The US is holding talks with Qatar and other large gas exporters to plan contingency measures in case a Russian invasion of Ukraine disrupts supplies to Europe.
The talks with Qatar and EU member states, focused on securing additional seaborne liquefied natural gas cargoes, have gained urgency after high-level security negotiations between Washington and Moscow this week yielded minimal progress.
This has increased concerns that conflict could hit gas supplies at a time when Europe is facing record prices. However officials warned that there was no “magic wand” to solve the potential shortfall with the continent already in the grip of an energy crisis.
“We’re looking at what can be done in preparation for an event, especially midwinter with very low [European natural gas] supplies in storage,” a senior US administration official said.
“We discussed what can be moved around the market, what can help . . . the things we can prepare now for deployment if and when there is an escalated crisis”.
Another person briefed on the discussions with Doha said there was “potential to explore a long-term guarantee of LNG security, especially as Qatar will greatly increase its LNG production over the next few years”.
“In the short term it will be dependent on the willingness of other client countries to reroute and availability of unallocated LNG” the person said. “However, Qatar did reroute its supplies in 2011 for Japan after the tsunami hit so there’s precedent, but only if there’s a crisis.”
These are not market forces. These are manipulated markets
Preliminary discussions have started between Qatar, the world’s biggest exporter of LNG, the UK and European states about long-term gas supply “solutions,” the person added.
Most of Qatar’s LNG is shipped to Asia where the Gulf state’s clients agree to fixed, long-term contracts.
US President Joe Biden is due to hold talks with Qatar’s Emir, Sheikh Tamim bin Hamad al-Thani, in Washington this month, the person briefed on the discussions said.
Tensions between the west and Russia have soared as Moscow has deployed about 100,000 troops on the Ukrainian border. The US has threatened severe sanctions against Russia if it invades, while some energy officials have accused the Kremlin of already leveraging its gas exports.
Fatih Birol, head of the International Energy Agency, said last week that Russia was throttling gas supplies to Europe at a time of “heightened geopolitical tensions”.
There are fears that conflict could lead to a further drop in gas supplies to Europe, which is facing a growing cost of living crisis as gas prices have soared.
With gas stocks at record low levels for the time of year, officials fear Europe could face industrial disruption, blackouts, or even a loss of heating supplies if Russian exports were to fall sharply.
The senior official in the Biden administration acknowledged that contracts between LNG exporters and Asian buyers could complicate efforts to divert supplies to Europe.
“There’s no magic wand,” the official said. “It’s all really hard, really complicated. Looking to do it within the constructs of how markets work, how commercial terms work, how cargoes work.”
The official added it had become clear that Russia had been squeezing gas supplies in recent months in order to gain leverage over European capitals.
“This is not a market situation we’re dealing with. These are not market forces. These are manipulated markets,” the official said.
Europe’s reliance on Russian gas has complicated efforts to present a united front against Moscow’s threats.
While most observers expect Russia to avoid completely cutting exports, there are concerns Moscow could still squeeze supplies further, or that gas export infrastructure in Ukraine could be damaged by conflict.
Energy executives have warned about the potential effect of US sanctions after Biden this week said punitive measures could include stopping Russian banks from dealing in US dollars — the main currency of the global commodities trade.
One energy industry executive said that Europe would almost certainly face extremely high prices in the event of disruption that required co-ordinated government action to source seaborne LNG cargoes.
“They will effectively have to compete for all the supply in the market, taking cargoes away from Asia, and the likely end result is the taxpayer will pay,” the energy executive said.
“It would be like procuring PPE at the start of the pandemic, with governments needing to intervene.”
Doha has been locked in a dispute with the EU over a 2018 European Commission investigation into QatarEnergy’s long-term, fixed contracts. The probe has frustrated Doha and put a brake on Qatar investments and LNG supplies to Europe, causing the Gulf state to halt projects in France and Belgium.
However, the person briefed on the discussions said talks between Qatar and EU officials had also restarted over resolving a European Commission investigation into Qatar’s long-term contracts on the continent.
The person added that Europe needed to guarantee a long-term deal with Qatar or others to ensure stability and reduced dependence on Russia.
“People have become much more focused on gas security,” he said.