LNG from Qatar: Still A Long Way Ahead for Germany

LNG from Qatar: Still A Long Way Ahead for Germany

As European Union (EU) member states continue to pursue an elusive consensus over the embargo on Russian oil and gas with of view to ramping up sanctions against Moscow, there is a pressing need for Europe to find new energy suppliers. This is even more evident for Germany, which relies on Russia for 55% of its gas imports.

In March 2022, Berlin signed a major agreement with the United Arab Emirates (UAE) for the import of hydrogen-based energy. At the same time, Berlin also turned to Qatar hoping to find in Doha a reliable partner with which to negotiate the delivery of liquefied natural gas (LNG).  During his official visit to the Gulf in March, Robert Habeck, Germany’s Vice-Chancellor and Economic Affairs and Climate Action Minister from the Green Party, met with Sheikh Tamim bin Hamad Al Thani, the Emir of Qatar, in the hope of negotiating energy contracts. At the end of his visit, Habeck was optimistic and confident about reaching an agreement with Doha.

Irreconcilable interests?

Despite a promising start, there are significant challenges to making this new partnership a reality. Qatar is the world’s second largest exporter of LNG but the majority of its output is destined for Asian markets. If Doha wishes to maintain its contracts with its Asian partners, only 10-15% of its production could potentially be diverted to Europe. Qatar has already expressed its readiness to increase its output by 2026. However, this requires considerable logistical changes, and it is unlikely the Gulf state will be in a position to replace Russia as Europe’s main energy supplier in the short run, especially since Japan and South Korea have signalled their interest in negotiating larger LNG imports from Doha.

According to sources familiar with the matter, tensions pertaining to the terms and conditions as well as the duration of the agreement also seem to have arisen between the two partners in recent weeks. While Doha is looking to secure 20-year energy deals, Germany has been reluctant to agree to engage in such long-term agreements as the government has pledged to reduce the country’s carbon emissions by 88% by 2040 as part of its programme to combat climate change. "The issue of LNG contract length potentially putting Germany's decarbonisation targets at risk is part of the ongoing discussions with Qatar," a source familiar with the issue indicated.

Under the conditions imposed by Doha, Germany would also be prevented from rerouting the gas to other European capitals, a potential stumbling block for the European Commission. Finally, Qatar insists on an oil-indexation clause, a modality also included in its contracts with Asian partners. "To secure this supply, it is expected that the German team will need to accept a traditional oil-linked pricing structure, leaving the European buyer with significant financial exposure compared to the European hub prices," an expert in energy intelligence said. Given these conditions, some sources argue that it is unlikely an agreement will be concluded any time soon. 

A Win-Win Partnership

In 2016, RWE, Germany’s largest power producer, had already concluded an agreement with Doha for the annual delivery of 1.1 million tonnes of LNG to Northwest Europe by 2023. And the company appears determined to build on this relationship with Qatar for the foreseeable future. Representatives of RWE and Uniper, another German company active in the energy sector, will visit Doha this month, while Emir Sheikh Tamim bin Hamad Al Thani is also expected in Berlin in the second half of May to sign a partnership agreement as a first step towards a more substantial long-term agreement. Both companies were already represented during Habeck’s visit to the Gulf in March 2022. 

If Doha intends to sign a partnership that will ensure its long-term interests, Berlin also appears eager to sign a win-win agreement, notably through the development of joint projects which would see German companies, such as SIEMENS, offer support to Qatar in the implementation of its sustainability plan launched last year.

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