Qatar’s announcement to boost LNG output worries American producers

July 9, 2017 – Just as the natural gas market has started to stabilize stateside, Qatar announced on Tuesday that it would double production from its North Field. The small country on the Arabian peninsula already owns the number one spot for LNG exports, and with Qatar’s recent falling out with OPEC, the country is securing its dominance of the natural gas market.

Qatar currently produces 77 million metric tons of liquefied natural gas per year but plans to increase the number to 100 million metric tons over the next seven years. Australia recently invested $200 billion into their LNG infrastructure in a bid to overtake Qatar as the top gas producer. The announcement from the small Arabian country is Qatar’s countermove to remain on top.

According to the New York based asset management company AllianceBernstein L.P., Qatar currently has some of the largest natural gas plants, and even more importantly, the country’s state-run gas producers have some of the lowest break-even costs in the industry.

This news comes as a blow to American natural gas producers and exporters. An analyst from AllianceBernstein L.P., Oswald Clint commented on the issue, “Extending existing export facilities will likely be more successful than starting from scratch at new sites. More than two-thirds of LNG projects chasing to fill an expected supply gap in the mid-2020’s are unlikely to be built.”

Martin Lambert, the managing director of Brightland Energy Ltd., explained, “The incremental LNG from Qatar is likely to be relatively low cost, so certainly able to undercut supplies from potential new greenfield projects. It will probably also undercut incremental supplies from the U.S. or Australia.”

The news out of Qatar may deter any American companies from proposing any new LNG export terminals into the next decade.

Claudio Steuer –  the director of SyEnergy, an energy consulting firm based in the United Kingdom – commented, “Qatar’s location makes it well positioned geographically to be competitive and earn attractive returns, supplying both Asia and Europe. This will limit the magnitude of the expected surge of U.S. LNG supplies. Under the current low oil prices, we are unlikely to see new U.S. LNG investment decisions.”

However, U.S. exporters, along with President Donald Trump, are still out promoting American fuel to buyers in Asia and Europe. Freeport LNG LLC and Tellurian Inc. are just two of the American LNG terminal developers who remain resolute in their plans to expand U.S. gas exports.

“There may be opportunity for U.S projects that already have existing infrastructure and would be cheaper than others to develop, such as an expansion of Cheniere Energy Inc.’s Sabine Pass plant. Further afield, projects that have lower costs of shipping to Asia, such as those in Papua New Guinea and Mozambique, can also compete,” stated a recent report from AllianceBernstein L.P.

Qatar’s announcement to increase production throws a monkey wrench into the gears of an industry that is already having trouble justifying new projects. The competition in the LNG market will be fierce and tight into the next decade.

Article written by HEI contributor Raymond Arrasmith.

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