Europe’s endeavour for energy security

European LNG imports are expected to double from 70 million tpy in 2021 to 140 million tpy in 2030, before declining to 117 million tpy in 2040. The spike in LNG demand will result in a large volume of uncontracted LNG of about 75 million tpy from 2022 – 2030. To fix this deficit, long-term sale and purchase agreements (SPA) must be signed to secure volumes for European markets. A couple have recently been signed, but more effort needs to be put into establishing long-term relationships if the continent wants to avoid being short on supplies during harsh winters and a tight market. Exploring partnerships in the Middle East and Eastern Mediterranean could emerge as a promising avenue as the regions have recently been increasing gas investments and portfolios.

ADNOC’s strategic focus on gas developments

The UAE has been putting an increased focus on gas developments in recent years, with Abu Dhabi National Oil Company (ADNOC) taking the lead. The state giant recently went public with its gas division, ADNOC Gas, to raise capital for its upcoming projects. The most anticipated of these is the Al-Ruwais LNG project, which is expected to add 9.6 million tpy of LNG capacity in the UAE. The plant is expected to be fed by gas produced from the Bab, Bu Hasa, and Asab fields. The project was initially planned to be built in Fujairah but was shifted to Al Ruwais Industrial City due to its proximity to ADNOC’s current operations and, therefore, access to its current facilities and the presence of an existing supplier base. ADNOC is believed to be rapidly advancing towards a final investment decision (FID) on the development. With the Al-Ruwais LNG trains coming online, the country will increase its LNG capacity more than twofold.

Currently, ADNOC Gas has an ownership stake of 70% in its LNG division, with the joint partners being Mitsui, BP, and TotalEnergies. Its operations began in the 1970s on Das Island, and the company has capacity of 6 million tpy of LNG and 2 million tpy of non-LNG liquids. In 2019, it ended a 27-year long contract with Japanese utility, TEPCO, with contracted volumes of 4.3 million tpy. Since its conclusion, ADNOC has been looking at potential customers for the uncontracted volumes. While a series of agreements have been concluded with Asian players, the national oil company (NOC) is yet to sign any long-term SPAs with a European nation. Even so, the UAE is trying to broaden its reach with its first ever LNG shipment to Germany in January 2023. The shipment comes as part of the UAE-Germany Energy Security and Industry Accelerator (ESIA) Agreement signed in September 2022, focusing on energy security.

Lifting Qatar’s LNG dominance: North Field Expansion

Qatar is the unmatched powerhouse of LNG in the Middle East, accounting for over 80% of the LNG produced in the region. The country will account for three-quarters of the expected additional output growth in the region between 2010 – 2040. This will be attributable to the two-phase North Field Expansion project, involving six new LNG trains. Both the phases have been sanctioned and are undergoing development works. The US$50 billion expansion project is expected to increase Qatar’s LNG capacity from a current 77 million tpy to 126 tpy by 2027. The project has attracted significant traction from major international oil companies such as ExxonMobil, Shell, Eni, TotalEnergies, and ConocoPhillips, all of which have taken stakes.

Qatar is competing with the US to replace Russian volumes, with state giant QatarEnergy having signed multiple long-term supply agreements involving European nations. The agreements have been signed for a period of 27 years, with the supply expected to begin from 2026. The SPA signed with Eni involves the supply of 1 million tpy LNG to Italy, while the SPAs signed with Shell and TotalEnergies both involve a supply of 3.5 million tpy to the Netherlands and France, respectively. The contracted volumes will be sourced from the two-phased North Field Expansion project. Out of the 49 million tpy capacity addition, about 47% of the volumes have been pledged under long-term SPAs, with around 60% of the signed volumes being contracted to the Asian market. It is estimated that half of the production from the project will be supplied to Europe, while the other half will go to Asia. EU countries’ climate targets, which are mainly based for the next decade, may, however, pose a challenge in signing long-term agreements, as these nations move towards an increased participation of renewables in the energy mix.

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