[NGW Magazine] Shell willing to prioritise Qatar LNG
This article is featured in NGW Magazine Volume 2, Issue 15
As the world's biggest LNG exporter and world's biggest LNG trader, Qatar and Shell have much to gain and little to lose from closer co-operation.
Shell CEO Ben van Beurden said the supermajor is “willing to add our strengths” to any LNG expansion that Qatar Petroleum (QP) is planning.
At a press briefing July 27, however, he acknowledged just what other international oil companies are probably thinking: if Shell invests more capex in Qatar into the 2020s, that is likely to mean less available for investment in other higher-cost LNG projects elsewhere in the world, given the market's general bearish tone.
A few days earlier, for example, Malaysian Petronas announced it was pulling the plug on its Progress Northwest LNG in British Columbia, citing poor market conditions.
QP said on July 4 it intends to expand Qatari LNG production by 30% to 100mn mt/yr within five to seven years, much of which can be achieved by debottlenecking, and Shell, Total, ExxonMobil and Eni have already expressed interest in assisting.
Total CEO Patrick Pouyanne for instance told hosts in Qatar July 11: “Total is fully committed to the development of its partnership with Qatar Petroleum both in Qatar and internationally, and is willing to further expand its co-operation in particular with new projects in Qatar.”
ExxonMobil has the most existing joint LNG ventures with QP, but Shell, Total and ConocoPhillips each have stakes too. Shell has a 30% interest in the 7.8mn metric ton/yr Qatargas-4 (train 7) venture that started exports in early 2011. “We have a very valuable and intimate relationship with QP in country but also internationally, and we are continuing to look at ways and means to extend [our] relationship,” said van Beurden.
“Recently I signed a deal to work together on LNG for shipping. We announced another LNG supply contract for about 1mn mt/yr that we would offtake and bring, among other markets, to the UK. There are other things that we are working on all the time – some of them may come for announcement at some stage,” the Dutch CEO said.
“On the expansion, it’s early days…. I think it makes sense for them [QP] to extend their production capacity, by opening up another tranche of the North Field, debottlenecking the existing facilities. They are probably going to need to build new facilities in order to accommodate the full 4bn ft3/d of gas that they would like to add. And there are many different ways of doing that of course. We have a very well-established relationship, as I’ve mentioned, and we would be willing to add our strengths to that proposition by bringing markets to the country, bringing a capability to the upstream and midstream, by co-investing…. But here, the ball is in QP’s court."
“As we understand a little better how that will work out, we will have to form a view on what that means for the sequencing of projects going forward,” the Shell chief said in reply to a NGW question.
“Our view on the projects that we develop is that they have to be, come what may, ‘first quartile’ when it comes to costs. And ultimately the projects that may drop off the list – if a very competitive project, like another tranche of Qatari LNG content – will be the project that is not the most competitive,” he added.
“So, our aim is to be on the right-hand side of the cost of supply curve – and to continue to create options for yourself. That’s where I believe we are, with our options set. And if we can participate and contribute to the Qatari projects, then I’m sure that will be in the same place as well.”
The Shell chief did not list projects that might slip back or “drop off the list”. But industry experts see LNG projects in western Canada, offshore east Africa, and even Russia as being the most exposed to any incremental supply and more competitive cost that Qatar might be able to offer.
Tanzania – 'one of many projects'
Shell, having a well-balanced portfolio, has LNG projects pre-FID in all these three regions. So, it was interesting when van Beurden was asked what Shell made of recent moves against mining investors in Tanzania, and if that may lead to repercussions against oil and gas investors.
Worth noting that a wrangle initiated by Tanzania’s government against Canadian Barrick Gold-run mining subsidiary Acacia culminated earlier this week with Tanzania hitting Acacia with a demand for $190bn of ‘unpaid back-taxes’ – a demand that Acacia has rejected.
Van Beurden's response hinted that the Tanzanian government should not try speeding LNG developments beyond the pace at which investors are willing to work and should reflect carefully on fiscal stability.
Shell – previously BG in this country – and Norwegian Statoil lead partnerships that have made respectively 17 trillion and 22 trillion ft³ of gross recoverable gas resources offshore Tanzania, yet neither wants to be jostled into a development while the world remains over-supplied with LNG.
With the first east African LNG project, the 3.4mn mt/yr Coral South floating liquefaction venture led by Eni, now looking at a production launch no sooner than 2022, following its FID announced June 1 – land-based liquefaction projects in Mozambique and Tanzania, fed by offshore reserves, now look unlikely to take FID for years and would therefore not start production until the mid-2020s or later.
“Tanzania is one of many projects that we have in the funnel for [Shell’s] Integrated Gas [business]. It’s a good quality resource. There’s a lot of it. Therefore, it has fundamentally the makings of a good supply chain into a market that will continue to grow fast. LNG will continue to be a fast-growing segment of the energy system. But we have many other opportunities as well,” stressed van Beurden.
“We have probably the best portfolio of supply options in the industry and therefore we have to be extra critical of which ones to call off next. Tanzania has a few issues as well, although the geology is not bad, and even the geographical location is a very good one. It's also the fiscal environment that needs to be conducive. I think there’s a bit of work to do there. We are in dialogue with the government to make sure that they produce a conducive environment to invest in.
“There’s other projects at the same time. So, we need to understand how we can develop the industry efficiently. Of course, Tanzania is still a country with a modest amount of industrialisation in this sector, and these are high-tech projects. So, the more we can work together, the easier it will be to pull these things off.
“Yes, I am very mindful of the other developments [in Tanzania] which we are following very closely to see indeed what the fiscal stability is, the legal stability in the country, and these factors will be on our mind when we take the next milestone for the development of that project. But at this point in time, it is one of many projects in our funnel – and in terms of readiness for sanction, it is not quite at the top of our list.”
Of the four international oil companies known to have talked to QP since its expansion announcement on July 4, ExxonMobil, Eni, plus Shell itself all have a significant presence in east African deepwater gas/LNG projects that might now slip down the merit order, following the Qatari initiative.
ExxonMobil is Statoil’s most significant partner in its Tanzanian gas/LNG project. ExxonMobil this March also agreed to farm in, with 25% equity, to the huge Eni-operated Area 4 gas resources offshore Mozambique, where Coral FLNG is already sanctioned; any future onshore liquefaction trains fed by the 85 trillion ft3-resource Area 4 will be operated by the US supermajor. Eni itself will retain 25% equity in Area 4 and operate Coral South FLNG.
Of eight near-term Shell ‘define’ projects that the company says may lead to a Final Investment Decision within 18 months, only two are LNG export projects – Lake Charles, and LNG Canada trains 1 and 2 – and it’s far from clear yet if both, one or neither will go ahead (see illustration below). Shell's Integrated Gas business has one other on the same list of eight projects – the Changbei tight gas project in China. Will that one pip the other two?