MEDIA WATCH: Saudi dispute with Qatar rooted in gas
MEDIA WATCH
Saudi dispute with Qatar rooted in gas
By Marc Champion
LONDON (Bloomberg) — Saudi Arabia’s isolation of Qatar has been brewing since 1995, and the dispute’s long past and likely lingering future are best explained by natural gas.
Not only was that the year when the father of the current emir, Sheikh Tamim bin Hamad Al Thani, toppled his own pro-Saudi father, it was also when the tiny desert peninsula was about to make its first shipment of liquid natural gas from the world’s largest reservoir. The offshore North Field, which provides virtually all of Qatar’s gas, is shared with Iran, Saudi Arabia’s hated rival.
The wealth that followed turned Qatar into not just the world’s richest nation, with an annual per-capita income of $130,000, but also the world’s largest LNG exporter. The focus on gas set it apart from its oil producing neighbors in the Gulf Cooperation Council and allowed it to break from domination by Saudi Arabia, which in Monday’s statement of complaint described Qataris as an “extension of their brethren in the Kingdom” as it cut off diplomatic relations and closed the border.
Instead, Qatar built its own ties with other powers including Iran, the U.S. — Qatar hosts U.S. Central Command — and more recently, Russia. Qatar’s sovereign wealth fund agreed last year to invest $2.7 billion in Russia’s state-run Rosneft Oil.
“Qatar used to be a kind of Saudi vassal state, but it used the autonomy that its gas wealth created to carve out an independent role for itself,” said Jim Krane, energy research fellow at Rice University’s Baker Institute, in Houston, Texas. “The rest of the region has been looking for an opportunity to clip Qatar’s wings.”
Trump’s Visit
That opportunity came with U.S. President Donald Trump’s recent visit to Saudi Arabia, when he called on “all nations of conscience” to isolate Iran. When Qatar disagreed publicly, in a statement the government later said was a product of hacking, the Saudi-led retribution followed.
Critically, Qatar’s natural gas output has been free from entanglement in the Organization of Petroleum Exporting Countries, the oil cartel that Saudi Arabia dominates.
The new emir, having survived a counter-coup attempt in 1996, didn’t build pipelines that would have integrated Qatar into the markets of its Gulf neighbors. Two senior Qatari government officials alleged during the trial of the coup plotters in 2000 that Bahrain helped to organize the attempt with Saudi Arabia’s consent, according to a report by the BBC.
At the time, those much richer oil states saw natural gas as virtually worthless, useful mainly for injecting back into oil wells to improve extraction rates. They were willing to pay only a fraction of the world market price for LNG, according to a paper Krane co-authored with Qatar University’s Steven Wright.
The sole pipeline built, the Dolphin project connecting Qatar’s North Field to the United Arab Emirates and Oman, has operated at half to two thirds capacity. Contracts signed last year should fill the rest, yet the vast majority of Qatar’s exports will continue to go to markets in Asia and Europe.
Angering Neighbors
More recently, demand for natural gas to produce electricity and power industry has been growing in the Gulf states. They’re having to resort to higher-cost LNG imports and exploring difficult domestic gas formations that are expensive to get out of the ground, according to the research. Qatar’s gas has the lowest extraction costs in the world.
Qatar gas wealth enabled it to develop foreign policies that came to irritate its neighbors. It backed the Muslim Brotherhood in Egypt, Hamas in the Gaza Strip and armed factions opposed by the UAE or Saudi Arabia in Libya and Syria. Gas also paid for a global television network, Al Jazeera, which at various times has embarrassed or angered most Middle Eastern governments.
On Tuesday, Trump said on Twitter that when he talked about the need to stop funding radical ideology during his trip to the Middle East, “Leaders pointed to Qatar – look!”
