ROI-Qatar's US LNG bet signals a new energy order: Bousso

Turning to your biggest rival is rarely a sign of ​confidence. Yet Qatar's decision to sign long-term contracts for US supplies suggests the world's second-largest LNG exporter is increasingly concerned that instability in ​the Gulf could undermine its ambitious expansion plans. QatarEnergy last week signed a 20-year agreement to buy ‌3 million ​metric tons per year (mtpa) of liquefied natural gas from Woodside Energy's facilities in Louisiana. A week earlier, it signed agreements with Cheniere Energy for up to 4 mtpa from its Sabine Pass and Corpus Christi plants through 2054.

Deliveries under the contracts begin in 2030 and 2031 and will make Qatar the largest buyer of US LNG. QatarEnergy CEO Saad al-Kaabi told Reuters last week that he expects to sign additional supply agreements with US and ‌other producers this year, potentially locking in millions of tons of overseas LNG for decades to come.

Before the US-Iran war broke out on February 28, the state-owned company had already been expanding internationally. It had been acquiring stakes in LNG projects from North America to Africa as part of a strategy to broaden its trading portfolio and gain greater flexibility. The latest deals, however, reflect a more fundamental shift. Rather than simply diversifying its portfolio, Qatar now appears to be buying insurance against disruptions to its own exports.

Qatar's purchases are another sign that the US has not so quietly emerged as the biggest beneficiary of the ‌global rethink of Middle East energy risk, marking a historical reversal of roles. "Twenty-five years ago my White House colleagues and I worried the US would become as dependent on Qatar for LNG as we were on OPEC for oil," said Bob McNally, founder and president of Rapidan Energy Group ‌and a former White House energy advisor to President George W. Bush.

"Then came the shale revolution and Iran War, and now Qatar is buying from us," McNally said. INSURANCE POLICY

As Washington and Tehran continue to spar over the future of the Strait of Hormuz, Gulf producers are racing to reduce their reliance on the narrow waterway through which roughly a fifth of global energy supplies flowed before the war. Saudi Arabia and the United Arab Emirates are expanding, or preparing to expand, pipeline networks that bypass Hormuz to improve their ability to export crude oil and refined fuels outside the Gulf.

Qatar faces a far more difficult challenge. Unlike its neighbours, the small Gulf state has no viable route for exporting LNG other than Hormuz. Its entire ⁠LNG industry is concentrated ​at its giant Ras Laffan facility, where gas from the North Field is ⁠processed and shipped to customers around the world.

The conflict made those risks painfully clear in March, when an Iranian missile damaged two of QatarEnergy's 14 LNG trains at Ras Laffan, removing about 17% of the country's export capability. QatarEnergy said the outage would cost roughly $20 billion a year in lost revenue and that repairs would take around three years.

Any effort by Qatar to ⁠develop alternative export infrastructure would require tens of billions of dollars of investment in pipelines and liquefaction capacity. Even then, building massive new energy facilities simply creates more sites vulnerable to attack, as the war has demonstrated. It is therefore unsurprising that Qatar’s strategy is to seek protection not by building more domestic infrastructure but through geographic diversification.

A TWO-HORSE ​RACE The current challenges come at a particularly difficult time for Qatar, as the Gulf state embarks on its biggest growth push in decades.

The International Energy Agency estimates that roughly 300 billion cubic metres of new LNG export capacity will come online worldwide between 2025 and ⁠2030, increasing available global supply by around 50%. More than half of that new capacity will come from the US, while Qatar is expected to account for roughly another quarter.

The two countries are therefore set to dominate growth in global LNG trade over the coming decade, setting up an increasingly intense competition for market share. Qatari LNG still has some distinct benefits over US supplies, most ⁠notably ​production costs. Industry estimates place Qatari costs at roughly $3-$5 per million British thermal units, about half the cost of many US projects.

Washington, however, enjoys one critical advantage: American LNG exporters face none of the geopolitical constraints associated with dependence on the Strait of Hormuz. This was not previously a major concern, but in the wake of the Iran war, oil and gas buyers increasingly value security of supply as highly as price.

The question is no longer whether QatarEnergy’s plans to nearly double LNG production by 2030 will remain on track. The first new trains are expected to start operations early next year. ⁠The question is whether those facilities will actually remain operational in a radically reshaped Gulf. Even if the US and Iran eventually agree to a sustainable peace deal in the coming months – a big “if” – the role of Hormuz in regional energy markets has likely changed forever, to Qatar's disadvantage. ⁠The days of guaranteed access through the waterway appear to be over.

For Qatar, ⁠then, purchasing US LNG offers a way to profit from growing demand for politically secure supplies, even if those supplies come from North America. This may be the strongest evidence yet that the Iran conflict has accelerated the decade-long shift in energy market power away from the Middle East and toward the US.

(The opinions expressed here are those of Ron Bousso, a columnist for Reuters.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new ‌source for global financial commentary. Follow ROI on LinkedIn, and ‌X.

And listen to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in ​markets and finance seven days a week. (Ron Bousso; Editing by Marguerita Choy)