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An Unexpected Bullish Factor For Oil

Slowing U.S. shale drilling activity…

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Is A Natural Gas Cartel Forming?

Over two months ago, Qatar…

Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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World’s Biggest LNG Exporter Just Raised The Stakes

Qatar, the world’s biggest LNG exporter, is throwing the gauntlet to other large producers around the world by removing a drilling ban for its part of the North Field – the world’s biggest natural gas deposit, which it shares with Iran.

The move should result in the start of commercial production some time between 2022 and 2024, according to Qatar Petroleum’s chief executive Saad Sherida Al Kaabi, with daily output seen at 2 billion cu ft of gas, or 400,000 barrels of oil equivalent.

On the one hand, the new project would re-establish Qatar as the world leader in gas and LNG – the Gulf state is currently set to lose the top spot in LNG to Australia in the coming years. On the other hand, it demonstrates the country’s bullishness on global gas demand, despite the current oversupply that is pressuring prices.

The news constitutes a threat to other producers of the commodity that is widely promoted as a bridge fuel between coal, oil, and renewable energy. Qatar has the lowest production prices in the world, which means that it needs much less investment to ramp up its output than other big gas producers and exporters.

What’s more, the timing of commercial production from the North Field matches forecasts from gas industry insiders, who believe that demand will outpace supply by the first two or three years of the next decade.

One of these, Elizabeth Spomer from Jordan Cove LNG, told CNBC that “The industry needs extra supply by the middle of 2022, 2023.” Related: Saudi Arabia Alters Oil Pricing To Attract European Buyers

Wood Mackenzie chairman and chief analyst Simon Flowers said that natural gas prices will continue to be pressured in the near term, but looking ahead in five or six years, the oversupply will start to shrink.

Wood Mac’s Gas and LNG Supply research director, Giles Farrer, praised in a report Qatar’s timing, saying that by the time the new wells in the North Field start producing, the commodity’s fundamentals will have changed from their present state, and the new flow of gas will come right on time.

Meanwhile, Iran is also stepping up production at its portion of the giant offshore field, which it calls South Pars. Recently, Energy Minister Bijan Zanganeh said that plans were for South Pars gas output to exceed Qatar’s production from the North Field by March next year. These calculations do not factor in the additional supply that Qatar is planning to bring in five to seven years.

South Pars production, after the fifth phase of development, should add around 5.3 billion cu ft of natural gas to Iran’s total daily output. That’s twice as much as the planned North Field production, but much of this will go towards satisfying Iran’s domestic demand for gas as well as towards boosting crude oil output through reinjection of gas into the oil wells.

All in all, there is no one that can challenge Qatar’s top spot in gas and LNG for the time being. Interestingly, the drilling ban in the North Field and Qatar’s recent moves abroad made a lot of analysts believe that the country was trying to preserve its gas for longer, while diversifying and expanding internationally. Apparently, this was wrong: Qatar is ready to take advantage of the change in demand and supply as soon as it takes place. This could only mean one thing for other, higher production-price producers: low prices for longer.

By Irina Slav for Oilprice.com

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