Qatar oil field

Qatar has spent billions of dollars developing its LNG industry

Despite its small size, Qatar's energy resources are vast by global standards. However, its reliance on exporting its liquefied natural gas could face a threat in the shape of the emergence of shale gas in the US.

Qatar’s energy sector is a story of potential very much fulfilled. A sleepy backwater until its wealth began to explode as a result of its astute liquefied natural gas (LNG) development strategy, Qatar is, on a per capita basis, by far the Gulf Cooperation Council’s leading hydrocarbons exporter.

Qatar has the world's third largest gas reserves, after only Russia and Iran, at 25,400 billion cubic metres, or 13.5% of the global total. Discovered in the 1980s, the huge offshore North Field gives Qatar energy revenue security such that a moratorium on further development, imposed in 2005, is unlikely to be removed until around 2016, if ever.

Money well spent

Qatar has spent tens of billions of dollars in the past 15 years to develop its LNG and downstream petrochemical industries, now among the world’s largest. In December, it celebrated completion of its 77.1 mtpa (million tonnes per annum) LNG liquefaction capacity build-out by two of Qatar Petroleum’s major subsidiaries, Qatar Liquefied Gas Company and Ras Laffan Liquefied Natural Gas Company. Last year, Qatar Gas Transport Company, or Nakilat, took delivery of the last of 54 advanced LNG tankers, a South Korean-built fleet comprising nine conventional, 31 so-called Q-Flex and 14 Q-Max carriers.

QNB data show that by 2009, actual LNG exports had reached 37.1 million tonnes, on a production capacity of 54.7 million tonnes and contracted LNG exports of 44.7 million tonnes. According to central bank data, Qatar’s natural gas liquid exports totalled a fraction over $39bn in 2010, or about 16% of gross domestic product.

"LNG production was up 50% in 2010 versus 2009,” says Thierry Bros, senior analyst for European gas and LNG at Société Générale. “LNG accounted for 85% of Qatar's gas production in 2009. Production of about 130 billion cubic metres is expected in 2010."

Qatar employs long-term contracts with international partners to manage its LNG exports. Most cargoes are destined for Europe and Asia, particularly Japan, South Korea and Taiwan, while demand is growing in China and India. Gas-to-liquids and piped gas to neighbouring countries are also important Qatari revenue generators. It also exports 1.3 million barrels a day of oil and condensates, a sizeable addition to state revenues.

Prices of gas in Asia are still linked to oil prices and these nations are willing to pay a hefty LNG premium. In 2010, Japan paid an average price of $12.41 per million British thermal units (mmbtu), while South Korea paid $11.50. These are well above US spot prices and the European market. At the beginning of May, the Henry Hub spot price  (the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange) stood at $4.59, which had risen due to cold weather. These levels compare favourably to Dolphin Project gas, pipelined to the United Arab Emirates and Oman, for which politically based deals were arranged years ago, resulting in end-user costs of as little as $1.25 per mmbtu.

Shale threat

One long-term threat to Qatar’s export position is the emergence of US shale gas, a technologically advanced form of gas extraction at deeper levels. "Initially [Qatar’s] plan was to send one-third [of its LNG] to the US, one-third to Europe and one-third to Asia," says Mr Bros. "As the US does not need any more LNG, Qatar has adapted its business model and sends its gas mainly to Europe and Asia."

The long-term implications for Qatar could be that US companies push to export large quantities once shale gas technology has been fully mastered. In the US, after major investments predicated on Qatari and other LNG imports, terminal owners are exploring the potential for bi-directional operations, in order to capitalise on exports of the sudden increase in onshore volumes.

Though Qatar’s state budget is calculated using oil prices, LNG’s centrality to revenues will increase. “Gas is becoming more important than oil for Qatar and the rest of the world alike,” says Mr Bros.


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