With the United States and Australia ramping up liquefied natural gas (LNG) production over the next few years, LNG turf wars are likely to intensify, with industry leader Qatar fighting to maintain its Asian market share and recapturing its foothold in Europe, analysts have said.
The capacity to produce LNG, gas cooled to liquid state to be transported by ships, will rise by 45 per cent between last year and 2021, thanks to new projects in the US and Australia, the International Energy Agency (IEA) said in June. By 2021, Australia is expected to dislodge Qatar as the world’s largest LNG exporter, according to the energy watchdog.
LNG producers are fighting for market share at a time when gas demand is languishing globally. Gas demand is forecast to increase at an average annual rate of 1.5 per cent between last year and 2021, lower than the 10-year average of 2.2 per cent, the IEA said.
To deal with the competition, Qatar has already started to shift tactics in Asia, renegotiating a long-term contract with India for additional supplies but at lower prices and more favourable terms. RasGas, one of two LNG companies in Qatar, agreed in December to supply additional volumes to Petronet LNG, India’s biggest gas importer, and halve the price of gas under an existing 25-year contract. Qatar also waived a penalty for Petronet taking lower contracted volumes last year.
In Europe, Qatargas, the other LNG producer in the Arabian Gulf state, signed a flexible sale and purchase agreement with European power company RWEST to deliver up to 1.1 million tonnes per annum (mtpa) for seven and a half years.
“Qatar is already adopting a very aggressive stance,” said Mustafa Ansari, an energy economist at energy lender Arab Petroleum Investments Corporation (Apicorp). “It is trying to diversify its exports because it now realises, because of the growing competition, it no longer has the monopoly it has been exercising within the East.”
Qatar currently has a 32 per cent share of the LNG export market, followed by Australia with a 12 per cent market share and Malaysia with 10 per cent, according to the International Group of Liquefied Natural Gas Importers.
“They are trying to recapture some of their market share within Europe in particular, and are trying to offer more flexible terms because it is no longer a seller’s market,” Mr Ansari said. “They can afford offering lower terms because revenue sustainability is much more important than getting a good price for them.”
Qatar has also set its sights on the trade of LNG it does not produce locally.
State-owned Qatar Petroleum and ExxonMobil have formed Ocean LNG, a unit that will market future LNG supply from sources outside Qatar.
Meanwhile, Australia is spending more than US$200 billion to expand its LNG capacity by about 80 billion cubic metres, and is eyeing Asia for its supplies.
But the main focus of the US is expected to be Europe, where it will be angling for a market share alongside Qatari, Algerian and Russian piped gas.
Thanks to the shale gas revolution, in the first eight months of this year the US exported 89.4 billion cubic feet (bcf) of LNG, compared with 16.5 bcf for the whole of last year.
Its cargo this year went as far afield as India, Kuwait, Jordan and the UAE, as well as several countries in South America.
In Europe, Qatar and other LNG producers will also have to compete with coal and potentially renewables, which are alternatives to gas.
“The more gas that Australia puts in the Asian Pacific market, the more additional spot gas Qatar will have to sell and that will mean there will be less room for North American cargo to go that way [Middle East],” said Trevor Sikorski, the head of natural gas and carbon at consultancy Energy Aspects.
“The natural place for US gas is to go to Europe and Central America.”
The Middle East and North Africa region, however, is emerging as a new import market.
About $10.3bn of investment will be made in LNG-importing facilities in the region over the medium term, and there will be an increasing reliance on floating storage and regasification units (FSRUs) as a temporary solution for gas needs, according to Apicorp.
Mena will account for 6.5 per cent of global LNG demand by the end of next year, up from 1 per cent in 2013, as countries take advantage of abundant supply and low prices, according to Apicorp.
Last year, Middle Eastern LNG imports more than doubled, reaching about 10 mtpa at year end from nothing in 2008, thanks mainly to Egypt and Jordan, according to the International Group of Liquefied Natural Gas Importers and consultancy Wood Mackenzie.
“New markets are emerging, and there continues to be a lot of scope for gas to displace oil in the region,” said Kerry Anne Shanks, the head of LNG research at Wood Mackenzie.
“However, import levels could be quite volatile. Oil switching works best at higher oil prices, as it reduces the time to recover investment costs.”
Egypt, for example, has turned from an LNG exporter to an importer and could become an exporter again once its giant Zohr field comes on line.
“Egypt’s gas demand peaks in summer, so you could possibly see a situation where there are imports in summer and exports in winter,” Ms Shanks said.
But any import or export decision will be dictated by the price of LNG, which is tied to oil prices.
The IEA does not expect the gas market to rebalance itself before the end of the decade, unlike oil, which is forecast to reach a balance next year.
Asian LNG spot prices, which rose to more than $20 per million British thermal units (mmbtu) in 2014 and were sold at a premium to European gas prices, are down to about $5.5 per mmbtu. Lower demand, particularly from the top two importers, Japan and Korea, the global commodities rout and increasing supply are to blame for the plunge in LNG prices since 2014.
“Prices have held up better than we’d expected this year, due to stronger-than-anticipated demand, unplanned outages and delays with commissioning new liquefaction plants,” said Emma Richards, a senior oil and gas analyst at BMI Research, a unit of the Fitch Group. “Next year, we expect supply additions to outweigh growth in demand, triggering another leg down in prices.”
For next year, BMI is forecasting the annual average of Asia spot LNG benchmark, the JKM, a price assessment from Platts, to be about $4.15 per mmbtu.
In a reversal of fortune, European gas prices could have a premium over Asian prices, with the unleashing of Australian volumes into Asia.
“When you get a few more LNG cargo trains in Australia up and running, there is going to be very large volumes of LNG in that region [Asia] and prices will have to switch,” Mr Sikorski said.
“North East spot prices will tend to be at a discount to the European market. That would be a significant shift.”
dalsaadi@thenational.ae
Follow The National's Business section on Twitter
At Adipec, a Global Business Leaders session on “The Golden Age for Gas and LNG?” will be held on Tuesday at 11am in Al Maared Hall
____________________________________________________________
ABU DHABI OIL, Adipec 2016: The National's full coverage
■ Central bank policies may be a roadblock to oil investment, says Yergin
■ Saudi market grows in importance for ABB
■ Abu Dhabi to step up petchems output
■ IT improvements in the oil industry could save billions
■ Recovery use shows solar works with oil
■ Halliburton president says oil industry is getting brighter, but still challenging
■ Gulf Marine Services adds new vessel to fleet
■ Oil services firm SPX expands in Abu Dhabi
■ Forget the 4x4 – now you can go 6x6 with Mercedes' amazing off-road lorry
__________________________________
