The smallest member by size in the Organisation of the Petroleum Exporting Countries (Opec) is fast becoming one of its most influential. The meteoric rise of Qatar runs parallel to the ascent of natural gas as the world’s fossil fuel of choice.
Fuels derived from natural gas such as liquefied natural gas (LNG) are cost-effective and low on emissions, hence figure prominently in the plans of some of the world’s largest economies. Natural gas is converted to LNG by cooling and liquefying it for transport, cutting reliance on gas pipelines. The Gulf state is the largest producer of LNG in the world, accounting for a quarter of global output.
Qatar is highly dependent on energy markets to sustain its ambitious development plans. According to Opec, oil and natural gas exports account for more than 60 per cent of GDP and more than 70 per cent of public revenues. Natural gas, however, makes up the majority of these figures, as Qatar holds over 13 per cent of the world’s known reserves — about 25 trillion cubic metres. Industry dominance also has very much been a product of billions of dollars invested by the government in extraction, production and transport facilities, extending beyond its own borders as well.
Considering how crucial this market is to revenues, recent discoveries of shale gas reserves in the US and efforts to create independent infrastructure may well upset the market. The US already produces over 70 billion cubic feet of natural gas a day, even though it is still severely lacking a solid platform for efficient production and distribution.
Restricted supply
Abbas Bilgrami is the CEO of Progas Energy, a company with investments in energy-related infrastructure in the Middle East, Pakistan and the US. He says, “It [US shale gas] will have very little impact on the Qatari economy over the next five years. The global benchmark for the Gulf is driven by demand from China, Korea and Japan. In fact, Japan imported 25 per cent of the world’s produced LNG. Japan’s nuclear crisis in March last year also added to that, and also demonstrated the shortcomings of nuclear as a power source.”
Bilgrami explains that LNG is a very capital-intensive business, hence none is rolled out before sales. Long-term contracts are the norm in the industry. “Then there are some other pressures. Australia is aiming to become the world’s largest LNG producer over the next five years. They have invested $180 billion [Dh660.97 billion] in infrastructure. Even this won’t negatively impact Qatar as one might think.
“Qatar is already restricting its supply and China is expected to increase LNG consumption substantially to about 600 million cubic metres a year by 2030. By 2020-2025 demand for LNG will outstrip supply,” he says.
US assets
On the subject of American shale, the US currently doesn’t have the infrastructure required to export their gas — only to import. Significantly, Qatar Petroleum and Exxon Mobil signed a joint venture to convert a Texas import terminal into an export facility at a $10 billion investment. The port would allow for two billion cubic feet a day to be exported. Qatar would then have a key industry asset in the US.
LNG is a politically charged issue in the US. Many quarters have called for measures to be taken towards greater energy independence and to curb reliance on Middle Eastern oil. However, gas producers in the US would prefer to export, as international prices are far higher.
“A substantial theoretical arbitrage exists between the US and Qatar gas markets, but it isn’t actionable due to a lack of infrastructure,” Bilgrami says. “Right now, the total amount of LNG that can be imported from the US is restricted to about five million tonnes. They should be supplying by 2025 but that is speculation right now, as nothing has been agreed.
“We do know that a lot of coal plants will be shut down and likely replaced with gas, which is significant because 60 per cent of America’s power comes from coal. The natural gas there is quite lean and dry, so production can be quite uneconomical. The American market will moderate prices but not bring them down significantly.”
Liaque Rehman is CEO of US Petrochemical, a Texas-based multinational with offices in 30 countries. The company deals in feedstocks, which are energy additives such as LNG and liquefied petroleum gas (LPG) made from propane and butane, by-products of petroleum, and largely has household uses. Qatar is an exporter of LPG. Rehman believes that shale gas has “totally changed the equation, with the US emerging as a global leader in hydrocarbons after 35 years”.
“Power generation costs in Texas are much lower than Thailand, Indonesia and India. Qatar sells to Japan at five times what our natural gas costs,” Rehman says.
“Infrastructure is still incomplete — there are new planned pipelines and terminals to connect the shale gas to its destinations, so the effect on LPG prices has not really been felt, but you can see change happening.
“The Panama Canal is being widened in the next three years, which will allow gas carriers to cut 11 days off sailing time to Asia. “Some 83 per cent of all LPG going into Asia is coming from the Middle East right now, so there is room for other players to come in.”
Facilitating import
But it seems most Asian countries are making an investment in facilitating gas imports from Qatar. SSGC LPG is a specialised division of Pakistan’s state-owned gas giant, Sui Southern Gas Company. SSGC LPG is specifically responsible for the development of gas-related infrastructure, namely the LPG terminal recently inaugurated on the south coast at Port Qasim. It will mostly facilitate LPG imports from Qatar.
Usman Malik, COO of SSGC LPG, says, “The terminal we have built can handle two million metric tonnes of LPG. We’ve also signed an agreement with Qatar for the import of LNG equivalent to 500 million cubic feet every day. It should generate 2,500 megawatts for homes.”
As far as Qatar’s place in the marketplace goes, Malik points to the same relatively inelastic demand they enjoy. “Qatar is uniquely positioned,” he says. “Geographically, it is one of the few countries that can benefit from price anomalies in Asia, Europe and the US.
“Shale in the US will be difficult to extract, considering the topography of the deposits — thousands of feet under rock beds. They will target piggybacking on any existing oil infrastructure where they can. Currently, the spot market in the US is oversupplied. It will stay that way for the foreseeable future even though Europe and Asia are hungry for LNG.”
Qatar has positioned itself by securing key assets related to the gas trade around the world and streamlined its production at home. Considering demand dynamics and the trajectory of the market, it has opened up a not-so-tiny revenue stream well into the long-term future.
The US might be sitting on a projected 100-year supply of shale gas, but it seems there is plenty needed going forward — enough not to dent anyone’s GDP.
