Qatar Plans to Boost LNG Production Despite Gulf Blockade

The country says it will increase production by 30 percent over the next seven years.

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Qatar plans to produce about 30 percent more liquefied natural gas (LNG) in the next seven years in order to retain its place as the world’s top exporter.

The country will increase production from 77 million tonnes to 100 million tonnes by 2024, reinforcing its role as a major producer and leaving Australia and the US far behind.

“LNG supplies are abundant now, and there are many projects under development, but the expected growth in demand is very large,” said Al Kaabi, CEO of state-run producer Qatar Petroleum. “All the studies show that between 2021 and 2024 there will be a shortage of gas because of higher demand. Therefore, the launch of our project will be between 2022 and 2024, which is the period when there will be market demand.”

Corporate energy giants like ExxonMobil (NYSE:XOM), Shell (LSE:RDSA) and Total (NYSE:TOT) are already in talks with the government to take part in the expansion.

As mentioned, Qatar is currently the world’s largest LNG supplier, having exported 77 million tonnes of LNG in 2016. That’s more than 30 percent of global supply, according to S&P Global Platts.  

But if the country wants to boost production, it will need to secure sales contracts that last between 15 and 20 years. “Qatar will need to find off-take agreements to increase their supply that significantly,” Charlie Riedl, executive director of the Center for LNG, a Washington-based industry group, told Bloomberg.

Similarly, Victoria Zaretskaya, a US Energy Information Administration analyst, told the news outlet, “[w]e are entering an interesting period of ‘courtships’ between prospective sellers and buyers.” She added, “there may be some other factors to play in who gets the contracts and what other concessions were made to ‘sweeten the deal.”’

Other top LNG-producing countries are also in the race to find buyers and lock them into long-term contracts. The US will likely remain third-biggest supplier of LNG, while Australia may expand output to 94.3 million tonnes, says Bloomberg in another article.

“Qatar’s message to the rest of the LNG world is, ‘[w]e are going to take a huge chunk of the incremental market,’” explained Jonathan Stern, chairman and senior research fellow at the Natural Gas Research Programme of the Oxford Institute for Energy Studies.

Qatar’s move also intensifies its conflict with Saudi Arabia, the world’s largest oil exporter. Together with the United Arab Emirates, Bahrain and Egypt, Saudi Arabia cut ties with Qatar on June 5, accusing the country of backing terrorism.

“Basically what it’s saying is, ‘We are going to promote LNG as a substitute for oil,”’ Stern said. “That’s a very confrontational thing to say.”

All four of the countries aligned against Qatar have banned Qatari-owned or flagged vessels from entering their ports. However, thus far LNG flows have been unaffected by the crisis, according to Shell.

“LNG flows remain stable, cargoes are going into the market,” said Steve Hill, the company’s executive vice-president for gas and energy marketing and trading. “Qatar is a very credible and competent LNG producer.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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