Blowback to Qatar: Shocks to the World
Op-Ed by Paul Sullivan
Qatar is the world’s largest exporter of liquified natural gas (LNG). North Field, the biggest known conventional gas field in the world, is just off its shores. Consequently, an attack on its LNG production and export infrastructure could produce great shocks in the LNG, oil, and coal markets, and eventually could seriously damage the world economy.
Qatar’s outward looking foreign policy is almost entirely based on projecting power through its oil and gas wealth. It has been writing checks to the Muslim Brotherhood and other questionable groups for some time. Qatar gave billions to the Morsi regime in Egypt to help its attempts to survive. Egypt turned down the Qataris largesse soon after President El-Sisi took over. Similarly, Qatar’s foreign policy with regard to Syria and Libya has been mostly check-book diplomacy. Check-book diplomacy is employing financial clout, rather than using the usual diplomatic and military levers of power, to influence decision-making.
In short, providing protection to groups that fund militant organizations such as Hamas and the Taliban has become a cornerstone of Qatari politicking. On the other hand, Qatar has lent a modicum of support in the international coalition against IS. Supporting the coalition, though, does not negate its connections to the Muslim Brotherhood and other questionable groups. It may, in fact, magnify the risks it faces.
Those seeking retaliation against Qatar for its collaboration in the war on IS or for its support for some questionable groups would likely focus on the most important source of the country’s great wealth—its energy industry. Qatar is a giant in the energy markets. It supplies over 25 percent of world LNG exports. All but a tiny amount of Qatar’s natural gas exports comes from the Ras Laffan facility located in the north. The stability and reliability of LNG, and hence natural gas markets, are very much determined by the stability and reliability of Qatar as a supplier.
Ras Laffan is the Achilles heel of the LNG markets. That makes it a weakness for oil and coal markets as well, given the connections amongst fossil fuel markets during times of crisis. A major terror attack on Ras Laffan would catalyze energy market instability.
The regions that would be hit the hardest initially would be Asia and Europe. The top five importers of Qatari LNG are South Korea, China, India, Japan, and Taiwan. India gets 85 percent of its LNG from Qatar; while China gets 20 percent from Qatar. South Korea gets 33 percent, and Japan relies on Qatar for 18 percent of its LNG. Worst yet, 45 percent of EU LNG imports come from Qatar.
LNG prices could jump to 25 or even 30 USD per MMBTU (Million British Thermal Units) from their current 12-16 USD per MMBTU in many Asian markets. Asian prices for gas would go through and beyond what most people thought was the roof. Those countries would have to look for alternative fuels to LNG. They would likely turn to coal and oil. But, of course, increased demand in oil and coal would increase the prices of those resources, sending a ripple through the global energy markets.
Europe also relies on LNG imports. If an attack occurs, then Europe’s LNG prices could skyrocket to 20-25 USD per MMBTU from their current prices of around 9-12 USD per MMBTU. There are massive pipeline systems connecting Europe to Russia, Norway, Libya, and Algeria, which may mitigate the price shocks. These pipelines could not fully replace the lost Qatari LNG. Europe would also turn to more coal and oil further stressing out those markets.
Electricity, petrochemicals, and many other markets that need natural gas would also feel price shocks. There could also be factory shutdowns in Asia and Europe, as companies scramble to find alternative sources of energy.
The debate about exporting LNG from the U.S. would end, as our allies in both Europe and Asia would be in great need of our LNG. Approvals and building of LNG export facilities in the U.S. and globally would increase. LNG facilities, pipelines, and large LNG carriers take time to complete. The immediate and medium-term shocks would continue, possibly unabated, as the world tries to frantically adjust.
It is surely time for Japan to reconsider opening up its nuclear plants again. It should also put more effort and investment into greater natural gas storage and the development of its methane hydrates, frozen natural gas, off its shores. China, South Korea, Taiwan, India, Europe, and many others globally should also begin rethinking their energy diversification programs.
Is it not better to be prepared than to put our collective heads in the sand about such serious potential energy threats?
Hopefully, a massive attack on Ras Laffan will not happen. However, the world has to consider the importance of this facility and of Qatar to LNG, as well as to the world economy.
Paul Sullivan is a professor of economics at the National Defense University and adjunct professor of security studies at Georgetown University.
Source: World Policy Blog