Qatar, the world’s largest liquefied natural gas exporter, will have around 38% of its exports revenue earnings derived from LNG this year, a new report has shown.
With crude oil production settling at around 700,000 barrels per day (bpd) with little scope for expansion, the emphasis is on the country’s natural gas reserves (the third largest in the world) to sustain revenues while the country diversifies, points out Samba Financial Group.
The global LNG market looks set to change over the next decade, with Australia and the US harbouring ambitious plans for expansion, Samba said in its latest economic monitor. The two countries are likely to increase exports significantly over the long-term, with BP estimating that Australia will overtake Qatar as the largest LNG exporter by 2019 followed by the US in 2030.
“However, there are many unknowns, which put a question mark over the viability of some projects still in the pipeline, particularly in Australia where many were approved on the basis of a much higher oil price,” Samba points out.
The last few years have also seen great divergence in the regional price of natural gas, driven by factors including the US shale boom, the European financial crisis, and the Fukushima nuclear disaster. Coupled with the recent emergence of new suppliers, this has prompted customers in Asia (the destination for two thirds of Qatar’s LNG) to seek to modify their long-standing relatively expensive oil-indexed contracts.
The IMF has stated that although the US shale gas boom and other factors have not had a material effect on Qatar’s hydrocarbon revenues thus far, there is anecdotal evidence that it is effecting the price negotiations for future LNG contracts.
With the increase in both the number and the diversity of suppliers over the coming decade, it seems likely that the LNG market will eventually move to a henry-hub indexed pricing norm rather than the more expensive oil-linked contracts. In fact, some of the latest Australian export contracts have been configured on an oil/ henry-hub index hybrid, Samba said.
The exact amount of LNG that will be added to the market is uncertain, and the complexities of pricing make it hard to make accurate predictions.
“That said, we expect the changing dynamics will likely lead to prices falling over the next ten years (current Japan spot import price is around 14 mbtu),” the report noted.
However, Samba emphasised Qatar was well placed to adjust to the likely change in the LNG market over the long-run. Any effects should be gradual and manageable due to several factors; 90% of its LNG exports up to 2020 are already committed as part of supply purchase agreements, its exports are well diversified geographically and it has the flexibility to balance regional sales according to demand, it has built-in diversion clauses designed to reduce risks and most importantly it has relatively low costs of production. Source: Gulf Times