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Qatar builds on LNG strength

by Yasmin Helal on Dec 7, 2016


Qatar is considered to be the world's fifth largest natural gas producer, with 14% of the global natural gas reserves.
Qatar is considered to be the world's fifth largest natural gas producer, with 14% of the global natural gas reserves.

The state of Qatar finds itself in an interesting situation, as having positioned itself as a leading liquefied natural gas (LNG) exporter, it now faces the potential risk of being dethroned by Iran which has vowed to match the Gulf nation’s gas output – and even surpass it. But how much of a threat does that really pose to Doha?

Qatar enjoys the privilege of the bigger share of the world’s largest gas field – the North Dome, while Iran, which calls it the South Pars, stakes claim to the smaller portion of the field having combined reserves of 51tn cubic metres. Currently, Iran is producing no more than 430mn cubic meters of gas per day (mcm/d) from the field while Qatar accounts for up to 650mcm/d. This is in addition to the fact that Qatar started producing gas from the field years before sanctions allowed Iran to benefit from it.

“In the five years or so, say, that it takes Iran to develop its key South Pars gas field capabilities, Qatar will simply have advanced and refined its development even further – so the immediate impact of any assumed relief in sanctions via output will not be significant in terms of how this affects Qatar, while non-nuclear sanctions on Iran continue to prevail,” Iain Stewart-Linnhe, a UK-based specialist in global regulatory policy, risk management and capital markets, believes.

Senior analyst at KBC Energy Economics Ehsan Ul-Haq agrees saying, “Iran will need huge investments to develop its natural gas fields and LNG infrastructure. This is likely to take at least three to four years before Iran can become a major competitor to Qatar’s LNG industry.”

There is reason to believe thus that the lifting of sanctions on Iran shouldn’t perturb Qatar’s LNG market to a great extent. The situation, as it stands today, may however change in the near future, depending upon how the rivals develop their respective LNG production and export capabilities.

Independent consultant Vikas Handa is of the opinion that “as Iran starts to produce more from the shared field, we expect to see new supply coming into the market, which should ease demand in the region. Iran is already working on new pipelines to export (its produce) in the background. We also expect to see progress in awarding new pipeline contracts.”

Only time will tell whether Iran will position itself as a major LNG competitor.

Competition intensifies in LNG market

Iran, however, is not the only potential competitor for Qatar. New LNG supply being developed in other markets such as Australia and the US will challenge Qatar’s position in the global LNG market. Estimates suggest that Australia alone is expected to produce 120mn tonnes per year, overtaking Qatar as the largest producer by 2018. These new shale gas producers are expected to prosper once global oil and gas prices recover.

“This means,” says Marc Hormann, partner, A T Kearney, “that Qatar’s oil and gas industry, similar to other places in the world, has to respond to these pressures on profitability and the increased global competition. Profitability improvements are sought through cost transformation. The largest cost improvement potential lies in the area of OPEX and holistic cost transformation. This will require deployment of best-in-class sourcing techniques and increased operational efficiency of existing assets.”

In response to the new global LNG supply market dynamics, Qatar needs to further build an extensive international footprint. Having a clear strategy and picking the right opportunities will be key to not dilute its efforts to tap new markets. In the meantime, growing demand for natural gas – particularly in the region, offers lucrative opportunities for Qatar to expand its market share.

As evidence of its efforts to further boost its LNG exports, Qatar Petroleum (QP) recently tied up with ExxonMobil to establish Ocean LNG Limited, a unit that is tasked with marketing the country’s future LNG supply sources in the international market. According to a statement released by QP, the decision to create this new joint venture was “driven by its aspirations to continue to be a global LNG leader, and to invest in LNG projects outside Qatar.”


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