On Dec. 3, a week-long rumor finally saw the light of day.
I had heard it prior to my departure for Singapore last week, and it had at the time been the substance of some talk on its potential importance – if true – during our meetings.
Well, it is no longer just a rumor.
On Monday morning, Qatari Energy Minister Saad Sherida al-Kaabi announced that the Persian Gulf state was leaving OPEC, effective Jan. 1, 2019.
Qatar is a minor oil producer, averaging some 600,000 barrels a day, putting it at the bottom of the OPEC ladder along with Ecuador.
However, it is a major natural gas producer and the world's leading exporter of liquefied natural gas (LNG).
But there is a more important reason why Qatar leaving OPEC is likely to shift the regional tensions into a higher gear.
And it's not about oil.
It's all about using natural gas as an increasing global lever...
An Air Traffic Change Is an Ominous Sign
I was in Doha (the capital of Qatar) last weekend on my way back from Singapore, and the difference of opinion between Qatar and OPEC leader Saudi Arabia was quite apparent.
This exploded into a diplomatic dispute earlier this year, intensified the cutting of bilateral contacts, and made it impossible to travel from Qatar to Saudi Arabia, or to Egypt or neighboring United Arab Emirates (UAE), both of whom sided with Riyadh (the capital of Saudi Arabia) in the disagreement.
The latter certainly made our travels more difficult.
My wife Marina and I have always preferred taking Qatar Airways from Miami to Doha, and then on to either Dubai or Abu Dhabi in the UAE. That route is no longer possible, as the air connections between the two countries have been suspended.
We could still fly on to Singapore from Doha and then back through Qatar's capital to Miami – a 22-hour flight schedule one way. We just cannot fly the 30 minutes from Doha to the UAE.
A seemingly minor detour, but significant nonetheless.
The move by Saudi Arabia against Qatar had been the result of Saudi claims that Doha had been assisting terrorism.
Of course, most in the geopolitical business have concluded that the real reason for Saudi displeasure is the developing rapport between Qatar and Iran.
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I have discussed this development previously, placing some emphasis on Teheran's widening use of the Doha banking community to bypass Saudi pressure and the renewal of U.S. sanctions.
Qatar in OPEC vs. GECF
In May 2001, an organization called the Gas Exporting Countries Forum (GECF) was created.
The Qataris and the Iranians, in particular, had hoped this would become a gas-based counterbalance to OPEC.
The GECF has 12 full members (Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, the UAE, and Venezuela), with most of the membership also part of OPEC.
For much of its existence, however, the GECF has been little more than an occasion for its members to discuss common issues and prospects in gas trade. It was not until 2010 that the organization assumed any formal functions.
In that year, the Secretariat (the executive body of the GECF) was placed permanently in Doha, the location that had housed its administration since creation.
It was also in 2010 that the GECF selected its first Secretary General - Russian Leonid Bokahnovskiy. He was followed by S.M. Hossein Adeli from Iran. The current head was selected this year - Yuri Sentyurin, another Russian.
As was also the case with Bokahnovskiy, Sentyurin has close connections with the Kremlin (the fortified complex in Moscow and the home of the President of the Russian Federation).
He also currently serves as Deputy Minister of Energy and Deputy Chairman of the Duma (Parliament) standing committee on energy, transport, and communications. He is likely to become a primary lynchpin in the introduction of a Russian orchestrated global gas policy.
And that may well be the reason for Qatar making its departure from OPEC.
As an oil producing country, Qatar's impact in OPEC is minor. But as the driving force in the founding of GECF and the physical location for the organization's administration, Qatar is a far more important player on the gas side.
In addition, Moscow is actively seeking a prominent role in the developing gas side of global market making.
That has brought it into closer policy negotiations with Qatar, Iran, and others.
What LNG Means for GECF
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There are essentially two main reasons why GECF has not developed into a policy-making organization like OPEC.
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First, OPEC establishes monthly quotas for oil production among its members, and while these quotas usually are not enforceable, they nonetheless do act as an external restraint on domestic decisions. That is something nations like Russia are not going to agree to.
It is for this reason that Russia is an observer at OPEC meetings, not a participant.
Second, until recently, export of natural gas was confined to pipelines, largely involving overland border crossings.
Even in those cases where sea beds are used (for example, the Russian-sourced Nord Stream lines to Europe or the Blue Stream lines to Turkey), there are still national demarcations and restrictions on the use of in-country pipe segments.
That has dramatically changed with the advent of widespread trading plans for LNG.
Transformed into liquid form, this natural gas is transported via tanker, opening up significant markets serviced by new hubs. Control over pricing at these hubs will transform broader energy trade.
So, to sum up, Qatar is the world's leader in LNG, Russia is ramping up its deliveries from the far north and the Pacific coast, and Iran has placed national emphasis on using the vast South Pars natural gas deposits to feed its accelerating LNG trade.
This last point is made more difficult by the re-imposition of U.S. sanctions.
French oil and gas company Total S.A. pulled out of the largest Iranian LNG project, but Chinese companies have moved in to replace it. Meanwhile, Russia has developed ways for Iran to export finance without American involvement.
In the LNG sector, rapidly expanding deliveries to Asia are prompting importers to set the agenda whether Washington approves or not.
In this arena, the rising Qatari-Iranian-Russian connections may prove very important...
Try to Have Some Eyes on the Ground
I saw some of this when I made my presentation at the OSEA 2018 conference held at Singapore's Marina Bay Sands complex. My main topic was equating the expanding Asian LNG imports with the impact of U.S. LNG exports.
Representatives of Russian natural gas giant Gazprom, Gazprom trading arm Gazprom Export, the National Iranian Gas Co., and Nakilat (Qatar Gas Transport Co., which controls the world's largest LNG tanker fleet) were all in attendance. From our informal conversations afterward, I was convinced of one more thing.
These folks have been in active conversation for a while.
There may be limitations forming to U.S. LNG exports to Asia and elsewhere... even before they get off the ground.
Perhaps U.S. exporters may take a page from the Russian OPEC playbook and become a GECF observer – seven other nations in the gas train business already are.
It's always a good idea to have eyes on what's going on...
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.