By Denise Marray/Gulf Times Correspondent/London
“Qatar has become the most significant and consistent supplier of LNG to the UK, whose gas position has shifted from one of self sufficiency in 2004 to one of 50% import requirement by 2014, due to the inevitable decline of UK North Sea gas production.” This observation was made by Howard Rogers, director, Natural Gas Research Programme, Oxford Institute for Energy Studies, in response to a question from Gulf Times about the relationship between Qatar and the UK in terms of energy provision.
He added: “Although the UK receives significant pipeline gas supplies from Norway, the Netherlands and continental Europe in general, longer term domestic production decline will inevitably mean that the UK will need an ever higher percentage of imports — either of pipeline gas from the continent (backed up by Russian gas) or LNG.
He was asked for his views on the likely impact on Qatar of recent developments in the US energy sector. He observed: “The US currently has LNG export projects amounting to between 70 and 90 bcma under construction or about to commence construction. This is likely to become a major source of destination-flexible LNG, able to arbitrage between Asian, European and South American markets.
“Unless upstream supplies of shale gas are constrained due to resource availability or pipeline bottlenecks, the US may well displace Qatar as the primary ‘destination swing supplier’. In this case, it is likely that Qatar will increasingly target Asian markets due to its transportation cost advantage relative to US LNG.”
Rogers was asked to comment on the role of Russia and its impact on Qatar. He replied: “If Qatar keeps in place the North Field Moratorium and, therefore, does not expand its LNG exports, this is more a case of how Qatar can best maximise its LNG revenues in the context of the overall fundamentals of the global gas system connected by LNG trade flows.
“Russia, with some 100 bcma of ‘spare’ production, and the largest exporter of pipeline gas, has a major role to play in this. In Europe, it may choose to defend market share (at the expense of price) to try and keep LNG out of this ‘market of last resort’, or reduce exports to defend price.
“In Asia, the proposed pipeline projects to China seem at first glance a significant ‘win’ for Russia; but, all other things being equal, they reduce Chinese LNG requirements, and thus increase LNG available for Europe, at the expense of Russian exports to Europe. Qatar will play into these dynamics with the aim of maximising revenues in a much more competitive environment than we have seen in the last three years.”
Asked about the importance of coal in the energy mix, he noted that “without concerted policy commitment, it is difficult to see how gas at sustainable prices can displace coal in power generation purely on a competitive fuel price basis.”
He added: “Coal in power generation is the primary source of anthropomorphic CO2 emissions. Its cost advantage over gas at current prices has made it difficult to displace in Asian markets in particular, but also in Europe, despite that region’s apparent commitment to CO2 emission reduction.”
Looking at how Qatar has managed its energy policy, he said that the country had been prudent in carefully planning the placement of its LNG output over a wide geographical spread and through differing contract/price formation channels.
“Volumes were placed under long term crude oil price indexed contracts with Asian buyers, through oil and oil product — linked priced long term contracts with Southern European buyers, and via medium term contracts and regas-infrastructure investment enabled spot delivery to US and Northern European buyers. From the outset it was clear that volumes of LNG which were not subject to long term contracts could be redirected and sold as spot or under short term deals under a dynamically managed sales strategy,” he noted.
With regard to the medium and long terms prospects for Qatar, he said: “In a medium term period of muted demand growth, Qatar’s major concern should be the 85 bcma of new supply from Australian LNG projects coming onstream between 2015 and 2018, and the start of US LNG exports in 4Q 2015 but growing materially from 2018 onwards. Towards the end of the decade Russia, East Africa, Canada and new brown-field Australian projects may add volumes in a soft market. In simplistic volume terms, Australia, by dint of projects already under construction, will overtake Qatar to become the largest LNG supplier before 2020.”
Looking at the volatility in oil prices, he concluded: “The timescale for recovery of oil prices in the current price crash is uncertain, but Qatar with its low population and strong financial position is well placed to weather the storm.”
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