Strike from Qatar: Gulf country threatened to halt gas flow to EU
Qatar has threatened to stop supplying liquefied natural gas to the EU. The reason is the EU's new ESG directive, which requires penalizing companies that do not meet established criteria for carbon emissions. For Europe, which has staked on alternatives to Russia as its main source of gas, this could be a serious blow, especially since the Qataris have no shortage of potential buyers. Against the background of all this, the EU countries are increasing gas supplies from Russia. The details are in the Izvestia article.
Doha against
This week, Qatar's Energy Minister Saad al-Qaabi said in an interview with the Financial Times that if any EU state imposes fines for non-compliance with the Corporate Responsibility Directive, Doha will stop exporting its liquefied natural gas to Europe. At issue is the May 2024 regulation. It stipulates that companies doing business in Europe will have to pay 5% of their revenues in case of claims about their carbon emissions or violations of workers' rights. In both cases, Qatar is likely to face questions. It's worth noting that the regulation won't start working until 2027 - but that's already been enough to provoke a harsh reaction.
Qatar's Minister of State for Energy Affairs Saad bin Sharida Al Kaabi
As Kaabi has stated, if it turns out that it is losing 5% of its revenue by supplying gas to Europe, it will not do so. "I am not bluffing. 5% of Qatar Energy's income means 5% of the income of the state of Qatar. It's the people's money ... so I can't lose that kind of money - and nobody would agree to that." The rules are unworkable for his entity, he said. They would require the company to conduct labor compliance audits of all suppliers to the group, whose global supply chain includes 100,000 different firms. Compliance with carbon dioxide emission requirements will be even more impossible because Qatar Energy is involved with hydrocarbons, which emit CO2 by definition when used (and no matter how hard you try, mining, refining and transportation are carbon dioxide-free).
The corporate responsibility rules are part of a broader set of requirements aimed at meeting an ambitious target of zero carbon emissions by 2050. Non-EU companies will be liable for fines under the directive if their net turnover in the bloc exceeds €450 million. From the outset, the directive was received with a stinging welcome by both foreign and local corporations, who found the rules too onerous and put them in a position of unequal competition.
For example, the chemical industry association Cefic warned that the directive "creates significant litigation risks." The rules, according to the chemists who could be hit first (foreign gas and oil are vital to them), should be carefully assessed "to identify and eliminate areas for simplification and reduce burdens to limit liability".
Thus, the directive managed to pinch just about everyone. The Qataris, in this sense, have simply been the least polite. By the way, it was not only about liquefied gas. Kaabi said that the legislation will affect all Qatari exports to Europe, including fertilizers and petrochemicals. Moreover, it could play a role in the investment decisions of the Qatar Investment Authority, the local sovereign wealth fund.
The head of the company emphasized that the contracts will not be broken. But at the very least, the corporation intends to go to court. There can be a field for compromise only if only the income from exports to Europe will be fined. But for this purpose the whole concept will have to be revised. For now, European Commission President Ursula von der Leyen has promised to propose "common" legislation that would reduce reporting requirements in line with several of the bloc's green financial laws, including the corporate responsibility directive.
A shot in the foot
For the EU, Qatar's decision is a rather unpleasant signal. Since 2022, the EU has been increasingly reliant on Qatari LNG to replace losses from reduced hydrocarbon gas supplies from Russia. Two years ago, successes in negotiations with Qatar were reported with great pomp. Now, however, the tough ESG rules, which the same America has begun to quickly abandon, have become a real shot in the foot for European importers.
To be fair, Qatar's role in the EU's overall energy mix is relatively small. The country supplied 15.5 billion cubic meters of LNG to Europe in 2023, roughly 5% of total gas imports. By comparison, Norway accounts for six times as much. But the numbers can be deceiving. Unlike in the past, Europe is much more reliant on LNG, and this market is more volatile, unstable and dependent on external conditions. The disappearance of even small volumes could lead to a critical price spike that would deal a new blow to the European industry, which has already been hit hard by the turbulence of the past three years.
It should not be forgotten that other suppliers may also be unhappy with the directive. The US under the new administration is definitely not going to play by ESG rules, and the Trump government will support its companies if they have questions for European consumers.
As for Qatar itself, it doesn't have the EU as its most important customer either. The key importers of local LNG are India and East Asian countries. On the other hand, long-term contracts have already been signed, and their revision will require substantial efforts, so the situation is unpleasant for everyone to a greater or lesser extent.
Meanwhile, the EU is forced to increase its gas purchases from Russia, with which all ties have been cut off in words. Analysts from Bruegel calculated that for 11 months exports from Russia to the EU amounted to 49.6 billion cubic meters, which is a quarter more than in the same period last year. Our country accounted for 18% of supplies against 14% a year earlier. Moreover, an increasing share is accounted for by Russian LNG, which is always more expensive than pipeline gas from the same country. This growth is taking place despite the general reduction in gas consumption by the EU - industrial problems in countries such as Germany and France have not disappeared and continue to worsen.
At the moment, the EU finds itself in a situation where its own laws and regulations are repeatedly worsening the region's energy security. As the example of Russia shows, we have to constantly look for solutions to circumvent the rules and sanctions imposed by the Europeans themselves. At the same time, if the dependence on foreign suppliers is reduced (by relatively modest amounts), it is not due to energy saving or internal resources, but only at the cost of losses for the national economies of the European Union.
