May 13, 2017 3:00 pm JST

After 12-year hiatus, Qatar reboots huge LNG development

Rivals force the world's largest supplier to try and secure market share

HIROFUMI MATSUO, Nikkei senior staff writer

Ras Laffan Industrial City north of Doha, Qatar

TOKYO -- Qatar has lifted a self-imposed 12-year moratorium and resumed development of the world's largest single natural gas field, located in the Persian Gulf.

"Now is a good time to lift the moratorium," said Saad Sherida al-Kaabi, president and CEO of state-owned energy giant Qatar Petroleum, on April 3. The moratorium had been in place since 2005.

The company, which controls all the country's oil and gas activities, aims to produce the equivalent of 15 million tons of liquefied natural gas a year by the early 2020s.

Qatar has become the world's largest LNG supplier in just over a decade since it began exporting LNG in the 1990s. The commodity is the main reason for the small nation's large international presence.

However, the government had halted development of the massive North Field, citing the need to study the impact of rapid gas field development on reserves.

Infrastructure for producing LNG is already in place, with plants 60km north of the capital Doha boasting annual output capacity of 77 million tons, equivalent to a third of global total.

Tougher competition

With a supply glut in the LNG market expected to last until the early 2020s, many market experts predict that even after demand meets supply, prices will not reach previous highs.

So why Qatar's move?

"It's aimed at protecting market share," explained Makoto Nakamura, senior economist at JIME Center of the Institute of Energy Economics, Japan.

The LNG market has changed dramatically since Qatar shunned further development. Australia has been pushing expansion so aggressively its output is threatening to exceed Qatar's. Meanwhile, the U.S. has started flooding the market with LNG made of low-cost shale gas.

The stiffer competition and new players have prompted Qatar to increase short-term spot transactions and ease terms of purchase.

Now the focus will shift to Iran, which shares the same gas field. Referred to as South Pars in Iranian waters, development of the area had stalled due to international economic sanctions on Iran. With the lifting of sanctions last year, President Hassan Rouhani announced in April that the country will develop several South Pars sites.

French oil group Total is now negotiating a joint development project with Tehran for South Pars, causing worries in Doha.

High hopes

The day after Qatar announced restarting development, Gastech Japan 2017, one of the world's largest natural gas trade shows, opened near Tokyo. At the venue, Qatar Petroleum paid tribute to the 20-year relationship between Japan and Qatar in the LNG field.

Japan, now the world's biggest LNG consumer, had opened the way for Qatar becoming the leading LNG exporter, receiving the first shipment from the country at a Chubu Electric Power thermal power plant in January 1997.

Qatar has since leveraged its abundant reserves to raise its political and economic profile on the global stage. Nowhere is this more evident than in Doha, once a nondescript port city and now a modern metropolis noted for its distinctive skyline.

But despite Qatar's pinning high hopes on Japan for its future exports, a senior executive at Jera -- a joint venture for fuel procurement between Tokyo Electric Power Co. Holdings and Chubu Electric Power -- said that "new purchases will depend on favorable terms."

LNG, like oil, has become a marketable commodity, with buyers becoming more adept at negotiating the best possible deals. This means that, despite the warm feelings Doha holds for Chubu Electric, relying more heavily on Qatar may not be a good idea for the Japanese company.

The announcement of the resumption of North Field development dovetails nicely with Qatar's plan to export U.S. shale-gas LNG from a terminal in Texas. Production will begin in the early 2020s.

The move highlights Qatar's effort to secure supply sources abroad and meet buyers' terms -- such as quantity and period -- more flexibly than before. 

Chubu Electric Power Co., Inc.

Japan

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Tokyo Electric Power Co. Holdings, Inc.

Japan

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