Why Qatar merges LNG producers Qatargas and RasGas?

 

Qatargas – RasGas merger to help new entity fare better globally. The merger of Qatargas and RasGas will result in “cost reductions, improved efficiency and greater financial clout”, points out Charles Swabey, Oil & Gas analyst at BMI Research.

The Qatargas – RasGas integration will help the “new entity fare better globally” in the face of rising competition and to expand its presence beyond Qatar, a new report has shown.  This merger of Qatargas and RasGas will result in “cost reductions, improved efficiency and greater financial clout”, points out Charles Swabey, Oil & Gas analyst at BMI Research. Recently, Qatar Petroleum (QP) has announced the integration of RasGas and Qatargas the two state-owed gas producers. The two entities will operate under the name ‘Qatargas’ with the transition aiming to be complete by the end of 2017.

RasGas, Qatargas and the role of Qatar Petroleum
RasGas, Qatargas and the role of Qatar Petroleum

At present Qatargas has a liquefied natural gas (LNG) export capacity of 41mn tonnes per year (tpy) and partners Total, ExxonMobil, Shell, ConocoPhillips, Mitsui and Marubeni in its operating ventures.
RasGas is slightly smaller in scale, operating around 37mn tpy of LNG export capacity and is a joint venture between QP and ExxonMobil. The benefits brought by integrating the two companies should in theory include cost reductions and improved efficiency and greater financing abilities. Combined, these will put Qatargas in a better position to perform in a market that will be increasingly competitive over the coming years. Competition will come mainly from rising volumes being shipped out of the US and Australia.  “The new capacity will be vying for access to the lucrative Asian LNG import market, which is where Qatar’s traditionally exports the majority of its volumes,” Swabey said in a report provided to Gulf Times.

QP CEO Saad al-Kaabi says "cost reduction will be realised"
QP CEO Saad al-Kaabi says “cost reduction will be realised”

Most of Qatar’s exported volumes are now secured through long-term supply contracts. The impending LNG glut will create a buyer’s market, so as Qatar’s contracts roll off in the coming years and negotiations begin, it is vital that GCC country is in the strongest possible position. “Combining the two entities will help achieve this as the larger company will have greater negotiating power in addition to a more favourable cost structure,” Swabey said.
Furthermore, he said a rising trend in the industry was the growing presence of portfolio players, which bought large volumes of cargos from varied sources, with different contract pricing terms, giving them greater flexibility when selling on to importers.  The merger of Shell-BG, has created the largest portfolio player by size, overtaking Qatargas and RasGas.
According to the BMI’s analyst, integrating the two Qatari entities would enable the GCC country to “reclaim its title as the largest LNG trader, offering better flexibility and enhanced market power.”
Another “benefit from the consolidation”, he said was the “greater financial clout” that the company would be granted given its size. This, the BMI analyst said would “assist in its international ambitions as it looks to grow its production presence beyond domestic boundaries.”

 

Sources: QGN, Gulf Agencies, GT, GN, BBC.