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EARLIER this month, Qatar Petroleum recorded a significant landmark when it awarded the front end engineering design contract for onshore facilities for the expansion of the North Field project. Production of LNG from the project is targeted for the end of 2023.
When the offshore North Field expansion project comes on stream, Qatar will be able to raise LNG production capacity from 77 mn tonnes/year to 100 mn tonnes/year. Discussions are continuing with potential international joint venture partners for this strategic project to determine an optimised arrangement.
The development comes at a time when there is an unprecedented shake-up in the global LNG industry with more supplies expected as Australia and the United States ramp up production. While more LNG will flow into the market in the next two to three years and overtake demand, the supply overcapacity in this period looks smaller than previously expected, according to Bloomberg New Energy Finance.
Analysts predict a balancing between supply and demand around the time the expanded North Field project begins production. The demand will mainly come from China where gas usage will increase as a consequence of coal being replaced with cleaner burning natural gas faster than ever before. Globally, the demand for LNG is expected to grow in excess of 4 percent a year.
According to the Gas Exporting Countries Forum, the share of natural gas in the global energy mix will increase from 22 percent in 2016 to 26 percent in 2040.
Coal is set to see a 7 percent decrease (from 27 percent to 20 percent), to be gradually replaced by natural gas, renewables (17 percent) and nuclear (6 percent). China imported an average 5 bn cubic feet per day of LNG in 2017 and Japan more than double of the figure.
There is no doubt that Qatar is well placed to take advantage of the expected under-supply scenario around 2023. It has already effected a merger between Qatargas and RasGas this year to create an LNG behemoth with a liquefaction capacity of 77 mn tonnes a year, making it the world's single largest LNG operator. Qatar's share of global LNG supply stood at a little over 30 percent in 2016. In 2017, LNG exports from Qatar stood at its full production capacity.~
The advantage Qatar has over its closest competitors is cost of natural gas production. In a recent report, the International Monetary Fund said the capital costs per tonne of LNG of recent Australian LNG projects are between $2,778 and $4,048 compared to $1,000 to $2,000 for Qatargas. Another estimate by investment firm Sanford C Bernstein has said that Qatar's gas production cost comes at a third of Australia's.
The other pluses for Qatar is that it produces and exports significant quantities of condensates alongside gas, thus driving the effective cost of producing LNG much lower, and its equity positions in over 50 vessels in which it ships LNG to buyers around the world.
Moreover, Qatar's reputation as a reliable supplier of the super cooled fuel is unparalleled. Continued deliveries to the United Arab Emirates, one of the four countries that imposed a trade and diplomatic embargo on Qatar in June last year, is hard evidence of Qatar's unflinching commitment to honouring its commercial commitments even in the face of adverse circumstances.
Australia and the United States are close on the heels of Qatar to become the world's leading LNG producers and exporters in the short term. But Qatar has shown the flexibility to adapt to fast-changing market dynamics defined by the buyers' preference for short-term contracts and spot deals. With its location advantage, Qatar is also exploring new geographies beyond the traditional markets where it has had long-term contracts. This will stand it in good stead to defend its preeminent status as a leading reliable, low-cost producer and transporter of the fuel going into the next decade and beyond.
