Qatar’s decision to lift moratorium on the development of the North Field “could help cement the country’s position as a leading global LNG exporter,” QNB has said in a report.
It will help to boost growth and national income when production comes on stream, probably just after the World Cup in 2022, QNB has said.
In early April, Qatar lifted the moratorium on the development of the North Field, the world’s largest non-associated gas reservoir. It had been in place since 2005 and its removal clears the way for an increase in production and export of liquefied natural gas (LNG).
A new development from the North Field would produce 15.2mn tonnes per year in five to seven years, an increase of 10% from current total gas production levels. The lifting of the moratorium might be motivated by the dynamics in the global LNG market over the next decade, QNB said.
A wave of new LNG supply is expected up to 2020, but then the market is expected to tighten beyond that. The return to the market of the world’s largest LNG producer should deter potential investment from other sources, allowing Qatar to maximise better compete for its market share in the 2020s.
Global LNG markets are expected to be oversupplied until 2020, but become undersupplied thereafter, QNB said.
New LNG supply is expected up to 2020 mainly from the US and Australia, boosting global production by around 10% per year over the period, which will outstrip demand growth, expected to be around 6% per year in line with recent historical growth.
However, beyond 2020 the market is expected to tighten with supply broadly flat as few new LNG projects (which take five to seven years to complete) have been given the green light since the sharp decline of oil prices in 2014.
Nonetheless, there are a huge number of potential projects waiting on the sidelines, which could increase supply if prices recover. The International Gas Union (IGU), a global association to support the gas sector, estimates that existing project proposals amounted to 879mn tonnes or 3.4 times the current market size.
Given the recent low prices, QNB said most of these projects have been unable to progress.
However, the last few months have seen a turnaround in LNG spot prices, which have risen from $4.1 per million British thermal units (mbtu) in May to $10 in February.
“If these higher prices are sustained, it would increase the likelihood that producers can achieve agreements for long-term sales contracts at prices above the breakeven level for new projects. There is a risk that some of the proposed projects could get the go ahead,” QNB said.
“Hence, now is a good time for Qatar to step back into the market to deter new investments elsewhere given its comparative advantages,” QNb said.
First, Qatar already has existing infrastructure and LNG facilities that could help keep costs down. The total cost of new production is estimated to be $2-$5 per mbtu, below the level at which other potential new projects are viable. It is possible that Qatar could increase production of LNG by simply “debottlenecking” (upgrading) existing facilities, which would keep costs at the low end of its range. Second, as the world’s largest producer, Qatar already has the reputation for reliability and the relationships to agree long-term supply agreements with importers.
“Qatar’s decision to lift the moratorium came as a surprise to markets. After 12 years with little word on when it would likely be lifted, many had begun to assume that it could remain in place indefinitely,” QNB said.
Opec runs out of options in bid to boost prices
Deeper output cut would only encourage more rival supply: UBS; sticking with current policy can still succeed: Energy Aspects
Opec’s plan to boost oil prices by cutting production has fizzled, yet it has little choice but to stick with it.
Crude has surrendered all of its gains since the Organization of Petroleum Exporting Countries first agreed production cuts in November. While the group has implemented the curbs, a rebound in US shale output and stubbornly-high stockpiles show the world’s three-year crude glut isn’t shifting. Even signals from Saudi Arabia and Russia that they’ll prolong the supply reductions haven’t staunched the rout.
Yet Opec has limited room for manoeuvre when it meets on May 25 in Vienna to discuss the deal, and is almost certain to persevere because the alternatives look even worse. If it were to deepen the cutbacks, even more shale supplies might come along to fill the gap, according to UBS Group. Abandoning the policy and restoring output would inflict the economic pain of crude below $40, Citigroup Inc predicts.
“The risk of a higher cut is that it could trigger too strong an increase in prices and support US shale,” said Giovanni Staunovo, an analyst at UBS in Zurich.
The selloff came even after a statement from Russian Energy Minister Alexander Novak that his country was “inclined toward” an extension of production cuts into the second half. He was echoing his Saudi counterpart Khalid al-Falih, who said on April 26 that there’s a preliminary consensus to prolong the agreement with backing from other Opec nations such as Kuwait and Iraq.
With Opec already showing near-perfect compliance in delivering its pledged 1.2mn bpd production cut and an extension looking likely, the group has little ammunition left in its battle to raise prices.
While the International Energy Agency still predicts a rapid reduction in the supply glut in the second half of this year if Opec maintains its cuts, data available right now show few signs of success.
Global fuel stockpiles may have actually increased during the first quarter, the IEA estimates. In the US – the world’s biggest consumer – crude inventories are dropping, but remain near record levels. Meanwhile, American production has roared back, growing by 523,000 bpd this year to the highest level in almost two years as investment returns, according to the Energy Information Administration.
There’s a sense of “dejection” in the market that the cuts aren’t working, but Opec can still succeed if it stays the course, according to Energy Aspects Ltd.
“We still think the market does rebalance by the end of this year as long as Opec continues its production cuts,” Amrita Sen, chief oil analyst at the London-based consultant, said in a Bloomberg television interview. “I don’t think they have many options.”
Suddenly, oil below $40 doesn’t seem so far-fetched
It’s come to this for the beleaguered oil market: A big bet that prices are about to sink to their lowest level in more than a year, Bloomberg reported. About $7mn worth of options changed hands on Friday that will pay off if West Texas Intermediate crude falls beneath $39 a barrel by mid-July, according to data compiled by Bloomberg. WTI, which hovered around $46 on Friday, hasn’t traded below $39 since April 2016, though it’s been dropping like a stone in recent weeks. More than 14,000 August $39 puts changed hands, almost 20 times the number of contracts previously outstanding for the bearish option. The trade was a sign of the “crescendo of negativity” that’s washing over the oil market, said James Cordier, founder of investment firm Optionsellers.com in Tampa, Florida.
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