UK asks Qatar to become gas ‘supplier of last resort’

The British government has approached Qatar about the Gulf state propping up its gas supplies as a shortage in Europe pushes prices to record levels and raises fears of a winter fuel crisis.

UK ministers and their counterparts from the world’s largest exporter of liquefied natural gas have held talks over a long-term arrangement where Qatar would become a “supplier of last resort”, according to people briefed on the discussions. This would ensure a stable source of LNG from Qatar even when global supplies are tight.

Qatar has also rerouted four large tankers to the UK over the past two weeks. A person familiar with the talks said the shipments came after Boris Johnson, UK prime minister, asked Sheikh Tamim bin Hamad al-Thani, the Qatari emir, at a recent meeting for help.

Downing Street insisted that the UK had not “requested or secured any additional shipments from the Qatari government” and that energy supply remained secure throughout the winter. Doha declined to comment.

The two leaders met at the UN General Assembly in September and agreed to “deepen” the relationship between two countries which already have strong business, diplomatic and military ties. The pair met again on the sidelines of the COP26 summit in Glasgow this week. Johnson also spoke to Saad al-Kaabi, Qatar’s energy minister, on the margins of a UK global investment summit last month.

A worldwide gas supply shortage has caused a surge in prices in recent months, leaving energy intensive industries and suppliers in the UK struggling and many consumers facing a sharp rise in household bills.

People briefed on the discussions confirmed that London is pursuing a potential long-term deal given concerns over increased competition for LNG supplies with Asia.

One UK government insider said: “The Qataris have indicated a willingness to agree longer-term supply deals to deliver . . . gas to the UK in an emergency scenario — a sort of ‘supplier of last resort’ arrangement.” 

Another person briefed on the discussions said: “The UK realises it needs a long-term deal to have a stable energy supply to the point they become carbon neutral, but it’s not yet clear how this could be done.”

The recent gas shortage has been caused by a surge in demand as economies rebound from the pandemic, and Russia restricted gas exports to western Europe.

Liz Truss, UK foreign secretary, held talks with Qatari leaders in Doha this month on improving UK energy security, as part of a “strategic dialogue” to be launched in early 2022 also covering trade and defence. Kwasi Kwarteng, business secretary, has also been involved in talks.

A government spokesman said the UK held “regular discussions” with its “key energy partners around the world ahead of winter”.

Gas accounts for about 40 per cent of UK electricity generation and heats the majority of homes. It is expected to remain a key fuel even though the country is pursuing a net zero target by 2050.

As output from the North Sea has declined, the UK has pursued a market-based import strategy — now responsible for meeting half of all demand — hinging on the availability of LNG cargoes to supplement pipelines from Norway and the EU.

The government has been warned that leaving the UK reliant on the LNG market for as much as a fifth of its gas supply could leave buyers struggling to secure enough during a supply crunch.

Unlike many of its peers, the UK has minimal storage capacity, with the equivalent of only a few days of peak winter gas demand in reserve.

The number of LNG tankers coming to the UK this year has fallen. Most shipments are going to Asia, including those from Qatar, which primarily has long-term fixed contracts with countries in the region. The Gulf state, which has significant investments in the UK, has this year fallen off the UK government’s list of main gas suppliers.

The dispatch of four cargoes from Qatar to the UK in the past two weeks stand out. One person briefed on the talks said that after a request by Johnson, Qatar was “able to reroute some LNG that was previously unallocated to the UK”.

While UK prices are at near-record levels they are marginally lower than in Asia. The UK government has not paid for the shipments. Instead, Qatar will sell the gas into the UK market as normal.

The person added that Qatar had not met similar requests from the EU because of a European Commission investigation in 2018 into state company QatarEnergy’s long-term contracts, which Doha has described as baseless.

In the UK, Qatar is the majority owner of South Hook LNG terminal in Wales. The first of four tankers, the Al Aamriya, arrived at South Hook on October 29. A second, Mozah, arrived on Wednesday with the Al Bahiya and Al Samriya arriving in the coming days.

Together, they hold almost a third of the UK’s average monthly gas imports. Satellite tracking shows that three of the vessels’ destinations changed to the UK in late October.