Eager Competitors Challenge Qatar’s Reign as LNG Heavyweight

on April 17, 2015 at 12:00 PM

Prince Charles Visits Qatar - Day 2

In recent years, Qatar – with a population of only 2 million –  has become the quintessential heavyweight in the global liquefied natural gas (LNG) industry. The small Middle Eastern country has been the world’s largest LNG exporter since 2006, and has made spectacular profits, particularly from 2011 to mid-last year, riding the crest of record high Asia-Pacific LNG prices in the aftermath of Japan’s massive LNG import increase needed to fuel its power generation demand after the 2011 Fukushima nuclear disaster idled the country’s entire fleet of 50 nuclear reactors.

However, what a difference a year can make. Since the beginning of 2014, amid plunging global oil prices and related supply glut, both global crude oil benchmark Brent and NYMEX-traded WTI plunged by more than 50 percent. This has had a knock-on effect for oil-linked LNG prices in Asia, where Qatar has substantially fattened its coffers. Prices for spot LNG in Asia have dropped from above $20 MMBtu to just over $7 MMBtu, with calls for those prices to continue to drop as both new LNG supply hits global markets from Australia and US-based projects and warmer temperatures in the Northern hemisphere cut gas demand for winter heating.

If that wasn’t enough to get Qatari energy planners’ attention, news broke this week that Qatar’s LNG revenue could decrease by as much as 36 percent in the next  ten years, according to a newly released report by the Columbia Center on Global Energy Policy (CGEP). The CGEP says Qatar’s annual revenues from LNG trade totaled $56.5 billion in 2013, but estimate that new LNG development projects around the world will cause Qatar’s pricing power to decline along with its LNG export revenues.

Australia in particular, which currently has more new LNG plants under construction than any other country in the world, appears to offer the greatest threat, at least in the medium term. Once completed, Australia’s new projects will add an incremental 61.4 million tonnes of LNG capacity. They are due for completion by June 2018. When plants under construction are added to current capacity, Australia’s total of 85.8 million tons will bypass current top exporter Qatar (at 77.7 million tons) to be the world’s top LNG exporter.

As more gas floods the market, amid a plethora of LNG projects (both new projects coming on stream and those being proposed) and the prospect of lost global market share, Qatar is not remaining idle. News broke at the end of March that two Qatari companies agreed to pay about $5 billion for a 49 percent stake in China’s Shandong Dongming Petrochemical Group to help the company build an LNG receiving terminal and expand into retail gasoline sales. Hopes are that once the Qataris build a receiving terminal for China, with a capacity of 3 million metric tons per year, they can lock in long-term offtake agreements to supply the LNG. There appears to be sufficient gas demand in China such that Qatar has an opportunity to gain market share over its LNG competitors relatively easy. It remains to be seen, however, where LNG prices will be once the terminal comes online.

However, one should not feel too sorry for the Qataris just yet. The country, as of January 2014, had the third-largest proved reserves of natural gas in the world at 885 trillion cubic feet (Tcf), according to the US Energy Information Administration (EIA). Meanwhile, the CGEF report said that Qatar is likely to retain a major advantage over most of its competitors – many of whom are developing costly unconventional gas resources, which would include the US – and remain the lowest-cost supplier of LNG. 

The report added that if Qatar were to lift a moratorium on further development of its North Field gas reserve and announce plans to bring more gas to market, it could “intimidate competitors into deferring competing projects.”

How this plays out, particularly if the CGEF analysis proves accurate, remains to be seen. Yet, with supplies from eager competitors (PNG, East Africa, the US, Australia and likely from BC, Canada over the longer term), Qatar will have to prove itself once again if it wants to remain the world’s LNG heavyweight champion.