Europe at risk of ‘much worse’ energy crisis next year, warns Qatar

Qatar’s energy minister has warned that while Europe should have sufficient gas for power and heating this winter, the tougher challenge will come in 2023 as reserves are depleted.

Saad al-Kaabi said it would be “much worse next year” if there was a harsh winter, adding that the energy crisis could extend to the middle of the decade if President Vladimir Putin’s war in Ukraine continued and gas “does not start flowing back again” from Russia.

“This coming winter, because of the storage capacity being full, it’s fine,” said Kaabi, who is head of state gas company QatarEnergy. “It’s really replenishing the reserves, or the storage, for next year that’s going to be the issue.

“So . . . next year and the following year, even up to 2025, are going to be the issue.”

Many European countries have held talks with Qatar, the world’s largest exporter of liquefied natural gas, as they seek to wean themselves off Russian fossil fuels. But Kaabi warned that he could not envisage a future where “zero Russian gas” flowed to Europe.

“If that’s the case, then I think the problem is going to be huge and for a very long time,” he said. “You just don’t have enough volume to bring [in] to replace that gas for the long term, unless you’re saying ‘I’m going to be building huge nuclear [plants], I’m going to allow coal, I’m going to burn fuel oils.’”

Russia supplied around 155bn cubic metres of natural gas to EU countries last year, about 40 per cent of the bloc’s total gas consumption. Brussels hopes to reduce that dependency by raising piped supply from countries such as Algeria and Norway, as well as massively ramping up LNG imports from further afield.

However, replacing all Russian gas into Europe would need an annual 112mn tonnes of LNG, equivalent to almost a third of today’s entire market, according to Bernstein Research.

Qatar, which traditionally ships 70 per cent of its LNG to Asian clients on long-term fixed contracts, said it would be able to divert only 10-15 per cent of current production to Europe until new projects come online.

But Kaabi said no new, sizeable gas projects globally would start producing until 2025, when QatarEnergy’s Golden Pass joint venture with ExxonMobil is expected to add 16mn tonnes of LNG per annum to the market.

Qatar is also spending almost $30bn expanding its North Field, the world’s largest gasfield, to raise its annual LNG production capacity from 77mn tonnes to 126mn tonnes by 2027.

The UK opened talks with Qatar almost a year ago for the Gulf state to become its “supplier of last resort”. Kaabi, who met UK energy secretary Jacob Rees-Mogg this month, said the two countries were “engaging more” but added that it was hard to say when a deal would be reached.

“We’re very committed to the UK and ultimately we’ll get somewhere where we can support the UK,” he said. “We’ll be a major player in supporting the UK for the long term for sure.”

Qatar signed a provisional agreement with Germany in March, but those talks have been dogged by disagreements over the length of the contracts. Doha has also been in discussions with France, Spain, Italy, Belgium, Poland and Slovakia about expanding exports to those countries.

QatarEnergy prefers to sell its gas via long-term contracts, which offer it certainty as it invests billions of dollars in energy infrastructure. Qatar’s state-affiliated Asian buyers typically agree to supply contracts of 15 to 20 years.

Kaabi said the main issue affecting Qatar’s negotiations with European states was related to the challenges governments face in working out how best to procure the gas through fixed contracts in an environment where the energy companies are privately owned.

He also cautioned that Europe had to “get off the discussion that gas is not needed for a long time”, a reference to hopes that the continent can move away from fossil fuels and transition to renewable sources.

“Because everybody who’s going to invest in the gas sector, they’re looking at 25, 30, 40-year horizons to invest and to get reasonable returns on the investments,” he said. “If governments are not going to be supportive of that, it’s going to be difficult for investors to come in.”

Kaabi added that European negotiations for Qatari gas had created “huge competition” with Asian importers seeking to lock in long-term supplies as Qatar expands it output.

“Because of this pull of Europe wanting additional gas . . . the Asian buyers are looking at the same thing and saying ‘hold on, we need to be able to secure our future development needs,’” he said. “We’re talking to almost every customer in Asia where they are very seriously trying to close deals.”

LNG prices have soared globally since Russia’s invasion of Ukraine. Benchmark prices for north Asia hit $70 per million British thermal units (mmbtu) in August, more than twice the price at the start of the year. TTF, the European benchmark for pipeline gas and LNG, reached €311 per megawatt hour ($88.5/mmbtu) in August, up nearly 250 per cent compared with the start of the year. Prices have since fallen in both Europe and Asia because of milder weather and Europe’s gas storage reaching nearly full capacity.

Additional reporting by Shotaro Tani in London