Who Ya Gonna Call? … Qatar

Amid the escalating US-Russia tensions over Ukraine, Germany, the world’s largest natural gas importer, has become increasingly concerned. Dating from the Cold War, Germany and Russia have had a strong energy alliance, reports suggest that more than half of Germany’s gas and hard coal imports come from Russia. With current western sanctions at the ready, to hinder Russia invading Ukraine, the Emir of Qatar is said to be keen to discuss supplying German and other European nations with emergency LNG should Russia retaliate and cut natural gas supplies. Of note, Qatar has saved the UK from a natural gas crisis in recent months and has been asked by Britain to become the gas “supplier of last resort”.
 
It’s fair to say that Qatar is currently unable to fill a full Russian cut-off in Europe. The bulk (~75%) of its gas is sold to Asia, with only ~5% of Europe's gas imported from Qatar. However, the nation can shift excess supplies from east Asian storage facilities to cover any short-term gaps in Europe - the problem Germany faces is that it does not have an LNG import terminal of its own. There are growing fears that Russia is capable of cutting gas flow to Europe (recent figures show Russia supplies 40% of Europe’s gas imports). However, this leaves space for countries like Qatar to return to the European markets as it increases its LNG capabilities.

Reinforcing the improved Qatar-US relations - following Doha’s efforts in Afghanistan - Sheikh Tamim bin Hamad al Thani is due to meet with Biden in Washington on Monday, 31st January. Reports suggest the key item on the agenda will be a discussion to build energy contingency plans to protect Europe in case of shortened gas supplied from Russia. A White House statement said: “The visit provides an opportunity for the President and Amir to consult on a range of regional and global issues of mutual interest, including promoting security and prosperity in the Gulf and broader Middle East region, ensuring the stability of global energy supplies, supporting the people of Afghanistan, and strengthening commercial and investment cooperation between our countries … The President looks forward to this important visit and affirming the strong partnership between the United States and Qatar".

We have long been investors in Qatar government and government-owned names including: a green bond issued by Qatar National Bank (QNB), the nation’s LNG shipping company, Nakilat, as well as Qatar’s LNG company, formerly known as RasGas. Our Qatar holdings continue to offer attractive risk-adjusted returns, the Aa3 rated Qatar 5.75% 2042 issue, for example, stands at an expected return and yield of 11.2% with over 3 notches of credit cushion. 

Fixed Income Team