In just a few weeks after the invasion of Ukraine, the Russian economy was hit hard by unprecedented sanctions from Western countries, and President Putin felt that the model he had built over the past two decades was under attack, aimed at destroying it or at least preventing it from developing in the future.

Overnight, Russia became an unreliable and highly unwanted energy source in Europe, the United States, and many Asian countries such as Japan and South Korea.

However, decoupling Russia from the global economy with heavy sanctions has turned out to be a challenge to be reckoned with.

Russia is a major supplier of goods and raw materials, none of which can be easily replaced especially at a time of rising geopolitical tensions, disruptions in global supply chains, and rising global inflation rates.

Moreover, the Ukrainian crisis came at a time when global stocks of crude oil, natural gas and coal were lower than usual;

This contributed to continued price volatility and price hikes, especially if we take into account that Russia is today one of the three largest oil producers in the world, and is also the largest exporter of natural gas in the world, and the second largest producer after America.

Of course, expectations regarding the future paths of the crisis, and its impact on global energy markets, are shrouded in uncertainty and uncertainty.

The situation may depend on the degree of impact of the current sanctions imposed on Russia, and any possible future sanctions.

In addition, the degree of response of other oil and gas producers to current world prices, as well as the effects that international economic developments may have on global demand for energy imports, will be important for determining price trends in the coming period.

However, one of the things that has become certain is that most of the European Union countries want to separate or permanently divorce from Russia.

Of course, this scenario, if it occurs, will have profound repercussions and may reshape the global energy map.

Here, the paper argues that the Russian invasion of Ukraine put many Arab energy-exporting countries in an ambiguous political position, but in return it strengthened their centrality in the global energy economy, and may eventually lead to political and economic gains, especially in the short and medium term.

Oil: Saudi and Emirati ambitions

The European Union is examining the Russian oil embargo and its repercussions.

Of course, if the European Union decides to ban Russian crude, oil prices are likely to rise.

This decision may have significant global repercussions, whose economic and political effects may remain effective for many years to come.

Russia is the world's largest oil exporter;

As its share amounted to about 8% of global supplies, the European Union is the second largest importer and largest buyer of Russian oil in the world (1).

In the event that oil trade between the European Union and Russia stops, about 3 million barrels per day of Russian crude supplies and about one million barrels per day of petroleum products will be stopped;

This could constitute a global supply shock (2).

In the short term, the spare production capacity is concentrated in the OPEC countries, especially Saudi Arabia and the UAE, however there are no indications so far that the OPEC countries led by Saudi Arabia are ready to take action to increase production above the previously agreed quantities.

One reason is simply that, after suffering from the effects of low oil prices for most of the past decade and the financial repercussions of the Corona pandemic, OPEC countries are looking to reap the benefits of high oil prices (3).

While OPEC estimates that global markets are currently affected by political interactions more than fundamental factors such as supply and demand, which may reduce the movement space for the organization.

Perhaps most importantly, the OPEC countries want to maintain good relations with Russia, in addition to the fact that the Gulf countries, especially Saudi Arabia, have no desire to undermine the internal cohesion of OPEC Plus and the achievements of years of hard work.

However, the picture may be slightly different in the medium and long term.

The current crisis is dramatically changing the behavior of European oil consumers, who are trying to reduce their dependence on Russia at any cost.

This will not happen overnight, but the trend is clear and is accelerated by the war in Ukraine.

Such a situation may provide the Gulf states with the option of gradually increasing their presence in European oil markets, in a way that avoids tensions with Moscow (4).

The current sanctions may also significantly weaken Russia's capabilities in maintaining current production levels;

Russian energy companies are now cut off from international finance and technology flows.

All this will mean, in sum, that the production of oil and natural gas in Russia is declining, and perhaps this matter - if it happens - makes Russia less important to OPEC over time (5).

No, rather, as a result of changing global energy flows, Middle Eastern countries may find themselves facing the attack of cheaper Russian oil (or liquefied gas) in Asian markets (6).

