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Sample Coursework 2

Final Scenario: Qatar, Energy Security, and Strategic Planning

Spring 2022

1. A December 2021 exploration and production contract between Qatar Energy and the

Cyprus government in consortium with ExxonMobil for a 40% stake in block 5 in the

Southeast of the island.

The economic and political relationship between the Qatar government and the Cyprus government has been growing through the years. From establishing an embassy to signing contracts in the energy sector, the two countries have found a mutually beneficial relationship. The December contract between the Cyprus government, ExxonMobil, and Qatar Energy in particular, is an indication of this relationship.

According to this contract, Qatar Energy will have 40% (of working interest) while ExxonMobil will hold 60%, which is all in Block 5. Since it is found adjacent to Block 10, an area where Cyprus has rights as an exclusive economic zone. Exclusive economic zone or EEZ is typically an area in which a state has rights regarding exploration or any type of energy production. It’s important because it helps regulate natural resources and deal with boundary issues in a fair way. So, regarding block 5 Cyprus gave exploration rights to these two parties, Qatar Energy and ExxonMobil.

Even though the agreement benefits Qatar and ExxonMobil as well as Cyprus, it creates an issue with Turkey. Qatar and Turkey have been a longtime ally but Turkey and Cyprus, on the other hand, have had their historical issues and also energy-related issues as well. One of the issues was created when Turkey claimed an area that was Cyprus’s exclusive economic zone (EEZ) (Tastekin, 2021). This is also related to the fact that almost every country in the world recognizes Cyprus as one country while Turkey doesn’t.

Because Turkey has a rival relationship with Cyprus, signing this contract might affect future Qatar and Turkey energy relations. Although this kind of energy contract between Qatar and Cyprus isn’t the first one, (they had a similar contract in 2017), it can still potentially affect Qatar. Turkey is an important ally to Qatar because they have had trade relationships that date back to the Ottoman Empire. And in many ways, Turkey has supported Qatar’s best interests, for example during the Blockade. So Qatar signing a deal with Cyprus on an area at the expense of Turkish claims can potentially affect their relationship, which is why they would probably need to either reconsider the contract, which has economic importance, or find ways to strengthen/keep Turkish allyship. With this in mind, it is also important to remember block 5, being near block 10 makes it a promising area for hydrocarbon exploration (OE, 2021).

2.  A December 2021 exploration and production contract between Qatar Energy and Royal

Dutch Shell for a 17% stake in Egypt’s Red Sea blocks 3 and 4.

Royal Dutch Shell, now known as Shell, is a British oil and gas company that is known for its multinational projects (Shell, 2022). This exploration and production contract, to be in blocks 3 and 4, will exist where Shell exists as the operator. Block 3 covers an area of 3097 square km and the water depth is 100 up to 1000 meters, while Block 4 covers 3084 square km and 100 to 1000 meters (MEED, 2022). The contract is of course dependent on the approval of necessary authorities like the Egyptian government.

This contract signals the improvement of Egypt and Qatar’s relationship, especially after the two countries’ allyship turned upside down after the blockade. The contract allows Qatar Energy to enter the red sea energy market through the Shell deal. Egypt has a well-established oil and gas sector so this contract is highly likely to become successful and benefit Qatar Energy. And since Qatar Energy has only 17% stake, it is not a risky investment as it is not very high.

Several international energy companies have shown interest on the Red sea, some of which include, ExxonMobil, Chevron, and TotalEnergies (Ugal, 2021). This shows the importance of the two blocks in energy exploration and production as well as the possible success Qatar Energy can achieve through this deal. Despite this, the Red sea still remains underexplored which shows potential opportunities. This goes along with Qatar Energy’s vision for implementing an international growth strategy and considering the above opportunities it is a good decision.

This energy contract has opened doors for future energy contracts as well because a year after this contract, Qatar Energy made an agreement with ExxonMobil for a working interest in offshore oil and gas exploration in Egypt (MEED, 2022). But this time the stake has increased to 40% which is 23% more than the previous contract.

