Qatar’s investment in E&P, new liquefaction and LNG newbuilds are part of its strategy to own and control the entire LNG supply chain, write Dr Adel Elomri and Dr Brenno Menezes
Acknowledged as a low carbon intensive fossil fuel, natural gas is a cleaner, environmentally friendly and sustainable option for the energy transition that reduces the use of high carbon intensive fossil fuels, such as coal and crude-oil distillates. As a result, the global market for natural gas should expand by around 45% over the next 20 years with demand for LNG growing by more than 2.5 times within the same period, according to ExxonMobil’s Outlook for Energy (2017).
Natural gas is also ideal for increasing energy efficiency on the basis that energy release per mass during natural gas combustion is the highest among fuels (fossil- and biomass-based). Moreover, the amount of energy produced from renewables cannot supply global demands for a complete replacement of fossil fuels.
Accordingly, the LNG market is becoming highly competitive with more than 20 countries already supplying customers around the world. Major suppliers currently include Qatar, Australia, Malaysia, Russia, United States, Nigeria, Indonesia, Algeria, and Egypt, to name but a few. Increased capital expenditure in the sector is coming and new LNG players are expected to enter the market in the years ahead. These include countries around the eastern Mediterranean. The United States Geological Survey estimates that the Levant Basin involving Cyprus, Egypt, Israel, Lebanon, Palestine, and Turkey contains 122.4 trillion cubic feet (tcf) of technically recoverable gas.
In such a competitive environment, Qatar managed to maintain its position as the largest LNG exporter in the world at 77.8M tonnes in 2019 and is massively investing to preserve its role as the main global player. Qatar’s future strategies not only include expanding production capabilities by around 64% by 2027 to reach 126 mta, but also its shipping capabilities through investing in a new fleet of LNG carriers.
For instance, Qatar Petroleum announced in June the signing of the largest LNG shipbuilding agreement in history, securing more than 100 ships valued in excess of QR70Bn (US$19Bn) to cater for its LNG growth plans. Additionally, Nakilat, the shipping arm of Qatar Petroleum, will significantly increase its current 15% share of the global LNG fleet-carrying capacity, remaining one of the largest owners of LNG carriers in the world for the coming decades.
This strategic investment will propel Qatar from being the world’s largest LNG exporter and producer to a globally recognised champion of LNG supply chains. An LNG supply chain commonly consists of three main links: exploration and production; treatment and liquefaction; and shipping and distribution. Expanding shipping capabilities will definitely strengthen the third link of Qatar’s LNG supply chain, with the first two links already very well established.
By owning and controlling the whole LNG supply chain, Qatar has acquired a significant competitive advantage, and moved further ahead of the competition in the LNG market. For instance, by owning independent shipping capabilities on top of well-established production and liquefaction facilities, Qatar will be better prepared and ready to respond to future unexpected risk events. Crucially, the country will also be able to recover quickly from any potential disruptions.
Accordingly, Qatar is building one of the most effective and resilient LNG supply chains in the world. The resilience of the country’s LNG supply chains will also increase international buyers’ trust and confidence in Qatar as a reliable LNG exporter. This reputation will in turn consolidate Qatar’s actual portfolio and help earn new market share. Being seen as a reliable supplier is extremely important in a business environment driven by oil-indexed long-term contracts of 15-25 years. Moreover, being the largest owner of LNG carriers in the world will provide Qatar with a huge competitive advantage in the spot and short-term markets. For instance, the LNG market was traditionally dominated by long-term contracts covering 20-25 years. However, thanks to the emergence of new suppliers and consumers, spot market purchases of LNG have also become a common practice. Indeed, spot and short-term LNG trades made up 32% of overall import volumes in 2018 and are expected to rise over the coming years.
To sum up, by expanding its LNG shipping capabilities on top of its well-established production and liquefaction facilities, Qatar is building a holistic, efficient and resilient LNG supply chain. This will provide the country with a unique and significant competitive advantage in a highly competitive LNG business landscape.
Dr Adel Elomri and Dr Brenno Menezes are Assistant Professors at the College of Science and Engineering, Hamad Bin Khalifa University