• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 3 days How Far Have We Really Gotten With Alternative Energy
  • 7 hours The United States produced more crude oil than any nation, at any time.
  • 18 hours China deletes leaked stats showing plunging birth rate for 2023
  • 41 mins The European Union is exceptional in its political divide. Examples are apparent in Hungary, Slovakia, Sweden, Netherlands, Belarus, Ireland, etc.
  • 5 days Bad news for e-cars keeps coming
Omar Mawji

Omar Mawji

Omar Mawji was previously an investment analyst at Katusa Research in Vancouver. He also served as the lead oil & gas analyst for institutional investors…

More Info

Premium Content

Qatar Uses Saudi Strategy To Conquer LNG Markets


Qatar holds the third largest natural gas reserves in the world behind Iran and Russia. The country’s offshore region is host to the largest natural gas field in the world, which is split between Qatar and Iran in the Arabian Gulf: The North Dome/South Pars field. Qatar’s offshore waters hold the North Dome part of the giant field which is the largest portion of the field and was discovered by Shell in 1971. Qatar’s North Dome field began production 10 years before Iran’s South Pars field in 1991. Since 1991, Qatar has invested about $420 billion dollars into the North Dome field to get production to 23 billion cubic feet per day.   

Qatar and its North Dome field are synonymous with Liquified Natural Gas (LNG). LNG is a way of making natural gas a global commodity through the ease of movement between countries through tankers that carry LNG. LNG liquefaction facilities transform natural gas into a liquid form to be loaded and transported via LNG tankers. From that point, LNG tankers travel to natural gas consuming regions where they are transformed back to gas through regassification facilities.

Oil and Gas Are Not the Same

Often, the exciting aspect of oil extraction is that once you produce the oil from the well and tie it into infrastructure, you can get that oil to most markets in the world by pipeline, tanker, barge, rail, and/or truck. However, natural gas tends to be less mobile of a commodity and that results in different natural gas pricing around the world. LNG trade has made natural gas more of a global commodity, but the process is grueling and burdensome to get LNG facilities built and transporting to hubs that have the infrastructure to load and process LNG cargoes.

LNG projects are more of an infrastructure play than they are a play on natural gas because around two-thirds of the cost to produce LNG comes from infrastructure. These projects have low rates of return, but are crucial to the globalization of natural gas. The largest LNG player in the world and, more importantly, the most pivotal LNG player in the market is Qatar.

(Click to enlarge)

Qatar’s Growth Phase?    

In 2005, Qatar imposed a moratorium on the development of its share of the world’s largest natural gas field: The North Dome. The purpose of the moratorium was to analyze the effect of a rapid increase in natural gas production from the North Dome’s reservoir. In April 2017, Qatar announced it was lifting the moratorium on the development of natural gas from the North Dome Field. In fact, Qatar has announced that it plans to increase natural gas production from the North Dome by 30 percent in 5-7 years.

This move may seem odd to many who see the LNG market as a losing venture for new entrants. The premium price once paid by Asian and European buyers has deteriorated along with the oil price since 2014.

(Click to enlarge)

Qatar giveth, and Qatar taketh away!

The historical hysteria of opportunity in the LNG market that brought on a wave of high-cost LNG supplies to an increasingly oversupplied global market was created by Qatar’s moratorium in 2005. Qatar had also used its dominance in the market to withhold a small share of production from long-term contracts when demand was high from major Asia Pacific markets. This pushed forward in establishing the LNG market in Australia and generated new growth opportunities in North America, East Africa, and the Asia Pacific. Related: Next Week Could Be A Turning Point For The OPEC Output Deal

Last winter, at an LNG conference in Sydney, Australia, LNG producing countries and companies were careful not to concentrate on the potential lifting of a moratorium in natural gas drilling in Qatar’s North Dome. However, that concern was in the back of everyone’s mind. Qatar is the almighty ruler over the LNG industry and it can make or break all potential new projects coming online. Qatar is the lowest cost producer over all other producers because of its excellent project execution, existing infrastructure, and high co-production of condensate (ultra-light oil) and LPGs (propane and butane). 

(Click to enlarge)

Qatar’s Saudi Strategy

The news that Qatar would increase natural gas production by 30 percent in 2022-2024 was devastating to the industry and put all new LNG projects at a disadvantage. Although Qatar was the largest LNG exporter in 2016, Australia and the US added significant supplies to the global LNG market. Australia was now becoming an increasing threat to Qatar’s position in the Asia Pacific.

