DOHA: Qatar’s additional production volume of LNG through expanding its super-giant North Field would be well placed to compete in international LNG markets.
Following its decision in early 2017 to lift the moratorium on expanding its North Field, Qatar confirmed in February 2018 its intention to expand its LNG capacity from 77Mt to 100Mt (about 135bcm per year) through the construction of three new 7.8 Mt LNG trains. These are expected to come in operation by the end of 2023.
Given Qatar’s very prolific resource basis and low costs, additional volumes from Qatar would be well-positioned to compete in international LNG markets, according to International Energy Agency (IEA).
The IEA noted in its “World Energy Investment 2018” report that several new LNG plants are under consideration. The bulk of those in pre-FID stage concentrated in Qatar, the United States, Australia, Canada and Mozambique. In the United States, four projects have been already approved but no construction works have started at the time of writing.
However, although the world’s gas demand and global LNG trade is expected to increase substantially in the medium to long term, companies continue to implement a cautious approach in embarking into new projects, due also to buyers’ reluctance to commit to new long-term contracts. In the absence of the sanctioning of new LNG liquefaction projects over the next 12-18 months, the LNG market could significantly tighten by 2023.
Global LNG trade expanded at a record rate of 11 percent, or almost 40 bcm, in 2017. All regions contributed to LNG growth trade, with China emerging as fast-growing region as a result of policies aimed to improve its air quality incentivising a progressive coal-to-gas shift.
Other key LNG-importing regions including Europe and Korea experienced a significant increase of LNG volumes, while Japan’s imports in 2017 were flat.
IEA noted that the investment in new (LNG) liquefaction plants has remained subdued over the last two years as a result of a decreased level of FIDs (final investment decisions) after the large wave of projects mainly from Australia and United States were sanctioned in the first half of the current decade. According to construction times and expected entrance into operations, those projects will add over 150 bcm of nameplate capacity by 2020, equivalent to almost one third of global liquefaction capacity at the end of 2017.
Spending on LNG peaked in 2014 and 2015 at around $35bn per year and has been declining ever since. It reached $20bn in 2017. On the basis of projects sanctioned, investment is projected to fall to around $15bn in 2018 and, in the absence of new projects, to continue to fall thereafter. Apart from some temporary disruptions caused by Hurricane Harvey, US-projects under construction appear to be advancing as planned. The construction of Yamal LNG in Russia was ahead of schedule despite the challenging geographical conditions and started operations in December 2017. On the other hand, there were further project delays at some Australian projects, although most of those under development are expected to be on line by the end of 2018.
Given the current overcapacity in the market, many companies have been adopting a wait and-see approach to new LNG investments. This is consistent with the reduced incentive to embark on large and multi-billion dollar projects due to financial constraints affecting the upstream oil and gas sector. Companies are increasingly focusing on smaller, modular and short-cycle projects.