In fact, it can be said that the Gulf countries such as Saudi Arabia, the UAE and Kuwait may be more prepared for these transformations than others, as large investments in the energy sector grow to achieve healthy growth during the next five years;

As major producers are maneuvering to expand their production capacity amid a healthy oil price environment and a recovery in global demand in the wake of the Corona pandemic.

Here, Saudi Aramco estimates that its capital expenditures rose from $27 billion in 2020 to $35 billion, indicating continued (albeit more moderate) growth in the coming years.

The company aims to increase its maximum sustainable oil production capacity from 12 million barrels per day currently to 13 million barrels per day by 2027 (7).

In the field of refining and petrochemicals, Aramco confirms that the priority will be to create a continuous growth for the role of the petrochemical sector, which the company has always considered the main source of the increasing demand for crude oil in the future.

Aramco's stated goal is to increase conversion of liquids to chemicals to 4 million barrels per day (8).

While the UAE is targeting significant increases in its oil and gas production capacity;

State-owned ADNOC announced a capital budget of $127 billion for the 2022-2026 period, up from $122 billion during 2021-2025.

The company aims to raise its production capacity from about 4 million barrels per day currently to 5 million barrels per day by 2030 (10).

While KPC targets a five-year expenditure of about $65 billion, it will support its efforts to increase its oil production capacity to 3.5 million barrels per day in 2025, and then four million barrels per day in 2035 (11).

Gas: the growing importance of Qatar and Algeria

On the natural gas front, European governments are striving to reduce their dependence on Russian gas, but there is no quick way for Europe to get rid of Russian gas, so most efforts are focused on the medium and long terms to achieve this goal.

According to the International Energy Agency, the European Union imported 155 billion cubic meters of natural gas from Russia in 2021, which represents more than 40% of its total gas imports (12).

In fact, the EU relies on natural gas imports for 90% of its annual consumption (13), while Europe's potential LNG import capacity is about 157 billion cubic meters per year, enough to meet nearly 40% of total demand. However, at the present time, about half of that capacity for liquefied gas is being exploited only for economic, logistical and geographical considerations (14).

The Europeans assert that they pursue two main goals: reducing the demand for natural gas from Russia, and diversifying the supply of liquefied natural gas (LNG).

The European Union recently announced its plan (REPowerEU) to reduce its purchases of Russian gas by two-thirds before the end of this year.

The plan focuses on intensifying renewable energy sources, increasing energy efficiencies, and diversifying their energy supply sources (15).

It seems that this plan is ambitious and may be overly optimistic, especially with regard to the targets for the current year.

Here, the International Energy Agency indicates that the European Union could theoretically increase LNG flows in the near term by about 60 billion cubic meters for the year, but it expects that this would push up prices because the Europeans will crowd out the rest of the gas consuming countries on the same quantities. Exported by gas-producing countries except Russia.

Instead, the agency proposes 20 billion cubic meters for the year as a more realistic increase, but only 13% of total European imports last year from Russia (16).

In this context, Europeans are looking for new sources of supplies as the European Union seeks to increase imports from Algeria and Azerbaijan, and expand pipeline capacity from Norway.

Moreover, the EU is likely to rely more on LNG imports, with the United States and Qatar potentially becoming major LNG exporters.

Here, the European Commission is looking to develop relations with many countries to allow the import of 50 billion cubic meters annually (17), although obtaining this amount in the current year is not an easy matter.

Of course, the strong entry of the European Union to the natural gas markets via pipelines or liquefied natural gas may lead to increased competition for immediate shipments of LNG, especially to Asia.

As a result, it may push prices to rise or remain within high levels for a longer period.

But such entry may be welcome from Arab gas-exporting countries, such as Qatar, Algeria, Egypt and perhaps later Libya, because it may keep prices at good levels for those countries, in addition to potentially increasing their market shares in European markets.

European buyers are looking to replace Russian gas supplies;

This indicates that demand will remain high after the immediate supply crisis that hit the continent last year.

There are expectations that the global consumption of liquefied natural gas may rise by 60% by the end of the current decade (18).

