The article below appeared in the July 5, 2017 edition of Natural Gas Daily, a daily gas publication from Interfax Global Energy
Qatar’s plan to sharply increase gas liquefaction capacity at its 77-mtpa Ras Laffan facility over the next five years puts the emirate on a potential collision course with the United States, which is dramatically expanding its own LNG export capacity. Qatar’s decision also threatens to extend the current glut of LNG – which many analysts had expected to be gradually absorbed over the next five years – until at least 2025.
Global LNG prices have dropped from peaks of $21/MMBtu in 2014 to around $5/MMBtu following the wave of new liquefaction projects that have been commissioned in Australia and the startup of the Sabine Pass plant on the US Gulf Coast in 2016.
Australia was expected to overtake Qatar as the world’s largest exporter of LNG in 2018 when its new plants, construction on which got under way from 2012 onwards, are due to be completed. The Australian projects, which will boost the country’s liquefaction capacity to more than 81 mtpa, typically have breakeven prices ranging from $10-15/MMBtu and have been relying on an improvement in global prices to ensure investment returns. After a wave of startups between 2014 and 2016, this March saw the third train at Chevron’s giant Gorgon plant commissioned. The Ichthys project is due online in Q3 2017, and the Prelude FLNG project should be completed next year.
The US projects, also under construction and due for completion by 2020, include the Freeport and Corpus Christi LNG projects in Texas, Cameron LNG in Louisiana, the smaller Cove Point project in Maryland, and new trains at Cheniere Energy’s Sabine Pass. When these are completed, the US will have an LNG export capacity of 70-75 mtpa. Cheniere sells LNG from Sabine Pass on a Henry Hub-linked formula, unlike the Australian projects, gas from which is typically sold on an oil-indexed basis.
The Australian and US projects combined will add at least 135 mtpa to global liquefaction capacity compared with 2011, when Japan was forced to hike LNG imports after the Fukushima disaster led to the shutdown of the country’s nuclear fleet. The latest GIIGNL annual report estimated global liquefaction capacity stood at 340 mtpa at the end of 2016, a 22% increase on the 278 mtpa of capacity in 2011.
Qatar boost
Qatar Petroleum announced this week that it will expand production capacity at the North Dome field – the world’s largest gas reservoir, which it shares with Iran, where the structure is known as South Pars. The expansion will allow Qatar to increase its LNG production capacity to 100 mtpa from the current 77 mtpa sometime between 2022 and 2024, the company said. Qatar had imposed a moratorium on new gas developments at the North Dome field, but this was lifted in April 2017.
US LNG exports started in February 2016 under former President Barack Obama, but the administration of Donald Trump has flagged expanding LNG exports as a key pillar of its plan to dominate world energy markets. US oil, NGL and coal exports have all risen sharply since Trump took office. The new president has also launched a campaign to secure outlets for US LNG in northern Asia, and his administration has held meetings with Chinese, South Korean and Japanese officials aiming to sign up customers for US exports, including LNG.
Qatar’s decision to boost LNG export capacity coincides with a breakdown in political ties with Saudi Arabia following a visit by Trump to Riyadh in May, during which the US president alleged Qatar had promoted terrorism in the Middle East. Saudi Arabia’s arch-enemy Iran has sent food aid to Qatar following the rift.