LNG
Feature Articles
Long Term Supply - Qatar
June 2021
Qatar aims to be the world’s largest producer of LNG for at least the next two decades, capitalising on rising demand as the world transitions from oil and coal to cleaner energy. The world’s top LNG supplier, Qatar’s state owned Qatar Petroleum (QP), has committed to development of the first phase of its North Field LNG project expansion. The investment entails a four-train expansion with a total capacity of 32Mtpa named North Field East, that has been touted as the largest single LNG project sanctioned in history.

The expansion aims to boost the country’s LNG output by 40% a year by 2026, taking Qatar’s LNG production capacity to 110Mtpa from about 77Mtpa. 

A second phase of the project, known as the North Field South, is expected to lift Qatar’s LNG production capacity further to 126Mtpa by 2027.  QP is currently evaluating a further increase in LNG capacity beyond the 126Mtpa. The new capacity from North Field East, an LNG export plant being developed by QP in the United States with Exxon Mobil Corp, and expiring long-term LNG contracts from some existing projects mean Qatar’s export volumes are increasing.  It’s estimated it will have over 75Mtpa of uncontracted LNG volume to sell by 2027, around 70% of its LNG portfolio.

 

 

QP signed a contract covering major onshore engineering, procurement and construction at the expansion project, known as North Field East, with a joint venture between Chiyoda Corp of Japan and London-based TechnipFMC Plc.  Production from that phase is expected to commence by the December quarter of 2025 and reach full capacity by late 2026 or early 2027, according to QP.  The total cost of the project is estimated to be approximately US$29 billion, making it one of the industry’s largest investments in the past few years and largest LNG capacity ever built.

While Australia, the US, Russia, Malaysia and other producers have been ramping up LNG output, Qatar’s LNG capacity has stayed mostly flat for a decade. Gas, a cleaner-burning alternative to coal, is seen as an important fuel for bridging the global transition from fossil fuels to solar energy and other renewables.

 

 

Production Cost

At a long-term breakeven price of just over US$5/MBtu, Qatar’s LNG production is at the bottom of the global LNG cost curve, alongside Arctic Russian projects, such as Yamal LNG.

The nation would be able to produce LNG from the first phase of the expansion so cheaply that it would be viable even if oil prices fell below US$20/bbl.  Qatar LNG projects are some of the most competitive projects in the world.  Oil prices collapsed in 2020 but have soared more than 60% since the start of November 2020 to around US$64/bbl with the roll-out of COVID-19 vaccines.

 

Pursuing Greater Market Share

Qatar is pursuing market share. The country has taken a long-term view of the LNG market, taking advantage of its low production costs and rising spot prices as it aims to boost its global market share. This FID (final investment decision) is likely to put pressure on other pre-FID LNG suppliers around the world, who may find Qatar has secured a foothold in new markets. 

The Gulf state is already the world’s main supplier of the super-chilled fuel, but new projects elsewhere, especially in Australia and the US, have eroded its dominance in recent years. 

Qatar is forecast to supply about 78Mt or 20% of the world’s LNG in 2021, QP contributing 51Mt and energy companies looking to produce more renewable energy will still need gas to offset the intermittency of wind and solar power. QP has booked capacity at units that turn LNG back into gas in Belgium, France, and the UK. It is also looking to build on its 70% stake in Britain’s largest LNG import terminal by investing in more regasification plants.

 

 

Expanding Supply to New Asian Markets

Qatar is also established a trading team to compete in the nascent spot market and pushing into Asia more aggressively.  Qatar primarily exports LNG to its traditional markets in Europe and Asia, but has increasingly sent volumes to new markets since 2015. While its main export markets include South Korea, India, Japan and China in Asia, and Italy, UK and Spain in Europe, Qatar has moved to secure market share in emerging importers like Thailand, Pakistan, Poland, Kuwait and Bangladesh.

This strategy has two benefits:

  • first, Qatar’s contracts with established customers in east Asia will expire in the early 2020’s and questions remain over their renewal; and
  • second, the new importers help balance seasonal export dynamics for Qatar, with Japan and Korea absorbing exports during cold weather months and Middle Eastern countries doing the same during hot weather months.

 

Seeking Partnerships

Qatar’s energy minister, has stated that while QP is ready to develop the North Field alone, a bidding process for international oil firms to take up to a 30% stake in the project’s first phase will be initiated.  A decision finalising partnerships with oil companies for the field’s expansion is expected by the end of 2021.  ExxonMobil, Royal Dutch Shell, Total and ConocoPhillips are long-standing partners in Qatar’s LNG plants.

 

Competition and Risks

While QP’s first-phase sanction is likely to boost sentiment for the ailing upstream sector, it could also make it more challenging for other projects in countries likes of Australia, the US, Malaysia and Africa to progress new LNG projects. 

Nevertheless, global LNG demand is expected to grow steadily until 2040, led largely by the Asia Pacific region, the ongoing energy transition and Qatar’s ambitious export capacity, could create numerous hurdles for many LNG exporter.