Qatar slows North Field progress

Samuel Ciszuk of IHS Global Insight reviews the implications of Qatar's force majeure

Qatar has leapt into pole position as the largest LNG exporter in recent years.
Qatar has leapt into pole position as the largest LNG exporter in recent years.

Qatargas has declared force majeure on LNG shipments from its Qatargas I venture, which includes three liquefaction trains, reports IHS Global Insight. None has been in operation since 8 January because of a mechanical failure.

News about the major shut-in—taking one third of Qatar’s installed LNG production capacity off the market—only started to break late on 14 January, with little official comment given up to this point.

The tight-lipped approach immediately raised fears that LNG availability on the global spot markets would shrink significantly, at a time when a large portion of Russian gas exports to Europe were shut in a result of its dispute with Ukraine.

These fears could have since been largely dispelled, however, with Qatargas I’s clients saying domestic demand had slipped significantly due to the current recession, leaving them with high inventories to tap should the shut-in be prolonged.

With Asian demand falling rapidly, broadly similar trends should be visible in Europe, while also to some extent compensating for the Qatari shortfall on the world markets.

Looking ahead, Qatar is more likely to disappoint significantly with its unwillingness to consider further development of its huge gas deposits for yet some time.

The Gulf region is suffering an increasing gas crunch—and while all Qatar’s GCC neighbours are having a hard time bringing sufficient gas reserves to meet domestic demand onstream, and Iran is failing in its plans to develop a sufficiently large gas production capacity to feed export ventures, Qatar has been taking a rest in the planning of further ventures.

The swift development of the LNG and pipeline projects it has onstream and is currently building has not been followed by further plans, as the emirate undertakes a thorough survey of its giant North Field in order to assess the impact of the rapid development.

The vastness of the North Field had always led Qatar and others to regard its current plans as a first phase, with significant scope to launch other LNG or pipeline export projects later on.

Nevertheless Qatar has been moving in a different direction over recent years, recognising that the 77-million-t/y LNG export capacity it will have installed by 2011 - it is already the world’s largest exporter with its current installed capacity of 30 million t/y - will already have given it a disproportionate market share to other producers, potentially causing it future global market-managing headaches.

Hence Qatar has been dragging its feet with the survey, using it as an excuse not to consider further projects. Such a strategy serves it well as it can deflect the issue, pointing to a technicality, when it comes under increasing pressure from neighbours.

Initially the survey was said to be ready by 2010, but this was later extended to 2011. Without official comment forthcoming, however, IHS Global Insight has started to consider the possibility of an extension to 2012 as a very real one - a position more than vindicated this week as Qatari Energy Minister Abdullah al-Attiyah told Dow Jones that the survey would not be finished before 2013, adding “we’re not in a hurry”.

Implications
It is likely that Qatar’s prolongation of the North Field survey is driven by what it sees as a saturation of markets for some time and unwillingness to have too-dominant a market position - it is already the largest LNG exporter by far. This is a wise policy for a small country that has to balance a host of neighbours and interests.

The main losers here, however, will be those of its neighbours, notably the UAE, Bahrain, and Kuwait, which have all been seeking additional gas imports to alleviate their domestic shortages and lack of sufficient reserves.
 

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