1. Qatar

The Ukrainian war has highlighted Qatar's leading role in the LNG market.

Although the majority of Qatar's LNG exports are linked to long-term Sale and Purchase Agreements (SPAs);

This limits the flexibility of diverting supplies to alternative customers at short notice, but it is expected that Doha will benefit in the medium term from Europe's move towards LNG to replace Russian pipeline gas (19).

Certainly, Doha believes that it is in a strong negotiating position that qualifies it to become one of the main suppliers to European countries during the current decade and perhaps in the next.

Qatar's strategic location and relative proximity to Asia and Europe, as well as low production costs, mean that it is in a flexible competitive position to change the direction of LNG supplies among major consumers in Europe and Asia.

Most importantly, Qatar is expected to spend tens of billions of dollars over the next five years to expand liquefaction capacity from 77 million tons per year (20) to 110 million tons per year by 2025 and then increase it to 126 million tons per year by 2027 (21).

Moreover, the $ 10 billion “Golden Pass” project to export liquefied natural gas in Texas (Qatar owns 70%, and ExxonMobil owns 30%), will raise the export capabilities of Qatar by 15.6 million tons of gas annually, and it is expected Exports to start in 2024(22).

It is true that this huge investment will not solve the gas crisis in Europe in the short term, but it may provide an opportunity for Europe to ensure the future security of gas supplies through long-term agreements, while also allowing for long-term diversification away from Russian gas.

Last year, Qatar supplied about 5% of European gas demand;

Its exports reached 23 billion cubic meters, according to data from Standard & Poor's Global (23).

The data showed that its largest markets were Italy (6.6 billion cubic metres), the United Kingdom (6.2 billion cubic metres), Belgium (3 billion cubic metres), Spain (2.7 billion cubic metres) and Poland (2.4 billion cubic metres) (24).

Recently, Germany (which does not currently import LNG) has allocated more than $3 billion to secure four floating LNG import terminals, at a time when Europe's largest economic power seeks to reduce its dependence on Russian gas (25).

Germany is also looking to build two new LNG terminals to import 8 million tons per year (26).

For Qatar, about 4.2 mtpa of Qatari LNG export contracts are set to expire in 2023, followed by 7.9 mtpa in 2024, providing significant scope for new contracts with Germany and other European countries (27).

From 2025 onwards, Qatar will have no shortage of surplus supplies, with the first train of the massive liquefaction expansion project coming online.

Qatar's massive expansion of its LNG export capacity by 2025 provides an opportunity for Europe to secure long-term LNG supplies, although competition with Asian customers will remain fierce.

Already, Asia has more than $350 billion of projects under way to expand LNG plants, power plants and gas pipelines, or three times the estimated investment in Europe (28).

In this context, Doha may look forward to the European Union countries committing to 3 basic issues to ensure a stable and sustainable flow of Qatari gas:

  • First, the EU might have to ban the resale of any LNG being supplied outside Europe to avoid competition with Doha's direct supplies to Asia or elsewhere.

  • Second: that the European Commission close its antitrust investigations into Qatar Energy’s long-term LNG contracts that have been open since 2018.

  • Third: that European countries sign long-term contracts, as Doha will not sacrifice its main markets in Asia for immediate or short-term contracts (29).

2. Algeria

Algeria is among the largest suppliers of gas to Europe using cross-border pipelines, and the country, with its resources and proximity to Europe, is in a position to benefit from the new European trends in the search for alternatives to Russian gas.

Here, it can be noted that Algerian gas exports rose on a record by 43% in 2021 to reach 55 billion cubic meters, more than 80% of which went to Europe (30).

Algeria pumped the bulk of its gas through 3 pipelines: The first: "Medgas", which extends under the waters of the Mediterranean to Spain, which recently raised its operational capacity to 11 billion cubic meters annually (31).

The second: "Transmed", which reaches Italy via Tunisia.

A third route was in operation via the Maghreb-European gas pipeline, which runs to Spain via Morocco, but it has been closed since Algeria cut diplomatic ties with Morocco in 2021.