As a senior advisor, looking at this contract, it is safe to say that there are various benefits to it and it is a promising investment. One thing to keep in mind is the fact that the stake is also not that high (17%) so in case of a disagreement or any negative outcomes, Qatar Energy would not be hurt by this investment. But in case this investment is indeed going to be successful Qatar Energy should consider increasing its stake so it benefits from the positive economic outcomes. In general, authorities need to weigh the benefits and risks in order to avoid potential risks that might come up from this investment.

3. The 2022 Qatar Energy response to the Russian invasion of Ukraine. Specifically, the

implications of the focus on Qatar as an important replacement source of LNG for

European countries who want to reduce or end their dependence on Russian gas.

Due to the Russian invasion of Ukraine, Qatar was expected to cover the energy supply from Europe. Russia covers up to 40% of Europe’s energy which is impossible for Qatar to replace as it is a small state despite the fact that it is also a major energy player. Although, Qatar supports Ukraine in this matter, replacing the energy export to Europe is not something it can do which is how it responded immediately after the crisis happened.

After this crisis started, states like Germany, which highly depends on Russia’s energy exports announced that they will distance themselves from Russia in response to the attacks (Karabay, 2022). Germany gets almost 40% of its energy supply from Russia, they announced their request for Qatar to replace in order to decrease their dependence. Although not possible, it shows how dynamic the energy market can be and how states are ready to put sanctions when events like this happen. For Qatar, which doesn’t necessarily depend on Russia for its energy, it is indeed a different situation from the European countries. The situation in some ways has been beneficial for Qatar as it opened new opportunities for energy relationships. Qatar ended up signing a long-term contract with Germany in march this year, to replace its dependence on Russia (Aljazeera, 2022). Qatar’s energy exports and relationships are tied to long-term contracts with different states, most states in the Asian market. Since its energy relationships are concentrated in Asia, this contract will diversify its energy relationships and bring an opportunity for further economic activities with important states like Germany.

But with Russia threatening Qatar if it gets involved the situation becomes tricky and it is a potential threat that needs to be addressed carefully, as Russia is an important actor in several factors, severing this relationship could lead to damages if not handled right.

Let’s take a look at Russia’s role in different sectors. In terms of energy, Russia is one of the leading natural gas and oil exporters. Politically its role in the decision-making as a participant of an important organization like EU and UN. It is known for using its veto power multiple times, especially in the UN, these factors are important to consider in case Qatar’s relationship with the state is severed.  Since the situation is still ongoing and the ending is unpredictable, Qatar should be cautious and try to analyze the outcome of the conflict. Specifically, Qatar Energy would need to organize a team that will analyze and tackle crisis management in case of a negative outcome. The pollical dynamic can easily change if major powers start siding with Russia and as Russia is a leading energy exporter, states have a lot to lose if this happens. But it is important to note that these type of sanctions are important to ensure peace and security in the world because it sends a message that states can’t just decide to solve disputes with war. This Russian-Ukraine conflict can easily create World War three if the magnitude increases and to put an end to this, countries around the world need to work together to put pressure on Russia.

4. Qatar Energy is the largest LNG supplier to China (more than 50 billion cubic meters

amounting to almost 50% of the yearly supply in 2020).  In light of the current sanctions

regime against Russia, what are the possible challenges, and what policy options are

available to mitigate those challenges if a future Chinese intervention in or invasion of

Taiwan resulted in international demands for Qatar to cease its LNG supply to China?

Qatar has always focused on the Asian market and has been supplying states like China with a high amount of LNG, so this matter is expected to be a big deal to Qatar.  According to 2021 statistics, Qatar’s energy exports to Asia make up 48.5% of the total exports, which is a significant amount out of which 18.8% goes to China (The Peninsula, 2021). Qatar’s high focus on the Asian market is reasonable in different ways one being the geographic location of the two regions. Since they are closer to each other than other European or other states, Qatar can ship LNG cargos through a very low shipping cost than if it was to ship it further. It is economically accessible and profitable, since shipping is an important factor when it comes to energy export.

