S&P Global Ratings said that it believes the EU’s planned diversification from Russian gas could have a positive implication for Qatar’s state energy producer QatarEnergy (QE).
The European Commission announced earlier this month plans to remove EU reliance on Russian fossil fuels by the end of the decade. The decision was taken following Russia’s invasion of Ukraine and seeks to replace Russian fossil fuels with replacement natural gas and renewables investment.
Qatar is one of the world’s largest liquefied natural gas (LNG) producers, and could be well poised to provide Europe with its additional gas needs, S&P explained.
“Reduced reliance on Russian gas would likely increase demand for Qatar’s LNG,” S&P said in a research note on Wednesday.
“QE has a leading position in the global LNG market, with more than a 20% share by capacity (including foreign partners’ joint venture shares of Qatari LNG) and derives about 60%-65% of its proportionately consolidated EBITDA and assets from LNG. For now, we see modest monetary benefit to QE if it diverts LNG exports to Europe from Asia, given the relatively small expected volumes, but there will be some upside given higher gas prices in Europe,” the firm explained.
However, in the short term, there are some limitations on Qatar’s ability to provide Europe with LNG, S&P said. Chief among which is the shortage of LNG regasification terminals in Europe to receive additional capacity, along with potential supply chain constraints given the time it takes to ship LNG to Europe.
In the longer term, European diversification could bring additional benefits to Qatar. QE will be able to benefit from diversifying its gas export destinations, and help find a market for the significant increase in LNG production expected once the country’s giant North Field Expansion Project gas production fields come online in 2027.
“Although there are other LNG exporters that could help bridge the gap (Australia and the US), Qatar’s relative proximity to Europe and lower production costs may provide a competitive edge compared with other providers, in our view,” the firm concluded.
S&P also noted that QE is likely to see gains from recent volatility in hydrocarbon pricing. Higher prices for hydrocarbons will benefit the firm’s exports, “albeit with a lag, given that most long-term contracts are linked to oil price formulae.”
