The Global North And South’s Fight For LNG Energy Security Is Set To Intensify

• Since the Russian invasion of Ukraine, LNG has become the swing emergency energy supply for many of the developed countries that comprise the Global North.
• European LNG imports are still at similar levels to those throughout 2022 and 2023.
• The already intense geopolitical struggle to secure these supplies will become even more of a dangerous zero-sum game between the Global North and the Global South.

Following the huge reduction in Russian pipelined gas to Europe following 24 February 2022’s invasion of Ukraine, liquefied natural gas (LNG) has become the swing emergency energy supply for many of the developed countries that comprise the Global North, led by the U.S. In fact, despite several new gas initiatives launched across Europe since then that have reduced overall gas demand from the continent, as analysed in full in my new book on the new global oil market order, European LNG imports are still at similar levels to those throughout 2022 and 2023. This has resulted in a desperate ongoing search by those countries in the Global North to secure sufficient LNG well into the future. However, demand for LNG is set to intensify dramatically in many of the developing countries that constitute the Global South, led by China, both for their own energy security and as part of the transition to greener energy. The net result of this is that global demand for LNG is projected to increase by more than 50 percent by 2040, according to oil and gas major Shell. This means that the already intense geopolitical struggle to secure these supplies will become even more of a dangerous zero-sum game between the Global North and the Global South, and between their leaders, the U.S. and China.

LNG has become the global swing energy supply because, unlike pipelined gas, it does not require expensive and very time-consuming preparation before it can be used in its end markets. It can be bought straightforwardly either through long-term contracts or in the spot market, and shipped to wherever it is needed in a much quicker and cheaper process overall. As also detailed in my new book on the new global oil market order, one of the major signs that China knew in advance that Russia was going to invade Ukraine was that it had spent the previous year or so busily making big long-term contracts with major LNG suppliers, most notably Qatar. Beijing clearly suspected that Russian gas would be sanctioned and that, as a result, the U.S.’s key allies in Europe – enormously dependent on Russian pipelined gas – would need a lot of gas from anywhere else very quickly and whatever the price. China and Russia also knew that effectively taking all this LNG out of the market for years to come through 20-year and longer contracts had no downside for them. On the one hand, they would benefit if Europe avoided Russian pipelined gas while struggling to find replacement sources of LNG that China had already largely sewn up. This would drive energy prices up, fuelling inflation, and pushing interest rates higher in order to combat this, bringing with this the very real spectre of economic recessions. On the other hand, an unwillingness to go down this road by Europe would mean that Russia would be allowed to get away with its 2022 invasion of Ukraine, just as it had done in 2014 when it invaded and then annexed Ukraine’s vast Crimea region. Russia would then be free to push further westwards into Europe, tying up the military resources of the U.S. and its NATO allies on the continent, while China began its own ‘repatriation’ of Taiwan at the same time. Related: Europe’s Secret Weapon In Its Energy War With Russia 

In the first few days after Russia moved into Ukraine in 2022, it appeared that Europe would do the same thing – that is, nothing much at all – to punish it for its new invasion. As also highlighted in my book, the principal concern of Germany – the de facto leader of the economic and political European Union (E.U.) of countries – was to ensure that Russia did not stop supplying it or other E.U. member countries with gas, due to their not being able to pay in the way Moscow preferred. This followed the 31 March 2022 decree signed by Russian President Vladimir Putin that required European buyers to pay in roubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended. The official guidance document sent out to all 27 E.U. countries on 21 April 2022 by its executive branch, the European Commission (E.C.), simply stated: “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with EU law],… EU companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.” Indeed, 18 May 2022 saw Uniper – Germany’s largest importer of Russian gas – open a special account at Gazprombank to enable rouble payments, in accordance with Putin’s wishes.

What prevented Russia from going unpunished for yet another invasion of a European sovereign state – Ukraine in 2014, and Georgia in 2008 – was the leader of the Global North, the U.S., arranging emergency supplies of LNG for Europe very quickly. As also as analysed in full in my new book on the new global oil market order, the U.S. strategy for replacing Russian gas supplies at that point was twofold. First, to increase its own gas deliveries to Europe. Second, to pressure other gas suppliers to do the same. On the first point, from zero LNG exports before 2016, the U.S. quickly became the world’s biggest exporter, with around 86 million metric tonnes of LNG shipped in 2022. And around two-thirds of all the U.S.’s LNG exports since Russia invaded Ukraine have gone to Europe. On the second point, the U.S. leveraged every proverbial carrot and stick available to it to pressure Qatar, for one, to stop signing LNG supply deals one after another with China. Given this, May 2022 saw Qatar signed a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG into the future. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag on 19 May. The plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. QatarEnergy holds a 70 percent stake in the project, with the U.S.’s ExxonMobil holding the remainder.

The securing of these first replacement supplies of LNG from Qatar – followed by new gas supply deals by NATO countries from Australia, Egypt, Oman, and Libya, among others – shifted the Emirate out of China’s grip and towards what the U.S. has called being a “major non-NATO ally”. And it is here that a microcosm of the intensified war for emergency energy supplies – focused on LNG – will be fought between the Global North and the Global South up to 2040. Qatar has plans to put its long-term rivalry with Australia for the top LNG exporter spot behind it by increasing its LNG production by around 85 percent more than was previously planned. According to QatarEnergy at the end of February, a new LNG expansion project - North Field West – will raise the Emirate’s LNG output to 142 million metric tonnes per annum (mtpa) before the end of this decade. This compares to the 404 million mtpa of LNG traded globally in 2023 and to industry estimates that this figure will reach around 625-685 million mtpa in 2040. By that point, some of the big contracts signed between Qatar and China in the lead-up to Russia’s 2022 invasion of Ukraine will be winding down, so the shape of the global LNG landscape after that will be indicated by whether companies from the Global North or Global South dominate the routing of Qatar’s gas flows by then.

By Simon Watkins for Oilprice.com

More Top Reads From Oilprice.com:

• This Could Be A Gamechanger For Natural Gas In Europe
• Oil Prices May Yet End the Week on a High Note
• Russia’s Coal Exports to Asia Slump Amid Intense Competition