AsianInvestor Qatar report: LNG

Asian Investor Qatar report, July 2013 

Surely no country has ever received such a remarkable free gift relative to its size as Qatar.

Just 11,500 square kilometres in size and with a population of around 1.9 million, it has proven natural gas reserves of 25.1 trillion cubic metres, according to BP. This represents about 13.4% of the global total, making Qatar the third biggest owner; and that’s on top of proven oil reserves of 15 billion barrels. Yet the state consumes only 0.8% of the world’s natural gas, leaving a vast surplus to sell.

“Qatar’s North Field is the largest single non-associated gas field in the world, with total recoverable gas of more than 900 trillion standard cubic feet, covering an area of 6,000 square kilometres – equivalent to about half the land area of the State of Qatar,” a Qatargas spokesperson tells AsianInvestor. “The utilization of the field’s massive reserves has become a primary national goal to continue the development and prosperity process in the country.”

Additionally, if one were to choose a hydrocarbon in which to receive such a free gift, natural gas would probably be the preferred option today. Clean-burning and relatively low in emissions compared to other fossil fuels, gas is the fuel of choice for more and more consumers. And the development of liquefied natural gas (LNG) technology has provided a safe and reliable mechanism for its transportation and delivery worldwide.

Qatargas, established in 1984, is the largest LNG-producing company globally, with production capacity of 42 million tonnes per annum (MTA). Along with other firms such as RasGas, it was the driving force behind Qatar reaching a production capacity of 77 MTA at the end of 2010 – hitting a seemingly highly ambitious target set 14 years earlier. The 76 million tonnes of LNG exports in 2011 by Qatargas and Rasgas accounted for 31% of the  global market.

Moreover, it emerged in March that Qatar has discovered as much as 2.8 trillion cubic feet of natural gas in an offshore field, its first discovery since uncovering the world’s biggest gas field 42 years ago. The discovery was made at the field known as Block 4 North.

“The company’s vision,” Qatargas says, “is by 2015 to be the world’s premier LNG company.” It surely already is.

Yet the logistics of producing and transporting LNG are not straightforward, and never small. Today Qatargas operates four projects, Qatargas 1 to 4, alongside the Laffan Refinery and a regasification terminal. The company has seven LNG trains, four of which are the largest in the world; each has a production capacity of 7.8 MTA. Having developed the world’s largest LNG transportation ships, it now has access to 43 vessels, recognisable by their Moss-Rosenberg spherical LNG tanks.

Rising demand

With the reserves proven and the infrastructure in place to export them, the one unpredictable element of the monetisation of these resources is the demand side. In this respect, Qatar is searching the world for opportunity.

It all started with Japan: the country is home to Qatargas’ foundation customers, with the first deliveries made over 15 years ago. The company continues to supply eight companies in Japan, mainly power and gas utility companies, and new deals are inked regularly. “Japan is Qatargas’ foundation market,” the company says: it has delivered over 1700 cargoes to the country so far.

In the meantime, Qatar has supplied cargos to France, Italy, Spain, Turkey, the UK and the US, among many others: it exported LNG to eight countries in 2007, and today serves 21 across four continents.

This is a greater achievement than it might at first appear. Countries and energy companies have to make a big commitment when they sign up for LNG imports. There must be a receiving terminal for unloading and storing the liquid gas, and a specialist terminal for regasification, before it can be transported via pipeline.

And new markets continue to appear. In June, Argentina, which has no long-term contracts to import LNG, was due to receive a cargo from Qatar. In December 2012, Qatar signed a long-term sales and purchase agreement with Thai energy group PTT. And in March 2013 it delivered the first cargo of LNG to Singapore through the newly built receiving terminal on Jurong Island. Long-term supply agreements are understood to be under discussion with Pakistan.

Very often, a first Qatargas delivery to a country represents a commissioning cargo (the one that puts a facility into action): this has happened at 10 LNG terminals to date.

Then there’s China, “a key focal market for Qatargas,” the company says. “We believe that the State of Qatar will play a critical role in the long-term supply of stable clean energy to the growing Chinese market.” The company delivers 5 MTPA of LNG to China National Offshore Oil Corporation (CNOOC) and PetroChina, has commissioned half of Chinese LNG regas terminals, and has a representative office in Beijing. The company believes China “will become one of the world’s largest gas markets,” and intends to be at the heart of that development.

In some cases, LNG is used as a geopolitical gift: earlier this year Qatar granted Egypt five cargoes of natural gas to help them through the summer, “as a gift to the Egyptian people”, said Qatar’s energy and industry minister, Mohammed al-Sada.

Meanwhile, the by-products of production can end up in a host of other places. For example, sulphur, which is removed from sour gas, is sold to China, India and Jordan, among other countries.

Back in Qatar, development continues. A new initiative, the Jetty Boil-Off Gas Recovery Project, will minimize LNG gas flaring and make productive use of the gas that boils off during the loading of LNG carriers. In May, a contract was signed for the engineering, procurement, supply, construction and commissioning of Laffan Refinery 2, a second condensate refinery with a similar processing capacity to the existing refinery; Qatargas tells AsianInvestor it will come onstream in 2016.

Challenges and competition

Still, while the good times are rolling for Qatar gas exports, there are challenges ahead – most notably in the form of competition. Australia recently completed a 4.3 MTA LNG project, Pluto, operated by Woodside Energy; related to it, eight extraction and liquefaction schemes are under construction that will boost Australia’s production capacity to 60 MTA in 2017, not so far behind Qatar’s. Given its location, Australia will be a natural rival for supply to Asia-Pacific markets.

Moreover, shale gas has had a transformative effect on the US, which has visions of becoming a net energy exporter rather than a ravenous consumer. Elsewhere, Angola has commissioned a 5.2 MTA gas project, and Papua New Guinea is building a  6.9 MTA operation, which has the potential to double the size of the country’s economy.

Clearly, all this is going to change things. First, it will obviously affect the prospects of exporting natural gas to the US. Second, the increase in supply will lead to a reduction in prices. Third, the availability of alternative supplies into Asia will allow buyers there to negotiate hard over long-term supply contracts. One thing that may change is the standard Qatari approach of tying long-term contracts to oil prices rather than gas prices.

But the mood in Qatar remains optimistic. “There’s been no real concern about that [US shale], because there’s still a very willing market elsewhere in the world, whether it’s China or somewhere else,” says Rod Ringrow, Doha-based senior executive officer for the Middle East and North Africa at State Street.

“Even if it’s more expensive, people want a second source of supply,” he notes. Qatargas itself tells AsianInvestor that increased demand should push LNG prices upwards from 2013 to 2015, saying many observers forecast a doubling of demand in the next 15 years. The supply situation post 2015 is unclear, it says, as it will depend on the pace of development of liquefaction projects. While shale gas could increase both supply and demand, “its commercialization in many parts of the world is still some way off with considerable technical and regulatory hurdles still to overcome, whereas the LNG industry has a solid, established track record with proven technologies,” a spokesperson says. It accepts Australia will clearly become a major producer of LNG – though points to uncertainty around start-up dates – but says Qatar is the market with the track record of supplying LNG in a secure and reliable manner. Crucially, it adds, “Qatar owns the largest integrated shipping fleet in the world.”

And price? “We believe that gas prices will remain predominantly linked to oil prices outside of the liquid gas markets of North America and the UK,” a spokesperson says.

Of course, the supply won’t last forever – which is why Qatar is seeking to diversify its revenue stream.