The war in Ukraine has reshaped the world’s fuel markets



Docks, stocks and many floating barrels

The Gulf will be a big winner

In 2017 Qatar lifted a 12-year ban on developing the world’s biggest natural-gas field, most of which lies under the waters of the Persian Gulf. Soon afterwards it announced plans to exploit its share of the field (Iran, too, has an interest) through a $30bn project called the North Field Expansion (nfe). The nfe is designed to increase the country’s liquefied natural gas (lng) production from its current rate of 77m tonnes per annum (mtpa) to 110 mtpa in 2026, an amount which, expanded, would be 152bn cubic metres of gas. Critics saw it as an unfeasibly risky punt. Qatar responded by announcing that a second phase would take it to 126 mtpa by 2027—one-third the size of today’s lng market.

In 2019 a global LNG glut pushed the spot price in Asia, where Qatar sells most of its gas, to $5.49 per million British thermal units (mBTU—the natural-gas business is stalked by unhelpful units), its lowest point in a decade. A year later, as lockdowns enacted in the face of the covid-19 pandemic smothered demand, it fell 20% further to $4.39—its all-time low. The NFE’s critics smelled blood. But Saad al-Kaabi, the energy minister, stuck to his plan. His calculations showed that, by 2025, “plus or minus two years”, the world would be craving gas again.

Mr al-Kaabi was off on timing—but not much else. In 2021 a rebound in energy demand saw consumers scrambling for LNG, in part because it is seen as more climate-friendly than coal. In 2022 the war in Ukraine, which has seen European gas prices soar sixfold in a year, has sent delegation after delegation to Doha, the capital of Qatar, in search of supplies. On the day The Economist met with Mr al-Kaabi, Charles Michel, the head of the European Council, was also in town, braving the ferocious heat and fabricated football fever—Qatar hosts the World Cup this winter—to ask for more gas. Two weeks before it had been the prime minister of Greece; two weeks after it was the German chancellor.

They are not coming away with much by way of wins. In August Qatar sent Europe 2m tonnes of LNG. It was only a fifth of the total it shipped that month but, Mr al-Kaabi says, as much as could be managed, because the rest is tied into long-term contracts, mostly with Asia. Nor will things necessarily get easier in the future. Mr al-Kaabi has signed partnerships with five of the largest Western oil and gas companies; but he is also discussing potential partnerships with Chinese, Indian, Japan­ese and South Korean firms. And he is willing to make straightforward supply deals “with everybody”.

Qatar’s dealfest points to a fundamental reordering of the global energy-trading system. In recent years the main organising principles of the sophisticated web of buyers and sellers of fuel around the world have been price and climate concerns. Now the war in Ukraine has reinserted energy security into the mix at a time when supply cannot rapidly grow. The market which will emerge will be structurally tight. It will also be split along a meridian running from the Urals to Saudi Arabia—allowing Gulf states to arbitrage opportunities as never before.

Turning to face the dawn

Read More: The war in Ukraine has reshaped the world’s fuel markets

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