Why the Middle East can play a pivotal role in the new gas geography

Three deals announced last week herald a profound reconfiguration of the global gas market. One sends gas to Asia, another to Europe and a third opens up Middle East gas. And the world’s greatest gas power of all is on the losing end.

On 21 November, QatarEnergy agreed an exceptionally long and large contract to send 4 million tonnes (5.4 billion cubic metres, bcm) of the chilled fuel, liquefied natural gas (LNG), annually to China’s Sinopec for 27 years.

Starting in 2026, this would run beyond mid-century, when the majority of the world economy is supposed to have reached net-zero carbon (China’s own target is 2060).

On Tuesday, ConocoPhillips and QatarEnergy concluded arrangements to ship two million tonnes of LNG to Germany a year over 15 years. And last Monday, Abu Dhabi National Oil Company (Adnoc) announced it would combine its LNG and gas processing arms, and conduct an initial public offering of the new entity next year.

The essential undertone to these events combines three of this century’s leitmotifs: the rise of Asia, decarbonisation to combat climate change and Russia’s invasion of Ukraine.

China seeks to raise the share of gas in its energy mix from less than 9 per cent to 12 per cent by 2030. This would remain far below the global average. Nevertheless, the middle kingdom is the world’s third-largest gas consumer, not far behind Russia, the top producer. It also overtook Japan as the world’s biggest LNG importer last year.

Gas is an essential tool in cleaning up China’s polluted skies, and in reducing planet-warming emissions. Later, it too will have to be replaced with zero-emissions technologies — carbon capture and storage, nuclear and renewables — but for now it is the quickest way to make large carbon savings.

But China is in a race against Europe to secure gas. Russia is wrecking its own world-leading gas export business, cutting supplies to its western neighbours to near-zero, and including the physical destruction of the Nord Stream pipelines. Output was down about 20 per cent as of August, upon which Moscow stopped publishing figures.

World gas trade is thus reorienting from pipelines to LNG transported by tanker. Russia will try to shift some of its European sales to China, building more long and very costly pipes from Siberia. But its former exports to Europe are equivalent to China’s imports from all sources. Beijing will buy more from Moscow, but it will not replicate Europe’s disastrous over-dependence.

Europe itself has to replace up to 155 bcm of Russian gas imports, of which LNG will likely account for about 100 bcm. It will build another 50 bcm of new import capacity by the end of next year. Yet only 20 billion cubic metres of new LNG export capacity will come online worldwide next year. Before 2025, only the US will add any significant capacity, about 60 bcm between five projects.