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

Qatar was losing a battle of LNG market share to new supplies coming online, primarily from Australia and, even worse, those new supplies are meeting a lot of demand from China and India. Qatar is proceeding to take a page out of Saudi Arabia’s strategy to draw out the high-cost producers through production ramp up. The only difference is, the LNG market is not as dynamic as the oil market and Qatar’s policy changes to North Dome production increases have long-lasting consequences for the LNG market.

A Bird in the Hand

As previously mentioned, the LNG market is determined by infrastructure more than by natural gas supplies where projects need to secure customer contracts before going into production. Thus, once an LNG project is under construction it is very hard to stop and restart the project based on LNG prices. Greenfield LNG projects take 10 years or longer to get going. This makes Qatar’s move even more drastic in an already depressed LNG market. The effect of a Qatari increase of LNG production by 30 percent is more than just a ramp up in LNG supplies; it will halt billion-dollar projects expected to come online over the next decade.

Additionally, for new LNG producers looking to secure premium priced long-term contracts to support the financing required to build their liquefaction facility, they will find difficulty securing contracts in the current LNG market. The current LNG market has seen more supplies come online by various markets around the world. This means major customers that were once looking to secure supply are now looking to diversify supply by region and by contract. Major LNG importing countries are looking for a variety of suppliers that can offer flexible contracts of less than 10 years.


(Click to enlarge)

In 2016, LNG long term contracts of 5-years and over consist of 72 percent of global LNG trade and as major consumers of LNG like China and Japan look to sell excess cargoes into the market, customers are shifting their purchase strategy from securing cargoes to diversifying cargoes. While Australia plans to double LNG capacity from 2016 levels, the US has plants under construction that would add the equivalent of Australia’s LNG capacity in 2016. This would be over a 30% increase in LNG capacity just from those two regions and that is expected to result in an oversupplied market until 2021 and a balanced market until 2023 according to Credit Suisse’s 2016 report, The World of LNG. However, now that Qatar plans on increasing its LNG supply by 30%, that LNG supply surplus will likely extend past 2023. Related: Scotland To Permanently Ban Fracking

Market Makers and Issues

The natural gas market is still very fragmented even as LNG tries to make natural gas a more global commodity. The players in natural gas consuming nations vary widely. While most major global customers are fed by their local supply or surrounding countries, Europe and Asia remain the dominant and diverse market for natural gas. Russia continues its longstanding hold on European natural gas market share by pipelines. This ensures that any new natural gas planning on making their way into Europe will have to compete with Russian natural gas prices. Meanwhile, Asian natural gas demand is being predominantly met by LNG cargoes coming from Qatar and Australia.

(Click to enlarge)

Meanwhile, new LNG cargoes are going to start coming from the US and Australia as both countries increase LNG export capacity. Large Asian consumers are going to try to shift away from traditional Qatari and Australian supply in order to diversify their supply base and demand more flexible LNG contracts.

As the issue of a depressed LNG market due to oversupply continues, we are seeing major LNG exporters and projects face insurmountable issues. Major projects in Canada and Australia are being axed because of government red tape and LNG economics. In some cases, LNG exporting countries like Australia are seeing record domestic natural gas prices even as LNG prices are at record lows. Since the global natural gas market is imperfect as a truly global commodity, key suppliers of natural gas have a distinct first mover advantage. Qatar sees its dominant position in the LNG market to promote long term LNG trade while outcompeting high-cost producers and potential projects. Qatar has much more power over the LNG market than Saudi Arabia has over the oil market. The decisions Qatar has made this year will influence the market a decade into the future. For any investors looking to get into the LNG space, be warned: tread lightly.

By Omar Mawji for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Naomi on October 04 2017 said:
    The USA Gulf coast is one giant gas field. The USA only began exporting LNG in 2016. US LNG can be delivered for $4.50/mmbtu. Europe and Asia are diversifying their LNG sources away from Russia and the unstable Middle East for security. Russia and Qatar need to undercut the $4.50 price to stay in the game.
  • David on October 06 2017 said:
    Excellent article. The economics of the recently commissioned over-budget Australian LNG projects are going to suffer terribly.
  • Coffeeguyzz on October 17 2017 said:
    The infrastructure costs - and follow on consequences - for LNG handling are changing dramatically.

    Shell's modular approach in the Elba Island project is saving enormous amounts of time and money.
    The optional flexibility for future expansion is a big plus to this mode of liquification.

    On the downstream side, floating storage and regassification units (FSRUs) enable highly mobile and economic hardware with which to utilize natgas.
    Smaller markets and the growth of micro grids bode well for growth in this field.

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News