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.”
Stable energy production
Within the GCC, the substantial natural gas reserves of Qatar have meant that it has been relatively less affected by the oil supply glut and the subsequent decline of crude oil prices than its peers. The fact that Qatar realises its strength in producing and selling gas as opposed to oil, thus endows it with a natural advantage over its neighbours.
“Majority of the growth in fossil fuel demand is expected to be met by natural gas, which is good news for Qatar. The country is already forging new relationships and marketing its gas aggressively; this will put them in a leading position and give them a certain advantage over upcoming competition. This has got to be good for Qatar’s economy, provided they do not lose focus on diversifying the economy, which is the third pillar of Qatar’s Vision (2030),” Handa states.
Qatar is considered to be the world’s fifth largest natural gas producer, with 14% of the global natural gas reserves. The GCC state’s large gas reserves are key to it claiming 3.5% share of the global consumer market. The majority of Qatar’s natural gas comes from the North Dome field, which covers an area of 6,000 sqkm.
The Barzan gas field is expected to add 2bn cubic feet of gas per day (bcf/d) by 2018. The $10 billion-worth project, a joint venture between Qatar Petroleum and ExxonMobil, is aimed at meeting surging domestic electricity demand in Qatar as it prepares to host the FIFA World Cup in 2022.
Other fields are also playing a key role in boosting Qatar’s oil and gas production. This includes the offshore fields of Meydan Mahzam and Bul Hanine. Operating in these fields are a number of global players that have partnered up with the state owned Qatar Petroleum, including Occidental Petroleum of Qatar Ltd. (OPQL), Total Exploration & Prodcution Qatar (TEPQ), and Qatar Petroleum Development-Japan (QPD).
Among the onshore fields, Dukhan produces up to 335,000 barrels per day (bpd) and is sprawled across 640 sqkm, producing crude oil, associate gas and condensate non-associated gas. Other oilfields include Al Shaheen and Idd al-Shargi, both of which account for a majority of the country’s oil production.
Tapping new markets
Qatar has for quite a while displayed an aggressive keenness in the rewarding Asian LNG market compared to other global producers. This is one of the key factors that has kept it strong in the face of competition from Australia and US.
The country has sold most of its LNG through long-term sales and purchase agreements (SPAs) to customers like Chubu Electric of Japan, KOGAS of South Korea, and Petronet of India. More recently, it struck deals with Pakistan, Taiwan and Sri Lanka.
According to Handa, “(The) Qatari leadership definitely has had the foresight to focus on the (Asia) region.” This focus will pay off for various reasons, he says. “The low price environment transportation cost is considered to be a differentiating factor, giving advantage to Qatar over other exporters, as they have long term contracts sewed up with Asian customers.”
In fact, he says, other exporting countries are now trying to focus on these markets for the same reason as Asia’s demand for energy far outpaces that of any other region. However, Qatar being ahead in forging the commercial relationships certainly enjoys the edge.
Qatar is also attempting to explore markets beyond Asia: ExxonMobil has joined forces with Qatar Petroleum with the intention of exploring energy assets in Mozambique’s Rovuma basin. Due to its friendly trade relations with Asia and perhaps Africa in the near future, Qatar has earned the rare distinction of being an energy supplier to both developed and emerging markets.
Within its neighbourhood, with the (argued) exception of Saudi Arabia, other GCC countries are known to be scrambling for natural gas to meet spiking industrial and domestic power demand, and are hence looking up to Qatar to source additional LNG supplies.
A case in point is the UAE’s Dolphin Energy which has recently signed with its partner Qatar Petroleum a long-term LNG agreement to supply gas to the Sharjah Electricity and Water Authority and Ras Al Khaimah Gas Commission (RAK Gas). According to the agreement, Qatar will supply additional LNG quantities to Dolphin Energy through the tri-nation subsea pipeline – transporting about 2 bcf/d to the UAE.
The path to diversification
Qatar has joined the wave of economic diversification in the Gulf – expressing its ambitions to diversify its economy and decrease its dependency on energy exports through its well-crafted, detailed ‘Vision 2030’ strategy.
According to figures released by the Qatar Statistics Authority, oil and natural gas production comprises up to 55% of Qatar’s GDP, while hydrocarbon exports account for 90% of total exports. The government’s revenues in the region add up to 38% of GDP, 60% of which comes from energy exports – figures indicating the Qatari economy’s clear dependency on the energy sector.
Regarding that, Stewart-Linnhe said, “Qatar’s 2030 Vision is unique in the region as it will build on the expected successes of the first FIFA World Cup to be held there in 2022, which will naturally be a showcase for the country. What is significant in the aftermath of Qatar’s first major bond issuance in 2016, and the cross-sector infrastructure spending associated with the FIFA event and the 2030 Vision, is that Qatar is already taking major steps to present itself as a vibrant and attractive place for cross-sector foreign direct investment.”
The FIFA event also poses to be a landmark revenue generator or Qatar to accelerate confident progress towards 2030. Particularly, its May 2016 $9bn bond issuance is an indication that the country is willing and able to engage with foreign investors in a significant way.
“The key role of any leadership is to define the Vision and Qatari leadership has done that well,” Handa told the magazine. “They were ahead of time and many of their peers in doing that. However, the key remains execution – the progress on the pillars of the vision is a mixed bag, some have progressed better than others.”
As testimony to its growing diplomatic clout, particularly within OPEC, Qatar has joined Saudi Arabia in negotiating with the cartel’s members and other swing producers like Russia on production output to help prop up oil prices. At the last OPEC/non-OPEC meeting at Vienna on October 24th, Qatar’s energy minister actively participated in discussions with his Russian counterpart among others to reach a viable decision on output and a possible joint action to stabilise the oil market. Observers (and cynics) unanimously believe that the participants’ efforts were futile as the gathering failed to produce a concrete decision on output.
What the cartel’s meetings this year with non-OPEC producers have however established is that Qatar’s efforts and its influence in directing the course of the global energy market is invaluable. That coupled with the Gulf state’s solid LNG credentials makes it a dominant force in the global energy domain.
