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Qatar Uses Market Mayhem To Secure Top Spot In Global LNG Market

Qatar LNG

Despite – or perhaps because of - the global overhang in liquefied natural gas (LNG) supplies, a weak demand profile, and ongoing uncertainty in the hydrocarbons market overall, Qatar believes that the long experience and supportive infrastructure that it has accrued in the sector since first becoming an LNG exporter in 1997 will allow it to regain its former position as the world’s number one LNG exporter. To this effect, it has announced big and bold plans for its flagship supergiant non-associated gas reservoir, the North Dome, together with corollary deals to secure massive new LNG capacity in its chief target export market, China.  After many years as the world’s top LNG exporter, Qatar had reportedly narrowly lost the spot in January to relative newcomer Australia, which shipped an estimated 77.514 million tonnes of LNG on an annualised basis from the country’s 10 LNG projects during 2019. Although there were various figures bandied around, the figure from Australia nonetheless marked an 11.4 percent increase on the 2018 number, driven mainly by production increases at the giant Darwin-based Ichthys LNG Project, and came as a sobering reminder to Qatar that its global competition in the LNG sector had moved up a gear. 

Australia’s Curtis Island CSG-LNG plants operated by Australia Pacific LNG and Queensland Curtis LNG running at close to full capacity allowed Queensland production to rise by 8.2 per cent year-on-year (y-o-y) to 22 million tonnes for 2019, whilst Northern Territory output also increased - by 153 per cent y-o-y - from 4.15 million tonnes in 2018 to 10.5 million tonnes in 2019. At that stage, moreover, before the coronavirus outbreak and the onset of the Saudi-led oil price war, Australia was poised to lift its production even higher, as its 10 major LNG projects had a combined capacity of 87.8 million tonnes per year (mtpy), and its giant Prelude LNG Project was due to be ramped up significantly this year. In addition, before the current market mayhem, U.S. regulators had approved four additional LNG projects with a total capacity of 45 mtpy over the next few years.

Qatar’s response, then, centred on the intention to increase its LNG production capacity by 64 per cent over the next seven years, with state-owned Qatar Petroleum expecting capacity to rise to 126 mtpy by 2027 from the current capacity of around 77 mtpy. This new figure outstrips the previous number of 110 mtpy, in line with a recent upgrade in estimates for the North Dome to 1,760 trillion cubic feet (Tcf) of gas, in addition to 70 billion barrels of condensates and significant quantities of liquefied petroleum gas (LPG), helium, and ethane (which will be used to enhance Qatar’s petrochemicals sector).

The increase was principally a function of the discovery of further productive layers of gas deposits attached to the main North Dome site but located about 12 kilometres onshore from the coast onshore in Ras Laffan. According to Qatar’s Energy Minister, Saad Sherida Al-Kaabi, this will allow the emirate to move ahead with engineering work on two further LNG production facilities, with combined capacity of 16 million mtpy (‘mega-trains’). 

Related: Goldman Sachs: Oil Demand Could Exceed Supply By End-May Prior to this most recent expansion announcement, Qatar had revealed that it was already planning to build four new LNG trains. Partly in order to focus on consolidating its position as the world’s top LNG exporter – and also due to long-running disputes with neighbouring Saudi Arabia – Qatar had already (and fortunately) left OPEC at the end of 2018, one year after it had lifted the 12-year self-imposed moratorium on developing the North Dome reservoir. 

That Energy Minister Al-Kaabi sees the current coronavirus- and oil price war-destabilisation of the hydrocarbons sector as an opportunity for the emirate to re-assert its dominant position in the LNG hierarchy was evidenced in a very recent statement that: “If I’m drilling wells and buying ships, I’m not backing down,” referring not just to the output expansion of North Dome but also to a monumental deal just announced to secure LNG ship construction capacity in China. He added: “If you look at what happened this year, a lot of people have delayed LNG projects and that gives us maybe an advantage in the long-term.”

Specifically, the deal agreed by Qatar Petroleum with China State Shipbuilding Corporation’s subsidiary Hudong-Zhonghua Shipbuilding Group at the end of last month is a QAR11 billion (US$3.01 billion) agreement to reserve LNG ship construction capacity in China until 2027 (the end of the current expansion phase plan for North Dome). Al-Kaabi anticipates holding 60-80 such vessels at any given time, although Qatar is reserving capacity for arout 120 ships. In sum, he underlined, Qatar may end up taking up 60 per cent or so of the entire shipbuilding capacity of the world, just for LNG.

This will come at a point when Australia is seeing the full negative effects of delayed LNG projects. “The unparalleled price crash had prompted LNG companies to reduce capex and defer financial investment decisions [FID] on their respective projects, with Woodside [Energy] contemplating deferring FID for its Pluto [LNG] Train 2 [on the Burrup Peninsula, near Karratha in Western Australia] by a year to 2021, which is likely to push the start year to 2025 from the previously expected 2024,” Haseeb Ahmed, oil and gas analyst at GlobalData, told OilPrice.com

Related: U.S. Oil Companies Are Cutting Production Much Faster Than Expected

“Major Australian LNG exporter Santos has decided to reduce its spending by about US$550 million in 2020 due to the recent fall in oil prices and the resulting uncertainty in global economy and the company is likely to delay FID of its Barossa gas project in Australia, which initially was expected to receive this year,” he said. “This may affect the expansion plans of the Darwin LNG terminal, as the Barossa project has been identified to provide gas to the terminal once it stops receiving gas from the Bayu-Undan field,” he added.  

“Also, due to the COVID-19-induced LNG demand uncertainty, Australia’s Western Gas Corporation is likely to delay its Equus Floating project [involving the development of 11 gas and condensate fields located in the Carnarvon Basin, approximately 200 kilometres off the coast of Onslow in Western Australia],” he told OilPrice.com. “Despite the landmark OPEC+ deal, oil prices are unlikely to exhibit immediate recovery, given the scale of demand destruction across the globe and this effectively translates to the likelihood of LNG operators delaying discretionary expenditure, while having a unidirectional focus on improving operational efficiencies, which can further delay LNG projects,” he concluded. 

By Simon Watkins for Oilprice.com

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