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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Qatar To Boost LNG Capacity To Seize Market Opportunities

Qatar, the world’s largest exporter of liquefied natural gas (LNG), has just announced plans to further increase its LNG production capacity.

The new export capacity, with projects to be completed in 2024, is expected to bring in billions of dollars more to the state coffers of the tiny gas-rich country, which is isolated by its Arab neighbors in a bitter feud in the Persian Gulf that has gone on for more than a year now.

Qatar’s plans to expand even more the previously announced expansion come at a time in which competing LNG projects from the U.S. to Australia to Russia will add to the global LNG supply over the next few years.

The announcement for the expansion also coincides with a massive surge in LNG imports in China, which is pushing for a coal-to-natural gas switch across the country in efforts to fight air pollution. China and South Asia are expected to be the key drivers of LNG demand growth in the coming decade.

Qatar is geographically well-positioned, together with Australia, to further boost its LNG exports to the fast-growing Asian market. Qatar also has the advantage of low breakeven costs for its projects, analysts reckon.

Qatar Petroleum, the state energy giant, said on Wednesday that it would be increasing the capacity of its expansion project, adding a fourth train that would raise Qatar’s LNG production capacity by 43 percent—from 77 million tons annually now to 110 million tons a year.

Last year, Qatar announced plans to boost LNG capacity to 100 million tons annually with three new LNG trains, after it lifted a self-imposed moratorium on the development of its part of the world’s largest gas field that it shares with Iran.

“Based on the good results obtained through recent additional appraisal and testing, we have decided to add a fourth LNG mega train and include it in the ongoing front end engineering of the project,” Qatar Petroleum’s President and CEO Saad Sherida Al-Kaabi said in a statement.

“This new capacity increase will further strengthen our leading position as the world’s largest LNG producer and exporter, and will further boost Qatar Petroleum’s strategic growth plan. This production addition will have a great impact on Qatar’s economic growth and will help stimulate our local economy,” Al-Kaabi said. Related: Oil Price Rally Hits Asia Where It Hurts

According to a Reuters source familiar with the project’s timeframe and execution, Qatar expects to reach the planned new capacity by 2023 or 2024.

Thanks to the new LNG production capacity, Qatar’s budget surplus will reach US$44 billion (160 billion Qatari riyals) in 2024, which would more than cover the expected external debt, the source told Reuters.

The higher revenues will mean more funds for the country’s sovereign wealth fund, the Qatar Investment Authority, to invest outside Qatar, according to the source.

Qatar Petroleum didn’t disclose how it would finance the expansion of the expansion or how much it would cost, but its head, Al-Kaabi, said it has no plans to raise funds through an IPO in the plans.

According to Bloomberg NEF analyst Maggie Kuang, Qatar may find bringing all this new capacity online in five-six years “challenging,” and smaller U.S. LNG trains are likely to be built quicker than the giant trains in Qatar.

Before Qatar’s latest expansion announcement, Rystad Energy said in July that Qatar could win the race for new LNG capacity projects final investment decisions (FID). Qatar’s plans are a challenge to some U.S. projects ready to take FID, as the Qatari project is estimated to have the lowest breakeven price of all the planned projects in the world. Rystad Energy expects the breakeven price for the Qatari brownfield expansion at around $5.60 per MMBtu (including transport to Asia)—some 34 percent below the breakeven price of the more competitive U.S. projects.

In the race to supply Asia with LNG, Qatar may also see the current U.S-China trade war as a rare opportunity, as U.S. LNG was embroiled in the tariff tit-for-tat with China that slapped a 10-percent tariff on imports from America.

China’s LNG demand and imports are expected to continue to grow as natural gas demand soars thanks to policies designed to curb pollution. China will become the world’s top natural gas importer by 2019, and most imports by 2023 will be supplied by LNG, the International Energy Agency (IEA) said in its Gas 2018 report in June.

The United States, for its part, will account for nearly three-quarters of LNG export growth in the world by 2023, with destination-free and gas-indexed U.S. LNG exports providing “additional flexibility to the expanding global LNG market.”

“Australia and the United States appear as new global players likely to challenge Qatar in Asian markets,” the IEA said a few months before Qatar’s announcement of further LNG capacity expansion.

By Tsvetana Paraskova for Oilprice.com

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