The Mess Economic Bulletin estimates that the Transmed pipeline, which runs through Tunisia and from under the Mediterranean to Italy, has a spare capacity of about 9 billion cubic meters (32).

There is also another 13.6 million tons of untapped Algerian LNG export capacity (about 17.1 billion cubic meters of gas), which means about 26 billion cubic meters of additional unused Algerian supply capacity in 2021 (33).

But the question: Can Algeria's production keep up with this untapped energy?

In fact, gas production in Algeria rose to a record level of 100 billion cubic meters in 2021, but domestic consumption also jumped, reaching about 45% of the volume of production (34).

While Algeria, in theory, may be able to increase gas production, but it needs to attract more foreign investment, rationalize domestic demand or replace quantities of it by pumping more investment in renewable energies, in addition to that it needs to develop new fields to compensate for the decline. The continuous natural of the Algerian fields.

However, the near-term outlook for global oil and gas prices paints a more optimistic picture of new developments in oil and gas, and could convince many players in this sector to direct new investments towards Algeria.

For example, Italy, which is the main market for Algerian exports, recently concluded an agreement to increase gas imports from Algeria by about 40% in its first major deal to find alternative supplies in the wake of the Russian invasion of Ukraine (35).

On the other hand, several companies have indicated Algeria's abundant solar energy potential to fuel a green hydrogen business that can benefit from existing pipelines (36).

Algeria, Niger and Nigeria also recently agreed to build a 4,128-kilometre trans-Saharan gas pipeline, which will pass through the three countries to Europe. Once completed, the pipeline will transport 30 billion cubic meters of gas annually.

But getting the project to that stage will cost about $11 billion, and if these three countries were able to convince European buyers to finance the project, this would represent an important economic gain for Algeria (37).

3. Other Arab countries

It is not limited to Qatar and Algeria;

The UAE "ADNOC" intends to direct significant investments to pump more gas, expecting that demand will remain strong for many years to come.

The company is also evaluating plans to double its LNG production capacity to 12 million tons per year or more than 16 billion cubic meters in the next five years (38).

In the same context, ADNOC recently announced that it had concluded a deal to purchase two new giant LNG carriers from China, which are expected to join its fleet in 2025(39).

Moving to Egypt, Cairo is surely keen to increase production and take advantage of growing European demand.

However, rising domestic demand means there is less gas available for export, hampering such ambitions.

In the long term, Egypt’s chances of increasing gas exports to Europe are likely to depend on cooperation with other producing countries in the eastern Mediterranean, and its ability to transform itself into a pipeline hub in the region, and to exploit its available liquefied natural gas export capacities. 40).

Libya, another major supplier of gas to Italy through its 8 billion cubic meters per year Green Stream pipeline, has seen its exports drop to 3.2 billion cubic meters, the lowest level in a decade, last year as demand increased. domestic and the natural decrease in the quantities available for export (41).

Libya certainly has reserves, but it still currently lacks the stability to translate them into new projects, even current production and exports are still at risk (42).

In the long term, Libya has the potential to supply more gas to Europe and others as Eni and BP step up their efforts to explore for gas and help Libya shape a gas strategy (43).

a future vision

Extreme volatility in energy prices is expected to exacerbate investment and consumption uncertainty.

A significant increase in oil and gas prices may have adverse effects in the long run.

On the other hand, it may shift investments back into extractive industries and power generation based on fossil fuels, but it can also accelerate the shift towards renewable or clean energy sources in many regions of the world.

Altogether, unstable economic conditions, high inflation rates, disruptions in supply chains, and high volatility and unpredictability of commodity prices make the outlook for major investments more uncertain.

Spending on new, greener technologies requires large capital expenditures and will be less attractive at a time when risks are particularly high on key input prices.

More importantly, the great pressures that politicians are exposed to by voters, especially in countries such as the United States and many industrialized countries, may push them in one way or another towards supporting investment in fossil fuels and delaying transition programs towards renewable energy, a scenario that may ultimately benefit countries Arab Energy Exporter.

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This article is taken from Al Jazeera Center for Studies.