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Since the outbreak of the conflict in Ukraine, European countries have recognized that they must reduce their reliance on Russian oil and gas in order to strip Putin of his energy supply card. Europe today relies on Russia for 40% of its gas needs and 30% of its oil and derivatives needs, thereby subjecting the entire continent to the whims of Russia.
In fact, in response to the sanctions imposed by Europe and the United States, Putin did not hesitate to use oil and gas flow as leverage. He demanded ruble payment for Russian oil and gas in an attempt to force his opponents to participate in sophisticated financial transactions within the Russian financial system, circumventing sanctions imposed on some Russian banks.
According to the European Union Commission, the European Union and the United States are looking for ways to redraw energy supply maps that benefit Europe in order to cut Europeans’ dependency on Russian gas by two-thirds this year. In addition, by 2030, the commission wants to free the European Union as a whole from its reliance on Russian gas. Such ambitious goals, on the other hand, pose a significant challenge for several European countries, such as Germany, which relies on Russian gas for 49 percent of its gas needs, and Italy, which relies on Russian gas for up to 46 percent of its needs.
Furthermore, talks on reducing Europe’s reliance on Russian oil and gas have progressed beyond theoretical considerations and long-term planning. Rather, a number of European countries, including Germany, have already taken significant steps in this direction, with the Nord Stream 2 project, for example, being put on hold.
By building a 55 billion cubic meter-per-year pipeline across the Baltic Sea, this project, which has so far cost close to ten billion euros, was intended to increase Russian gas supply to the German market. Despite the huge construction expenditures incurred by Russian and European companies, the pipeline’s suspension today underscores Europe’s goal to reduce its energy dependence on Russia, as well as its attempt to redraw the region’s energy supply map.
Furthermore, it is evident that the EU has other goals in mind for reducing its dependency on Russian oil and gas. The oil and gas industry has recently become Russia’s most important source of revenue as well as the largest source of foreign currency.
Oil and gas export profits made for 36% of the country’s general budget in 2021, according to official data, and these exports poured $79 billion in foreign currency into the Russian financial system. As a result, cutting Russia’s export revenues would place further strain on the country’s economy, as well as the Russian balance of payments and the value of its local currency by depriving it of important revenue sources.
Qatar enters the picture
These developments have created a major opportunity for Gulf countries aiming to boost their oil and gas export profits and grow their position in international energy markets. Qatar has been in talks with the US since the beginning of 2022 about the possibility of increasing liquefied gas shipments to the European market in the event that Russia limits gas supply to Europe. Since then, it has become evident that Qatar has been waiting for a chance to expand its market share in Europe, enhance its international political presence, and strengthen its cards in order to strengthen its position as a vital Western ally in the Middle East. It should be emphasized that this specific subject has piqued the interest of the US since the commencement of the Ukraine war, as part of its goal of reducing Russian pressure on Europe and ensuring that European countries remain the course in their fight with Russia.
According to international rating agency S&P, it has become clear in the last month that Qatari liquefied gas, which is transported by ship, can compensate for around 13% of Russian gas imports into the European Union and the United Kingdom.
Despite the fact that Qatar is currently the world’s largest exporter of liquefied gas, with the Qatar Energy Company accounting for roughly 20% of the international liquefied gas market, S&P indicated that Qatar could now play a key role in European governments’ plans to phase out Russian gas by 2030 through its liquefied gas exports.
Furthermore, according to S&P, Qatar is expected to compensate for greater volumes of Russian gas imports into Europe through an investment program recently launched by Doha. This scheme would raise its liquefied gas production capacity from 77 million tons per year to 126 million tons per year by 2027, and allow Qatar to double gas shipments to Europe.
For all of these reasons, European countries have already begun to increase their reliance on Qatari liquefied gas in place of Russian gas delivered via pipelines. Germany, for example, has been in talks with Qatar since the middle of last month to see how to expand liquefied gas imports from Qatar. In addition, Germany has begun planning the construction of new stations to handle imported Qatari liquefied gas, which will replace Russian gas received via pipelines. To complement the German plans, Qatar’s energy minister declared that his country will raise its liquefied gas production capacity by 50%, allowing it to fulfill the additional demand expected from Europe.
