Bold expansion plans will boost supplies over the next 10 years and possibly reduce prices
At a time when competitors are making strenuous efforts to achieve equal revenues and expenditures in light of low prices, the Qatari company announced last month that it would increase LNG production by about 40% to 110 million tons annually by 2026 in the first phase of the expansion of the North Field, the largest single liquefied gas project in the world.
The company is expected to announce plans to expand the second phase this year, which will raise LNG capacity by 2027 to 126 million tons per year, which is sufficient to meet the total import needs of Japan and South Korea, the two largest and third largest importers of LNG in the world, respectively.
“Qatari marketing has the potential to undermine competing suppliers and has already helped put pressure on LNG contract prices over the past two years,” said Sol Kavonik, an analyst at Credit Suisse.
“With this decision, (Qatar) will once again confirm its dominance as the largest supplier of LNG in the world,” said Chung Jixin, director at IHS Markit.
“This decision to move forward definitely crowds out other players, and we expect companies to take a long, hard look at their projects to determine if they are able to create a competitive advantage,” he said.
Qatar produces LNG at the lowest cost and far behind its global competitors, and it is the source of one-fifth of its global supply.
Alex Dewar, director at the Energy Impact Center of the Boston Consulting Group, said that the break-even price for a shipment from Qatar to Northeast Asia, the largest market, is estimated at $ 4 per million British thermal units, compared to between $ 5 and $ 8 per million British thermal units. From Russia, Mozambique and the United States.
He added that the breakeven price from Australia, before the final investment decision, ranges between $ 7 and $ 11 per million British thermal units.
The combination of North Field expansion, term solutions of contracts with existing buyers, and its planned joint US Golden Pass port project means that the gas giant will likely have between 70 and 75 million tons per year of non-contractual LNG to be sold by 2027, according to analysts’ estimates. .
Qatar Petroleum has already shown its willingness to cut prices to win deals, as happened last month when pricing a new 10-year deal with Pakistan with a “mile” rate of 10.2% of the price of Brent crude compared to 13.37% in a 15-year deal signed in 2016, which is one of the The lowest priced deals ever signed.
LNG contract prices are usually expressed as “mile” versus Brent prices, which means a percentage of that price.
Reuters quoted a source from a competing supplier – who requested anonymity – as saying, “It will be difficult to compete with them at these prices, so what other sellers may be able to compete with is to provide more flexibility.”
For example, Qatar Petroleum sells its cargoes on a delivery basis at a predetermined port, which makes it difficult for buyers to redirect cargoes if they are surprised that they do not need them.
Therefore, competitors who offer the possibility of resale to a third party or options that allow buyers to cancel purchases within a specified period may have an advantage in winning deals in this case.
A number of dealers said that the company also signed a long-term agreement with “Vitol” – the world’s largest oil trading company – to supply liquefied gas to Bangladesh last month, and was active in the spot market as it offered competitive prices.
Traders said that the newly established Qatar Petroleum Trade Unit has won several bids to supply immediate shipments to Pakistan, India and Taiwan since its inception late last year.
Giles Farrier of Wood Mackenzie said that the quantities of Qatari gas destined for northwestern Europe are also expected to increase, after Qatar agreed last year to reserve storage capacity at two gas terminals in the “Isle of Green” in Britain and “Montwar”. in France.