Qatar’s gas push has a hidden motive — murdering coal

By Javier Blas

The energy transition will eventually be a zero-sum game — for one energy source to win, another must lose. The obvious battle is between renewables and fossil fuels. But even within the fossil-fuel camp, natural gas and coal are fighting for supremacy. And one nation is seeking to tip the scales in favor of the former.

Supporters of gas brand it a “bridge fuel” – a stepping stone to allow the world to decarbonize electricity generation by replacing coal-fired power stations with gas-fired plants.

Problematic methane leaks aside, gas faces two obstacles to dethrone king coal: prices and ubiquity. Coal is dirt cheap and plentiful at home in many developing countries; gas, meanwhile, must be imported in liquid form and, in the past two years, became prohibitively expensive following Russia’s invasion of Ukraine.

Unsurprisingly, Asian countries such as Bangladesh, Pakistan and Thailand that once viewed LNG as a not-so-difficult and not-too-expensive way to decarbonize are having second thoughts. China and India, which together account for about one-third of the world’s population, have leaned on coal more heavily in recent years, emphasizing its energy security attributes. That’s propped up coal consumption, which last year reached an all-time high.

Credit: Bloomberg

Enter Qatar, the tiny Middle Eastern emirate that sits atop of one of the world’s biggest fossil-fuel prizes — trillions of dollars worth of natural gas reserves. Qatar may be fossil fuel-rich, but it paradoxically has a vested interest in making the energy transition work— depending how we define victory. For Qatar — and many other players in the realpolitik camp of the energy and climate debate — success would be first and foremost about replacing coal with gas.

Viewed through this lens, it’s easy to understand why Qatar, the world’s third-largest LNG exporter, is rushing through a massive expansion of its production capacity, even when many believe that would overwhelm demand. Saad Al-Kaabi, the country’s energy minister, explained why Qatar was moving ahead so quickly in simple terms: “The only thing that would stop us announcing more projects is if we don’t believe there is a market,” he said on Feb. 25.

The Qatari announcement just a month after the White House’s decision to pause approval of domestic LNG projects had prompted some conspiracy theorists to suggest that Doha was taking advantage of Washington. I don’t think so.

The reality is that Qatar has been paying attention to developments in Asia — and it’s reacting. What the emirate isn’t saying publicly, but every gas consumer can work out for themselves, is that by flooding the market, the Middle Eastern country is hoping to make LNG plentiful and cheap enough to stimulate demand. Put simply: Qatar is trying to reassure Asian nations they can count on gas providing the necessary bridge to kill coal without risking either their finances or their energy security.

Qatar currently has the capacity to export about 77 million metric tons of LNG annually, making it the third-largest supplier globally behind the US and Australia. Until a few days ago, it was aiming to lift its capacity by about 60 per cent to 126 million tons. Coming on top of expected US additions, that would have been enough to tip the LNG market into oversupply. But on Feb. 25, Qatar announced plans for a more aggressive build-up: an increase of 85 per cent to 142 million tons before 2030. “That’s an enormous quantity,” is my euphemistic interpretation of how industry participants have described the planned increase.

Not only is Qatar flooding the gas market, it’s rewriting the playbook of how LNG export facilities are built. Typically, gas-exporting countries first sign long-term contracts with buyers, and use those commitments to finance and then construct the project. Qatar is pressing ahead without any contracts, reaching into its deep pockets to build the facilities and find buyers for the output later. It helps that the nation is probably the lowest-cost producer; as a sovereign, rather than just a commercial enterprise, it can take a long-term, strategic view of the market.

Will Qatar succeed? The measure of victory won’t be determined by gas prices, but rather by volumes. Qatar, which quit the OPEC oil cartel in 2019, is clearly interested in expanding the gas market, even if that results in lower prices. In Asia, benchmark LNG prices have fallen below $10 per million British thermal unit, from an all-time high of more than $70 in mid-2022.

The worst-case scenario for a gas-rich nation is that memories of the scarcity and high prices of recent years encourage a pincer movement against LNG, with countries retaining coal as their baseload fuel for electricity generation while they build up solar and wind capabilities. Not everyone agrees with using LNG as a bridge to combat the climate crisis. But given that every lump of coal displaced by gas molecules is a win for the planet, the world has a big stake in Qatar’s plan succeeding.