Saudi Dispute With Qatar Has 22-Year History Rooted in Gas

Saudi Dispute With Qatar Has 22-Year History Rooted in Gas
Saudi Arabia's isolation of Qatar has been brewing since 1995, and the dispute's long past and likely lingering future are best explained by natural gas.

(Bloomberg) -- Saudi Arabia’s isolation of Qatar has been brewing since 1995, and the dispute’s long past and likely lingering future are best explained by natural gas.

Not only was that the year when the father of the current emir, Sheikh Tamim bin Hamad Al Thani, toppled his own pro-Saudi father, it was also when the tiny desert peninsula was about to make its first shipment of liquid natural gas from the world’s largest reservoir. The offshore North Field, which provides virtually all of Qatar’s gas, is shared with Iran, Saudi Arabia’s hated rival.

The wealth that followed turned Qatar into not just the world’s richest nation, with an annual per-capita income of $130,000, but also the world’s largest LNG exporter. The focus on gas set it apart from its oil producing neighbors in the Gulf Cooperation Council and allowed it to break from domination by Saudi Arabia, which in Monday’s statement of complaint described Qataris as an “extension of their brethren in the Kingdom” as it cut off diplomatic relations and closed the border.

Instead, Qatar built its own ties with other powers including Iran, the U.S. -- Qatar hosts U.S. Central Command -- and more recently, Russia. Qatar’s sovereign wealth fund agreed last year to invest $2.7 billion in Russia’s state-run Rosneft Oil Co. PJSC.

“Qatar used to be a kind of Saudi vassal state, but it used the autonomy that its gas wealth created to carve out an independent role for itself,” said Jim Krane, energy research fellow at Rice University’s Baker Institute, in Houston, Texas. “The rest of the region has been looking for an opportunity to clip Qatar’s wings.”

Trump’s Visit

That opportunity came with U.S. President Donald Trump’s recent visit to Saudi Arabia, when he called on “all nations of conscience” to isolate Iran. When Qatar disagreed publicly, in a statement the government later said was a product of hacking, the Saudi-led retribution followed.

Critically, Qatar’s natural gas output has been free from entanglement in the Organization of Petroleum Exporting Countries, the oil cartel that Saudi Arabia dominates. 

The new emir, having survived a counter-coup attempt in 1996, didn’t build pipelines that would have integrated Qatar into the markets of its Gulf neighbors. Two senior Qatari government officials alleged during the trial of the coup plotters in 2000 that Bahrain helped to organize the attempt with Saudi Arabia’s consent, according to a report by the BBC.

At the time, those much richer oil states saw natural gas as virtually worthless, useful mainly for injecting back into oil wells to improve extraction rates. They were willing to pay only a fraction of the world market price for LNG, according to a paper Krane co-authored with Qatar University’s Steven Wright. 

The sole pipeline built, the Dolphin project connecting Qatar’s North Field to the United Arab Emirates and Oman, has operated at half to two thirds capacity. Contracts signed last year should fill the rest, yet the vast majority of Qatar’s exports will continue to go to markets in Asia and Europe.

Angering Neighbors

More recently, demand for natural gas to produce electricity and power industry has been growing in the Gulf states. They’re having to resort to higher-cost LNG imports and exploring difficult domestic gas formations that are expensive to get out of the ground, according to the research. Qatar’s gas has the lowest extraction costs in the world.

Qatar gas wealth enabled it to develop foreign policies that came to irritate its neighbors. It backed the Muslim Brotherhood in Egypt, Hamas in the Gaza Strip and armed factions opposed by the UAE or Saudi Arabia in Libya and Syria. Gas also paid for a global television network, Al Jazeera, which at various times has embarrassed or angered most Middle Eastern governments.

On Tuesday, Trump said on Twitter that when he talked about the need to stop funding radical ideology during his trip to the Middle East, “Leaders pointed to Qatar - look!”

Above all, gas prompted Qatar to promote a regional policy of engagement with Shiite Iran to secure the source of its wealth.  


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Copyright 2017 Bloomberg News.

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Bassam EL Wazni | Jun. 14, 2017
two years ago Iexpected a war in the Gulf area..I wrote the following The LNG market has extra supply of about 60 MTPY and by end of 2017 there will be a wave of new 60 MTPY of LNG introduced to the already saturated international market. So what will the world do with the flood of LNG output? Sure the price of LNG will crash to about $1/MMBTU. As more LNG output will continue up to 2020, the price of LNG will not revive until after the year 2025. Unless, the world is going for war by mid of 2017 in a location where about 80 MTPY of LNG and 20 MBPD of crude oil will be cut off from the market!!!! It is important to point out that Australia cannot and will not compete with Qatar as the issue here is not between two countries. It is between the major players in the energy market; ExxonMobil , Chevron & Total companies which control Qatar LNG production and Australia LNG production. These companies are partners (33-49%) of the LNG in Qatar and owners (100%) of the LNG in Australia and they will decide what is best for them. To my knowledge, Qatar’s LNG projects have paid back its costs and the three players have made huge profits from Qatar’s LNG project. However, their interest now is to make Australia’s costly LNG projects work and pay back its cost. Marketing Australia LNG is more vital to Chevron, Exxon and Total than Qatar’s LNG, so I would imagine Qatar LNG is completely stopped in the best interest of the major energy players. Worse scenario is war that will completely stop LNG production from Qatar however huge reduction to about 50 % of Qatars LNG output may help the big energy players to quickly gain good cash from Australian LNG sales. This reduction might starts with operations shutdown due to shortages in spare parts or critical consumables like catalysts forcing LNG production to gradually reduced to the level that make Australian LNG enters the market with high price to increase the cash flow for the big players. It is highly recommended that Qatar form an emergency team to list all major spares and consumables to purchase and to stock them ASAP to resist any plan aiming to halt its LNG production. Hence, who do you think is behind the problem in that area?!!!

Nik Kalita | Jun. 7, 2017
Interesting take that rings true but may not be the whole story. I wonder how the 1100 strong US military presence in Qatar features.

Interested observer | Jun. 7, 2017
Not sure you can blame Qatar for not supplying its neighbours with gas. For example, Qatar and Exxon spent years negotiating with Kuwait for pipeline supplies from Qatar to Kuwait in the early 2000s. An HOA, including pricing, was agreed, but the project eventually cratered following pressure from, guess who, the Saudis.....


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