constraints given the shipping necessary to transport LNG to Europe.
QE has limited exposure to Russia and Ukraine, with no direct ownership in any Russian/Ukrainian entities. The company already exports most of its LNG production to Asia (almost 80 percent, including India, South Korea, Japan, and China), and about 20 percent to Europe. QE has access to an LNG fleet with 69 vessels, which have offtake capacity in LNG receiving terminals in the U.K., Italy, Belgium, and elsewhere in Europe. More specifically, QE caters to its existing LNG markets in the U.K. and Europe through its majority owned South Hook LNG regasification terminal in the UK (regasification capacity of 15.6 mtpa) and minority owned offshore Adriatic LNG regasification terminal, off the coast of Italy (5.8 mtpa).
In addition, it has access to LNG terminals in Belgium, France, and the Grain LNG terminal in the U.K. (starting 2025). As a result, while there is some capacity for Europe to import LNG from Qatar, diverting large shipments from Asia could result in bottlenecks.
According to the IEA, Russia has been reducing its piped gas supplies to the EU and UK These lower flows have been partially compensated by higher LNG inflows, which reached 13 bcm in January. Interestingly, Qatar has provided relatively little additional LNG supply so far (see chart 1), which further supports our view of limited flexibility given QE’s long-term LNG contracts.
