IMF Confirms Qatar’s LNG Prospects

Liquefied natural gas (LNG) is one of the few areas of oil and gas industry to be experiencing growth. An analysis of Qatar’s LNG industry by the IMF reveals strengths in supply, reliability and long-term prospects. The announcement in late February that Qatar plans further expansion of production of liquefied natural gas (LNG) is a bold move. Production capacity, already confirmed to rise from 77 million tons per annum to 126 MTA, will now rise to 142 MTA by 2030, in total an 85% increase.

It comes at a time of falling LNG prices, during a transition to cleaner forms of energy. It is, however a move with strategic sense. LNG is viewed as a ‘transition’ fuel, during the global switch away from heavily polluting fuels towards more renewable and sustainable sources. Asia has a growing population and is still a heavy user of coal, so there is likely to be sustained demand for LNG as a transition fuel. Extraction of LNG in the North Field is comparatively low-cost, so Qatar is not dependent on high global prices. The latest expansion will require the construction of two new LNG trains – a ‘train’ is a manufacturing unit that produces the liquefied gas, ready for transport.

In the period 2010-2021, consumption of oil and coal fell between 2%-3%, while use of renewables rose 4% and natural gas consumption increased 3%. Moreover, an increasing proportion of the natural gas market is LNG. In 2022, the volume of LNG supplied surpassed that of pipeline gas, and could become 60% of the natural gas market by 2030. These statistics are included in an analysis of Qatar’s economy by the IMF, published on February 10, which includes a thorough appraisal of the country’s LNG industry. It charts some notable strengths, strong prospects, and remarkably few downsides in the country’s LNG sector.

As a supplier, QatarEnergy has established a track record of reliability, the IMF notes, helped by internal integration of supply, and investment in fleet expansion. Nakilat, Qatar’s natural gas transport company, manages the world’s largest specialist LNG fleet by capacity. It has confirmed contracts for an additional 25 specialized LNG carriers this year, and is projected to expand the fleet to over 100 carriers, with production slots booked at South Korean shipyards. Such internal integration helps mitigate effects of volatility on transport costs.

The country has a diversified customer base for LNG, the IMF reports, with its top five export markets in 2022 accounting for around 60% of exports, compared with around 80% for Russia and over 90% for Australia. Contracts are long-dated, and almost all exports are contractual, by contrast around half of the USA’s exports are spot deliveries. Qatar’s contract durations are around 20 years. Some 80% of Qatari active LNG export contracts with disclosed indexation are linked to the oil price.

In the past three years Qatar has signed new contracts worth just under 13mn tons per year. The report does note, however, that contracts due to expire in the period 2024-2034 cover around 6mn tons per year, however Qatar is on track to renegotiate these volumes as well as adding more. There are risks in the LNG industry, as there are in all industries. Use of renewables has edged up in recent years, but could accelerate with new technological breakthroughs and increased political pressure to move towards Net Zero. Recent geopolitical events have led to an increase in demand for LNG – for example, western European nations made a major strategic pivot away from Russian pipeline gas to be replaced by LNG following the invasion of Ukraine in February 2022.

Even in the less favorable scenarios, healthy demand for LNG is all-but guaranteed for the medium term, and likely for the long term. The IMF report notes that Qatar is investing in carbon capture technology to help offset emissions of greenhouse gases from the industry, helping ensure its role as a transition fuel. The timely investment in LNG development, along with the low cost of production, long-dated contracts, integrated export supply chain, carbon capture technology and diversified customer base mitigate market risks significantly. The challenge then becomes wise reinvestment of earnings. Elsewhere in the report, the IMF recommends investment in non-fossil fuel industries to help diversify the economy and the development of the private sector. This is also a strategic ambition of the Qatar National Vision 2030. The author is a Qatari banker, with many years of experience in the banking sector in senior positions.