If China decides to invade Taiwan and Qatar is asked to cease its LNG supply to China, it would significantly hurt Qatar’s economy and creates complications for Qatar Energy. Once it happens Qatar would need to immediately find a replacement for this so that it wouldn’t significantly hurt its economy. In this situation, I believe increasing the energy export to the other Asian states that Qatar already has contracts with is a practical decision. This way Qatar Energy wouldn’t need to do things from scratch including building pipelines or finding a route to deliver cargo ships. It would just use the existing pipelines and other resources that it has. One of these countries can be India, Korea or Japan, two states that already import so much from Qatar and rely on other states for their additional needs. But this also has its own risks as the Asian market has also been changing, as the above three states came towards procurement cooperation which would benefit them (Wright, 2022). This in one way or another can alienate and threaten Qatar Energy’s influence in the market so optionally, Qatar can consider diversifying its energy export and relationships. This would mean breaking into the European or African market, which can benefit Qatar in the long term.

For obvious reasons, Qatar would need to agree to cease and stop the export. Because again, it is important to put sanctions on states when they invade other countries. It will stop the normalization of invasions and wars and eventually save so many lives. But if Qatar decides to keep supplying China it would keep its energy relationship. The above-mentioned economic impacts wouldn’t happen although the state will be affected in other ways. In such cases, other states might start threatening Qatar as well by putting it as a supporter of an invader. Which is a different kind of impact and yet probably more distractive than ceasing export to China.

In conclusion, Qatar needs to consider its well-being as a state and select an option that will be less destructive and possibly more beneficial long-term or short-term wise. Although the immediate reaction might be trying to protect investments, other factors like foreign relations and human rights as well as other political aspects need to be well analyzed. This is why Qatar as well as Qatar Energy needs to do a risk analysis and organize a team that looks into different sides of this potential situation. Authorities should also with other states to create conditions that would create mutual benefits in hopes of new economic investments.

 

Reference

Al Jazeera. (2022, March 20). Germany seals gas deal with Qatar to reduce dependence on Russia. Oil and Gas News | Al Jazeera. https://www.aljazeera.com/news/2022/3/20/germany-seals-gas-deal-with-qatar-to-reduce-dependence-on-russia

Asia top destination of Qatar’s exports – the peninsula Qatar – write caliber. Latest Business News. Read Now. (2021, December 30). https://news.writecaliber.com/economy-qatar-asia-top-destination-of-qatars-exports-the-peninsula-qatar/

ExxonMobil, Qatar energy get hold of Offshore Block 5 in Cyprus. Offshore Engineer Magazine. (2021, December 10). https://www.oedigital.com/news/492749-exxonmobil-qatarenergy-get-hold-of-offshore-block-5-in-cyprus

Meed, & Meed. (2022, April 1). Qatar to acquire Egypt Offshore Block Stake. Offshore Technology. https://www.offshore-technology.com/comment/qatar-egypt-offshore-block-stake/

Qatar energy Signs Energy Exploration Agreement with Cyprus. Al. https://www.al-monitor.com/originals/2021/12/qatarenergy-signs-energy-exploration-agreement-cyprus

Reed, E. (2021, December 13). Qatar energy enters Egypt’s Red Sea via Shell deal. Energy Voice. https://www.energyvoice.com/oilandgas/africa/ep-africa/371904/qatarenergy-shell-egypt-red/

Germany activates ‘early warning’ gas plan amid tensions with Russia. (n.d.) https://www.aa.com.tr/en/energy/natural-gas/germany-activates-early-warning-gas-plan-amid-tensions-with-russia/34985

Wright, Steven. (2019, February). Energy Geopolitics in 2019

Wright, Steven. (2020, March). Qatar’s Energy Relations with China, Japan and South Korea.