Qatar Steps on the LNG Market: Comment
This article may be read in conjunction with an earlier article by the author on Qatar, Iran and the North Field, found here.
When Qatar Petroleum's CEO al- Kaabi announced July 4 that the North Field expansion project would be doubled in size from 2bn ft³/d to 4bn ft³/d, and that the best option for Qatar to utilise this additional gas production would be to expand LNG liquefaction capacity to some 100mn metric tons/yr in five-seven years' time, the country made what can only be considered a strategic move in the LNG market.
Qatar's renewed North Field gas developments are likely to give the country a competitive edge in the 2020 to 2025 period, when the global LNG market is expected to tighten.
Italy's Eni and partners took the final investment decision (FID) on June 1 for the 3.4mn mt/yr FLNG development on Coral South in Mozambique, a project scheduled to come on stream around 2023. A large number of other LNG development projects are also aiming to come on stream in the 2022 to 2025 period.
However, when compared with Coral FLNG, which has sold all its production to BP, the other projects in the planning stage will need firm long term LNG sales agreements or liquefaction tolling agreements to be viable.
Qatar has among the lowest costs of natural gas production, in the range of $1.60-2.00/mn Btu. Furthermore, it is unlikely Qatar will need to construct new LNG trains to achieve the equivalent of 100mn mt/y of LNG production capacity during northern hemisphere winter periods.
The LNG train upgrades and de-bottlenecking, now the subject of engineering studies, could, if implemented, increase production capacity at Ras Laffan by some 10%, giving Qatar a total LNG export capacity of some 85mn mt/yr. These up-grades together with additional feed gas availability could allow Qatar to maximise LNG production during low ambient temperature northern hemisphere winter months sufficiently for Qatar to reach an LNG production level equivalent to 100mn mt/yr.
That Qatar is planning to add the equivalent of some 20 to 23mn mt/yr capacity during the part of the year when LNG prices are at their highest based on such a low cost approach, will not be welcome news to LNG liquefaction projects struggling to secure long term sales agreements for the support of financing. Just the announcement of this Qatari move could easily delay other LNG projects whether in east Africa, the US or elsewhere by a number of years. If implemented in full these gas and LNG projects would likely extend the Qatari LNG market hegemony well into the future.
Morten Frisch is Senior Partner of Morten Frisch Consulting (MFC)
www.mfcgas.com