Energy Security for Europe:
What the Gulf Can Offer

The Ukrainian conflict has fundamentally shifted the way in which Europe seeks to meet its growing need for energy. For many years Russia has dominated the supply of gas into Europe, yet this trend has now dramatically reversed as a result of the war in Ukraine. The EU is now seeking to cut back its reliance on its main supplier with the goal of reducing it to zero. This will take time to achieve but it raises the crucial question: where can Europe find alternative suppliers? This article highlights the way in which the Gulf is likely to emerge as tone of the most important sources of natural gas.

 

Graph: Extra-EU imports of natural gas by partner, 2020 and 2021 

(share % of trade in value)

 

 

 

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From these bar charts it can be seen that Russia was the largest supplier of natural gas into the European Union (EU), both in 2020 and 2021 with Norway and, at some distance behind, Algeria, ranking as the other significant suppliers.

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Map 1: Main extra-EU partners  for imports of natural gas, 2021 
(%)
 

 

 

 

 

 

 

 

 

 

 

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Under its REPowerEU strategy the EU aims to cut supplies of natural gas from Russia by two-thirds by the end of the 2022. It also aims to become independent of all fossil fuels by 2030, albeit this goal has now been revised in the aftermath of the Russian invasion of Ukraine. Frans Timmermans, the EU’s Executive Vice-President responsible for the European Green Deal, concedes the EU has ‘no choice’ but to increase its reliance on gas from non-Russian sources along with a greater reliance on coal and nuclear for its short-term energy needs(1).

 

Natural gas imports from Gulf countries could make a significant contribution in the medium-term so long as EU nations invest in their supply and refining capacity. With this goal in mind, Aramco, the Saudi oil giant, is investing in a gas refining facility in Europe. In January 2022, for example, it acquired a 30 percent stake in a gas refinery in Poland. It has also formed a new joint venture with BP to market jet fuel in the country.

 

Commenting on this investment, Mohammed Al Qahtani, Aramco Senior Vice-President of Downstream, observed ‘These acquisitions will support the diversification of Aramco’s product portfolio across the hydrocarbon value chain — including a focus on liquids-to-chemicals pathways.’ He added, ‘we are exploring additional opportunities in the European petrochemicals market, as well as in R&D,’ in a reference to Aramco’s ambitious plans to expand its liquids-to-chemicals pathways.

 

Aramco is increasing its total production of natural gas to 13 million barrels a day of oil equivalent, compared with the average daily figure of 12.3 million barrels in 2021. Looking ahead, Aramco plans to boost its natural gas output by 50 percent by 2030. Accordingly, it is seeking to complete two major projects — Hawiyah and Haradah — by the end of this year. This should lead to an additional 1.3 billion cubic feet a day of production capacity.

 

North Africa’s most substantial natural gas exporter, Algeria, is well positioned to benefit from the EU's shift in energy policy, but there are concerns over the country’s ability to increase capacity due to rising domestic consumption coupled with a historic underinvestment in production facilities. European importers also worry about political instability in Algeria.

 

Europe faces a major challenge: it must invest in more pipelines and LNG capacity. Allard Castelein, the Chief Executive of Rotterdam’s LNG terminal, pointed out that while his port is now fully booked, it is difficult to expand capacity in a hurry. He stressed that ‘[y]ou can’t build a [LNG] tank overnight.(2)’ Rotterdam plans to expand its LNG handling capacity but it will take some time to complete.
 

Map 2: Germany and Italy Are Seeking to Create More LNG Capacity

 

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Experts believe the quickest way to increase LNG capacity is to install floating facilities so that LNG can be turned back into gas. Consequently, we can expect to see substantial investment in this option. In addition, compressors can be added to existing pipelines to speed up flow and enable gas to flow in a different direction. Building storage and interconnectors with the UK will also help the EU meet its relentless demand for natural gas.

 

One thing is certain: demand for LNG will continue to soar in the wake of the Ukraine crisis and increasing demand from countries in Asia. Currently, nearly 80 percent of Qatar’s LNG exports go to Asia, with South Korea, India, China, and Japan ranking as the biggest buyers. By 2027 the global LNG market is expected to be worth over $66 billion.

 

Gulf countries have a tremendous amount to offer in terms of supplying natural gas to energy starved Europe. Qatar is the world’s largest LNG exporter and is carving out a significant role as a supplier to both the UK, where it owns the South Hook LNG terminal in Wales and an LNG terminal on the Thames estuary, as well as to the EU. At present, Qatar supplies around 40 percent of all the LNG imported by the UK and it is currently in negotiations to supply even more of this valuable commodity. Intense negotiations are also under way with energy companies in France, Germany, Italy and Spain to agree long term LNG contracts.

 

This Spring, QatarEnergy, the country’s state-owned oil and gas major, concluded a deal for a massive expansion of its North Field reserve, which will allow it to expand LNG production capacity to 110 million tons per annum (MTPA) compared with the 77 million tons it produced in 2021(3).

 

In the longer run, eyes are on projects designed to improve infrastructure. This is likely to see Turkey emerge as an LNG hub; we are also likely to see more gas being brought in from Azerbaijan. Greece will play an important role as a source of imported LNG to be supplied to neighbouring south-eastern Europe countries (see Map 3 below). Later this year, a new European gas pipeline is due to be opened on the border between Greece and Bulgaria. This will boost supplies of Qatari LNG to the EU. 
 

Map 3: Work is Underway to Invest in Improving the EU’s Southern Gas Corridor

 

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Clearly, Gulf countries are set to be significant suppliers of energy to Europe now that imports from Russia are being drastically cut back. European countries, such as Italy, are desperate to ensure replacement gas – after all, it was the second-largest buyer of Russian gas into Europe. Recently, Italian ministers have travelled as far as Angola, Congo-Brazzaville and Mozambique in an effort to secure stable supplies of gas. 

 

It is worth underling the fact that the Gulf offers a stable source of LNG for Europe, and the UK, so long as EU countries invest in new storage and pipeline capacity. The race is on to dust off mothballed LNG terminals, such as one in Spain, and complete work on new gas pipelines, notably the delayed MidCat Pipeline between France and Spain. All in all, these should prove bountiful times for civil engineering and construction groups across Europe as the EU seeks to secure gas from non-Russian sources, notably in the Middle East.

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30 May 2022

 

 

References

[i] Andy Bounds and Eleni Varvitsioti, ‘EU to burn more coal as Moscow flows end,’ Financial Times, 18 May 2022, https://www.ft.com/content/5d95b294-280f-4b38-9d23-70035e077392 

[ii] Andy Bounds, Harry Dempsey and Ian Mount, ’Europe struggles to fill gaps in energy networks as part of Russian switch’, Financial Times, 16 May 2022, https://www.ft.com/content/dd4aeffe-d243-49c7-9f4e-152ee54a4f26.

[iii]‘QatarEnergy Awards Major EPC Deal for North Field Expansion Project,’ Offshore Engineer Digital, 28 April 2022, https://www.oedigital.com/news/496123-qatarenergy-awards-major-epc-deal-for-north-field-expansion-project; see also Tristan Bove, ‘This tiny country is making big money from Europe’s desperate search for natural gas to replace Russian imports,’ Fortune, 30 April 2022.

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