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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Qatar Walks Tightrope As It Eyes Global LNG Leadership

In keeping with its geographical position directly between Saudi Arabia on its west and Iran on its east, Qatar’s geopolitical positioning is a tricky thing to manage. In recent months, it appeared that Qatar was shifting decisively towards the Iran-China power axis but in recent days this has looked less certain. The outcomes of the new bidding for Qatar’s flagship North Dome expansion and of new liquefied natural gas supply deals (LNG) later this year will provide the surest signals yet as to which group Qatar sees its future. There are clues, though, analysed below, as to how Qatar thinks it can best secure the number one LNG exporter position, having lost the spot in January to Australia, and to achieve its output target of 126 million tons per year (mtpy) by 2027, up from current capacity of around 77 mtpy. The most recent development is the interest shown by an array of international oil companies (IOCs) in the expansion of Qatar’s supergiant North Dome site, with Royal Dutch Shell, Eni, Total Energies, ConocoPhillips, ExxonMobil and Chevron having all formally submitted applications for the work involved. The 6,000 square kilometre North Dome site – together with the 3,700 square kilometre area of Iran’s South Pars field – comprise by far the largest non-associated natural gas field in the world. By conservatives estimates the entire 9,700 square kilometre site holds at least 1,800 trillion cubic feet of non-associated natural gas and at least 50 billion barrels of natural gas condensates. 

 

From 2005 until the end of the first quarter of 2017 Qatar placed a moratorium on further development of the North Dome in order to conserve its principal hydrocarbons (and indeed financial) resource but the resolve to continue with this self-imposed prohibition was finally removed for two key reasons. First, it was clear to Qatar that competition in the LNG export field was going to become a lot more intense, especially from Australia. This view proved to be correct and continued to be so, as Australia finally overtook Qatar as the world number one LNG exporter earlier this year. Although the increase in Australia’s LNG output and exports in the past three years especially had been driven in large part by production rises at the giant Darwin-based Ichthys LNG Project, there were other projects that were running extremely effectively in the country.

Most notably these included the Curtis Island CSG-LNG plants and others that still showed enormous growth potential, such as Australia’s 10 major LNG projects with a combined capacity of 87.8 million tonnes per, all of which posed a significant threat to Qatar’s dominance in the LNG sector. The second reason behind the lifting of Qatar’s moratorium on the North Dome was that it was increasingly clear that although this moratorium did limit Qatar’s development of the site, it only acted as an accelerator on Iran’s development of its side of the 9,700 square kilometre site. This prompted frequent complaints from Doha that its neighbour’s no-holds-barred development of its South Pars site would damage the future recovery rate in Qatar’s own North Dome. 

Related: Oil Markets Will Tighten Regardless Of OPEC's Decision 

Given these twin developments, then, Qatar announced its intention to increase its LNG production capacity by 64 per cent over the next seven years, to the new 126 mtpy target. This superseded the longstanding target of 110 mtpy (although this remains an interim target for Q4 2025), in line with 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, at the time, 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’). Prior to this most recent expansion announcement, Qatar had revealed that it was already planning to build four new LNG trains. According to industry sources, up to a 30 per cent stake in the North Dome expansion project may be up for grabs in one or more tranches and the six IOC bids will be approved or not at the beginning of the fourth quarter of this year. 

On the other hand – and at least equally possible – is that Qatar will name one of two of the western IOCs to be a part of one of more of the projects tied in to North Dome expansion while at the same time continuing to take money as well from the Iran-China axis. In terms of ‘realpolitik’ this would make perfect sense, as Qatar believes that its best chance of prospering going forward – given its perilous geographical and geopolitical position – is by accommodating both sides. Having said that, Qatar has no interest whatsoever in dealing with Saudi Arabia, which remains one of the U.S.’s principal Arab state allies in the region (although no longer its clear leading Arab ally, as Washington wants to replace it with the UAE and others). Instead, Qatar aims its comments and its joint ventures to the U.S. and to U.S. firms instead, following the Saudi-led blockade of Qatar that ran from 2017 to the beginning of this year. The Qataris’ view of how it regards Saudi Arabia’s future is best evidenced by the fact that Doha pulled out of OPEC in January 2019 after 60 years as a member. 

In any event, Qatar is much more closely bound to Iran and China than to the U.S. and its allies as highlighted by the fact that almost immediately following the U.S.’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) ‘nuclear deal’ with Iran in May 2018, senior figures from Iran’s Petroleum Ministry and Qatar’s Energy Ministry began a series of meetings to agree a new North Dome-South Pars joint development plan.

These meetings covered two main areas, a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com. “First, Iran agreed to stop the aggressive recovery tactics that it had been using along the border areas [demarcating South Pars and North Field] and second Qatar agreed to sit down with the Chinese and the Russians to discuss the future co-ordination of gas export destinations for Iranian, Qatari and Russian gas flows, marketing and pricing,” he said. “At that time, Iran and China were talking about expanding the scope of the previously agreed 25-year deal between them and Russia was keen to ensure the smooth continuation of its own gas supplies to China [principally via the US$400 billion 30-year deal agreed in May 2014] and to ensure that Iranian gas did not take the place of Russian gas – and influence – in Europe,” he added. “One of the core elements that was agreed at these meetings was that Iran would not continue with developments on its side of the reservoir in South Pars that might damage the Qatari gas take from its North Dome field, leaving Qatar free to increase its LNG export volumes with a guaranteed buyer in China, and Iran in the meantime would receive assistance as and when required from Qatar on building out its own LNG capabilities,” he underlined.

Following this came a series of major supply deals of LNG from Qatar to China, of course, with the latest one earlier this year being the most significant. As highlighted by OilPrice.com, the signing of a 10-year purchase and sales agreement by the China Petroleum & Chemical Corp. (Sinopec) and Qatar Petroleum (QP) for 2 mtpy of LNG shifts the Emirate even more decisively into the Iran-China-Russia sphere of influence. This deal brings together the world’s top LNG exporter with one of the world’s top holders of gas reserves, both of which were founding members of the now 11-member Gas Exporting Countries Forum (GECF) together with Russia. The deal also further inextricably links this huge combined global gas resource with the world’s biggest buyer of energy products over the past two decades or more. On every level it considerably adds to the geopolitical challenge faced by the U.S.-Israel-Arab states alliance in the Middle East being established through a series of ‘relationship normalisation’ deals

By Simon Watkins for Oilprice.com

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