Throughout these developments, Qatar has continued to send positive signals to the Europeans by offering guarantees that LNG supplies would not be cut off even if other buyers paid higher prices. These guarantees, which Qatar described as “solidarity with Europe’s ordeal,” have increased European confidence in Qatar as a strategic partner in the energy sector that could help reduce reliance on Russian gas in the future.
Algeria seeks to increase exports
The Transmed pipeline, which extends through the Mediterranean and connects Algeria to Italy, connects Algeria to the European gas market. As a result of the events in Ukraine and Europeans’ search for alternative natural gas supplies, Algeria appears to have an opportunity to increase its gas shipments to Europe. As a result, shortly after the armed war in Ukraine began, Algerian firm “Sonatrach” announced its desire to increase gas shipments to the European market using surplus gas available through the Transmed pipeline.
Algeria hosted the Italian foreign minister in this regard, who is aiming to enhance his nation’s imports of Algerian gas after Italy’s prime minister declared earlier that his country wanted to diversify its energy sources in order to decrease its dependency on Russian gas.
Algeria, in particular, has been likely looking for this opportunity to strengthen its relationship with its European partners, especially since Sonatrach CEO Toufik Hakkar repeatedly stated that Europe was the “preferred natural market” for Algerian gas and that the country was prepared to support its European partners “in the long run” during difficult times. The Transmed pipeline, according to Hakkar, has more untapped capacity, and Algeria has excess natural gas that could be used for export to European market.
According to Abdelmajid Attar, the former Algerian Minister of Energy, Algeria presently sells 22 billion cubic meters of natural gas to Europe via the Transmed pipeline, which can handle an additional 10 billion cubic meters of exports. After arriving in Italy, the additional exported volumes of gas can be pumped to Spain and other European countries, allowing Europe to offset some of its Russian gas imports.
In the long run, Algeria will be able to expand the capacity of the Transmed gas pipeline, increasing the maximum quantity of gas that can be exported from Algeria to Europe and even allowing natural gas to be exported from other African countries to Europe via this network. It should be mentioned that gas pipelines connecting Algeria to other African gas-exporting countries, such as Nigeria, are also on the table.
This would allow Nigerian gas to be transported to Algeria first, and then to Europe via Transmed after its capacity is increased. The focus has also shifted to Libya, which is also connected to Algeria by a gas pipeline that permits Libyan gas to be exported to Algeria and then to Europe via Transmed.
Reviving old gas pipeline projects
Old pipeline projects, similar to the ones being worked on by the East Mediterranean Gas Forum, have been relaunched as a result of these changes. This forum, which was founded in 2019, aimed at the time to connect the Egyptian, Cypriot, and Israeli gas fields to the European market through a pipeline that passes through Greece and Italy and connects to the Jordanian gas network, taking into account that Greece, Cyprus, and Israel have already signed a preliminary agreement to lay the pipelines.
The “East-Med” pipeline project, which would become the world’s longest underwater pipeline, had been previously put on hold due to a lack of funds for its execution. However, in light of recent developments in Europe, the door is now reopen to re-launching the project, since its realization would help Europe and the United States meet their desire to reduce their reliance on Russian gas.
As a result of the shift of European objectives, the Middle East and Arab countries’ energy supply maps are being rewritten, either by reviving old gas pipeline projects, expanding exports through existing pipelines, or increasing reliance on liquefied gas. These changes have also prompted research into expanding existing gas pipelines connecting North African and Middle Eastern countries to Europe, such as the Transmed pipeline. Ankara has also began looking into boosting the capacity of the TANAP pipeline, which permits Azerbaijani gas to be transported to Europe via Turkey, taking advantage of Europe’s need for alternative natural gas sources.
In short, the Ukraine crisis and the ensuing developments in the global energy market present a significant opportunity for all gas-exporting countries in the Middle East and North Africa to increase their exports of natural gas and consequently their revenues, in addition to enhancing their international political presence through new strategic partnerships with European countries.