Qatar has edge in global gas market
With a lowest production cost and a most effective logistic network, Qatar has a competitive edge in the increasingly competitive global gas market. Qatar’s natural gas and LNG can be produced at about $2 per million British thermal units(BTU) as opposed to the $8-$12 prices in the US, Australia and East Africa.
An effective logistic networks is another advantage Qatar has in the global gas market. The country commands a huge fleet of LNG carriers run by Royal Dutch Shell.
The extent of the fleet effectively raises a barrier to entry to new suppliers. Natural gas, when chilled to minus 260 degrees, turns into a liquid that takes up only a fraction of its former volume. The process allows huge quantities of fuel to be pumped on to ships and dispatched around the world.
Some carriers are over 1,000 feet long and can carry about 217,000 cubic meters of LNG, equivalent to carrying around $30m-$40m worth of gas in one ship, a Qatar-focused report published by “FTSE Global Markets” noted.
Additionally, the country has secured substantial volumes of valuable by-product petroleum liquids. Citing QNB data, “FTSE Global Markets” said Qatar has enough gas reserves to maintain current rates of production for the next 138 years. However, gas reserves in Qatar fell 0.6 percent in 2014 as a result of extraction policies and a state-imposed ban on further gas exploration and development in Qatar’s North Field, where most of its reserves are located.
Qatar needs to take bold and consistent strategy in order to reinforce its leading position in a rather fluid market. It is time for Qatar to start renegotiating its offtake agreements. In terms of Asia, its principal long term agreement start to come to an end in the early 2020s. As many as ten Qatari contracts with Japanese buyers will come to an end in 2021, and substantial supply contracts with South Korea end in 2023. However, if current pricing remains a chronic feature of the markets, as with India, Qatar may be pressured to act sooner.
There are signs that Qatar is beginning to work with trading houses in carving out new business deals through short term contracts or tenders. Recently, transactions have been announced with Egypt, Jordan and Pakistan. Exports have also increased to Eastern Mediterranean buyers. Compared to the size of the long term Asian deals, this is still short change, nonetheless sales to Jordan and Egypt have risen by 0.4m tonnes so far this year, while exports to Europe look to have risen by 2.5m tonnes.
In its latest report on Qatar, US Energy Information Administration (EIA) said the country is slowly shifting from long-term, oil-indexed LNG contracts to more short-term ones and sport-market sales. In 2012, it said, Qatar exported over one quarter of LNG as short-term or spot-market sales, accounting for more than a third of such sales in the world. “Several recent agreements between Qatargas and international LNG importers are of short-term variety, including a deal based on continental European prices rather than oil-indexation for the first time in the company’s history,” EIA said.