Qatar’s reign as the world’s largest liquefied natural gas (LNG) exporter may end by 2017 as liquefaction capacity in Australia reaches 120bcma (billion cubic metres per annum), and new supplies from the US begin to kick in; but Doha is taking an “aggressive” stance in Europe to mitigate the risks, according to Arab Petroleum Investment Corporation (Apicorp).
Several factors have historically provided Qatar with a competitive advantage over its rivals, and may yet do so against new supplies, given its large sovereign wealth cushion, Apicorp said in a report.
“The new LNG supplies from Australia have already started to eat into Qatar’s monopoly in Asia and new supplies from the US will challenge Qatar’s dominance,” it said, highlighting that the proportion of Qatari LNG into Japan, South Korea and China fell 3.6% in 2016 as Australia increased its share in the three countries by 8.4%.
Qatar is thus facing a new reality where Asian importers now have more options, whilst low prices and more supplies in Europe mean that Qatar will need to offer more flexible contracts, it said.
However, in some of these key importing countries, its exports have diversified, with the number of Qatari LNG importers tripling from eight in 2007 to 24 in 2015. In Asia, its share of imports into China and Taiwan has increased modestly.
In India, LNG traded close to Japanese prices at $4.9/mmBtu prompting the amendment to Qatari export terms and the provision of cheaper gas – down to $6-7/mmBtu this year from $9.2mmBtu in 2015.
As part of the deal, Petronet – set up by the Indian government to import LNG – agreed to import an additional 1.3bcma from RasGas.
Finding that Qatar is also keen to increase its presence in Europe by offering more flexible terms; Apicorp said Qatargas 3 – a joint venture among Qatar Petroleum, ConocoPhillips and Mitsui – will deliver 1.5bcma to RWEST in North West Europe over seven and a half years.
Separately, RasGas, which already provides UK-based EDF with 11bcma, signed an agreement to supply their new import terminal in Dunkirk with 2.7bcma. Higher exports in 2015 to Europe increased Qatar’s market share in the region by 3.3% year on year (y-o-y).
Qatar also brokered a four-year deal earlier this year to supply Kuwait with 0.7bcma from March. Recently, Qatar Petroleum (QP) signed a deal with Abu Dhabi National Oil Company to enhance supplies to the UAE via the Dolphin pipeline. Furthermore, QP has taken advantage of its domestic joint ventures to forge their first major foreign partnership with ExxonMobil, and their interest to purchase shares in both Mozambique and Egypt’s Zohr field.
Qatar’s ability to offer more competitively priced contracts ensures a steady stream of revenue, Apicorp said, adding at present, more than 80% of its production is committed for 2016-20 as part of supply purchase agreements, securing revenue stability.
“Going forward, a key decision for Qatar is whether to maintain the existing moratorium on the North field, and develop new LNG projects. But this depends on global fundamentals and hinges primarily on the level of US exports and the extent to which Chinese demand grows,” the report said.
The LNG outlook appears to be “soft” over the medium term, which perhaps may not be the best time for new Qatari supplies to enter the market. In the event that the moratorium is lifted, Qatar will have to consider the costs associated with upstream projects and current liquefaction trains before developing new LNG projects, it said.
“Qatar can act strategically and increase its supplies, which will depress global LNG prices further and slow the development of new LNG capacity elsewhere; but if it goes down this route, it may have to endure a period of low prices for several years. Either way, the country is well positioned given its $250bn sovereign wealth funds, and its low production costs would keep it competitive,” it said.