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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Can Anything Challenge Qatar’s LNG Dominance?

Qatar is solidifying its hold as the top global LNG exporter. The tiny, gas-rich kingdom caught the energy world by surprise in late 2017 when it announced that it would increase its liquefaction capacity from 77 million tons per annum (mtpa) to a staggering 110 mtpa by late 2023 or early 2024 by developing more gas at its North Field, an increase in production of some 43 percent. The move will also increase Qatar’s total production capacity from 4.8 to 6.2 million barrels of oil equivalent (boe) per day.

At the time it appeared that the country’s decision to ramp up production was also geopolitically motivated since it came shortly after a Saudi-led economic and political boycott was put in place against Doha over claims that it was funding terror groups as well as moving closer politically to Tehran - claims Qatar denies. Egypt and the UAE also joined in the boycott.

Getting down to details

To help make good on its pledge to increase it liquefaction capacity and develop more gas, state-run Qatar Petroleum (QP) last week announced it had formally selected a contractor on its project to sustain gas production at the supergiant North Field. This is the source of the state’s global LNG preeminence, ahead of the tussle for the lucrative main package on the first greenfield development of the asset for more than a decade. Houston-based firm McDermott International, the dominant player in Qatar’s offshore sector, was confirmed as the winner of an engineering, procurement, construction and installation (EPCI) contract on the North Field Sustainability project. The company said the 34-month contract was worth between $500-750 million.

Inking more LNG deals

Qatar also said last week that it agreed to increase LNG exports to Pakistan by 200 million cubic feet per day (mmcfd). A Pakistani delegation comprising Petroleum Secretary and Task Force on Energy Chairman Nadeem Babar visited Qatar earlier this month and requested additional gas supply from Qatar in an effort to meet growing gas needs of power plants for the upcoming summer season. Related: Trump’s Foreign Energy Policy Could Haunt Him In 2020

Pakistan is already importing 500 mmcfd worth of Qatari LNG under a controversial 15-year supply deal, while it plans to step up imports to 700 mmcfd in a bid to run its second LNG terminal at Port Qasim at maximum capacity. The total capacity of the second LNG terminal is placed at 750 mmcfd, but the Pakistani government has allocated a capacity of 600 mmcfd. Pakistan LNG Limited (PLL) has secured a dedicated supply of 200 mmcfd which is processed at the second terminal and the remaining 400 mmcfd is being imported through purchases on the LNG spot market in Asia which has seen prices head south, recently hitting three year lows on ample supply coming out of the U.S., and Australia.

There had been harsh criticism from Pakistani politicians that were claiming the country received unfavorable contractual terms from Qatar for its 15-year deal. A Pakistani governmental audit in 2018 reached a similar conclusion, claiming that the price – 13.37 percent of the average price of Brent oil futures for the preceding three months – negotiated with Qatar was at a higher rate than trading companies were offering in the open market. Under the current agreement, Pakistan can increase or decrease the size of the contract by five cargoes per year and can also sell cargoes to other buyers and divert cargoes to other terminals.

However, after Pakistani Prime Minister Imran Khan’s January 21 visit to Doha to seek a possible price renegotiation, including a one-year credit facility to defer payments to help ease the country’s balance of payments crisis, he didn’t press for a reduction in contractual prices. He only requested an early review of LNG prices after a period of five to seven years, instead of the contract’s 10 years.

By Tim Daiss for Oilprice.com

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