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Why Qatar is a Threat to Natural Gas Prices

The world is seeing an unprecedented build-out in liquified natural gas (LNG) capacity.

Look at the chart below, from energy advisors Point Carbon. In 2009, worldwide LNG export capacity rose by 170,000 cubic meters per day (6 million cubic feet per day). In 2010, it's slated to jump another 115,000 cubic meters daily (4 million cubic feet per day).

Capacity Growth

And yet global gas prices are generally falling. U.S. prices are mired below $5/mcf. And a "moveable feast" of LNG imports has also depressed European spot gas prices (although they're recently up a little, to around $8/mcf currently).

Which leads to the question: will the world need all this new LNG output? Won't low prices force some producers to idle capacity?

The answer is: not really. And here's an interesting reason why. By-products.

The chart below (also from Point Carbon) shows the value of gas by-products from LNG production in Qatar and Trinidad. By-products are things like natural gas liquids, high-value oil-like hydrocarbons produced along with gas.

Value of Gas by products

In places like Qatar, by-products make a big difference. Worth nearly 25 pence per therm, or about $4/mcf.

In many cases, this revenue is enough to cover production and transport costs for LNG. Meaning these facilities will stay in operation, even at low gas prices.

This is similar to the "liquids rush" that's going on in America, in plays like the Eagle Ford shale. And flies in the face of the "low prices will cure low prices" argument that some analysts are suggesting will soon boost the natgas market.

By. Dave Forest of Notela Resources




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Leave a comment
  • Anonymous on November 27 2010 said:
    Excellent article dealing with an important subject. It happens that I'm surprised by Qatar's LNG spree, but I wont be surprised if they do everything possible to bring about a Gas-Pec.

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