A Global Gas Conspiracy?
Qatari Energy Minister Saad Sherida al-Kaabi announced last week that the Persian Gulf state was leaving OPEC, effective January 1. The public perception is that Doha regards the Saudi-led oil organization as another element in the Riyadh diplomatic offensive against Qatar.
That attack has sought to isolate Qatar in the Persian Gulf because of (largely Saudi) perceived support for terrorism. The United Arab Emirates (UAE), OPEC’s number 2 player, sides with Saudi Arabia in the tiff, as do
Egypt and Bahrain. Meanwhile, Qatar is supported by the real target in all of this. Iran.
I have just had two visits in Doha, sandwiched between an eight-day stay in Singapore. At both locations, I was apprised that there is a deeper rift afoot. This likewise involves a significant pivot in policy that may have a more pervasive result than the loss of Qatar’s small monthly contribution (less than 600,000 barrels a day) to aggregate OPEC crude production.
And, aside from a Teheran-inspired attempt to counter renewal of US sanctions, a primary outside catalyst may well be coming from an entirely different geopolitical quarter.
In another recent analysis, I wrote the following on the Qatari decision:
…[M]ost in the geopolitical business have concluded that the real reason for Saudi displeasure is the developing rapport between Qatar and Iran.
I have discussed this development previously, placing some emphasis on Teheran’s widening use of the
Doha banking community to bypass Saudi pressure and the renewal of U.S. sanctions.
In May 2001, an organization called the Gas Exporting Countries Forum (GECF) was created.
The Qataris and the Iranians in particular had hoped this would become a gas-based counter balance to OPEC.
The GECF has 12 full members (Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, the UAE, and Venezuela), with most of the membership also part of OPEC.
For much of its existence, however, the GECF has been little more than an occasion for its members to discuss common issues and gas trade prospects. It was not until 2010 that the organization assumed any formal functions.
In that year, the Secretariat (the executive body of the GECF) was placed permanently in Doha, the location that had housed its administration since creation.
It was also in 2010 that the GECF selected its first Secretary General – Russian Leonid Bokahnovskiy. He was followed by S.M. Hossein Adeli from Iran. The current head was selected this year – Yuri Sentyurin, another Russian.
As was also the case with Bokahnovskiy, Sentyurin has close connections with the Kremlin. He also currently serves as Deputy Minister of Energy and Deputy Chairman of the Duma (Parliament) standing committee on energy, transport, and communications. He is likely to become a primary lynchpin in the introduction of a Russian orchestrated global gas policy.
And that may well be the reason for Qatar making its departure from OPEC.
As an oil producing country, Qatar’s impact in OPEC is minor. But as the driving force in the founding of GECF and the physical location for the organization’s administration, Qatar is a far more important player on the gas side.
In addition, Moscow is actively seeking a prominent role in the developing gas side of global market making.
That has brought it into closer policy negotiations with Qatar, Iran, and others.
There are essentially two main reasons why GECF has not developed into a policy-making organization like OPEC:
First, OPEC establishes monthly quotas for oil production among its members, and while these quotas usually are not enforceable, they nonetheless do act as an external restraint on domestic decisions. That is something nations like Russia are not going to agree to.
It is for this reason that Russian is an observer at OPEC meetings, not a participant.
Second, until recently, export of natural gas was confined to pipelines, largely involving overland border crossings.
Even in those cases where sea beds are used (for example the Russian-sourced Nord Stream lines to Europe or the Blue Stream lines to Turkey), there are still national demarcations and restrictions on the use of in-country pipe segments.
That has dramatically changed with the advent of widespread trading plans for liquefied natural gas, or LNG.
Transformed into liquid form, LNG is transported via tanker, opening up significant markets serviced by new hubs. Control over pricing at these hubs will transform the broader energy trade.
So, to sum up, Qatar is the world’s leader in LNG, Russia is ramping up its deliveries from the far north and the Pacific coast, while Iran has placed national emphasis on using the vast South Pars natural gas deposits to feed its accelerating LNG trade.
This last point is made more difficult by the re-imposition of U.S. sanctions.
France’s Total pulled out of the largest Iranian LNG project, but Chinese companies have moved in to replace it. Meanwhile, Russia has developed ways for Iran to export finance without American involvement.
In the LNG sector, rapidly expanding deliveries to Asia are prompting importers to set the agenda whether Washington approves or not.
In this arena, the rising Qatari-Iranian-Russian connections may prove very important…
I saw some of this when I made my presentation at the OSEA 2018 conference held at Singapore’s Marina Bay Sands complex. My main topic was equating the expanding Asian LNG imports with the impact of U.S. LNG exports.
Representatives of Russian natural gas giant Gazprom, its trading arm Gazprom Export, NIGC (the
National Iranian Gas Co.) and Nakilat (Qatar Gas Transport Co., which controls the world’s largest LNG tanker fleet) were all in attendance. From our informal conversations afterward, I was convinced of one more thing.
These folks have been in active conversation for a while.
There may be limitations forming to U.S. LNG exports to Asia and elsewhere… even before they get off the ground.
Perhaps U.S. exporters may take a page from the Russian OPEC playbook and become a GECF observer – seven other nations in the gas train business already are.
Some Observations About Status
The prospect of American membership in GECF may still appear unlikely, but it is important to recall that the US has its main regional military headquarters in Qatar, and Doha does not want to irritate Washington. In addition, the US interest in LNG exports is the main balancing factor for a continuing increase in domestic natural gas production.
During side bar conversations at OSEA in Singapore, I asked US government representatives directly about the GECF situation. The response was typically noncommittal. But one did offer an intriguing alternative. While expecting that US membership was not a live option, joining the seven other nations with observer’s status could be.
Recall that Moscow maintains a policy connection with OPEC by the same device.
My contacts within the Russian Energy Ministry (Minenergo) have suggested that occupying a primary “swing” global position between oil and gas trade has long been a Moscow policy objective. That appears now to be well underway. A central member of GECF, the Kremlin’s objectives are well advanced by its observer’s status with OPEC.
Remember, OPEC could not announce its latest production cut without first negotiating with Russia. The OPEC meeting officially ended last Thursday. But the cut could not be revealed until a day later.
The Reason? Russian Energy Minister Alexander Novak did not arrive until late Thursday evening (after OPEC’s meeting adjourned. Moscow maximized its position – and dictated an OPEC move – without formally being a member of the organization.
Iran’s use of GECF is even more central to its national policy. Teheran needs to parlay its vast offshore South
Pars natural gas reserves into a long-term revenue stream. That requires a major push into LNG exports.
Despite Washington delaying the imposition of sanctions on Iranian oil exports from six months, essentially turning the entire affair into a US domestic political ploy to prevent rising oil product prices prior to midterm elections, concerns over secondary sanctions have obliged Western companies to delay, or withdraw from, Iranian LNG projects.
Some of those have been picked up by Chinese and Russian companies, although both will further delay the projects themselves. Teheran now sees the GECF as the vehicle to jump start its national exports of gas.
And then there is the widening Iranian use of Doha’s banking center. Unless one has been involved in discussions on the rise of Qatari regional and global banking, its importance is not obvious.
But Doha is rapidly becoming the most important new financial hub in the world. It is also Iran’s main outlet to a range of capital access locations, some beyond the reach of American policy.
It seems an energy “world cup” is arriving in Qatar well before the athletes do.