Qatar LNG strategy: Lessons for Nigeria

LNG trade fell in 2012 after 30 years of consecutive growth. Global flows of liquefied natural gas (LNG) fell by 1.6 percent from 241.5 million tons in 2011 to 237.7 million tons in 2012.  However, by 2013, there was a negligible increase of about 1.2 million tons to 240 million tons. Supply remains stalled at pre-2012 levels. The contraction was largely driven by supply-side issues in Southeast Asia, domestic and political challenges in the Middle East and North Africa region.

The demand side of the industry continued to grow and diversify, particularly in Asia. Japan and Korea remain the world’s dominant LNG importers and accounted for 52 percent of the market, up 4 percent from 2011. Ten new re-gasification terminals started operating in 2013, while three new LNG importing markets emerged; Israel, Singapore and Malaysia. Imports to Asia increased again, albeit at a slower rate than in recent years with a rise of 11.4 million tonnes. Growth was concentrated in China and South Korea but the newer south-east Asia markets of Singapore, Malaysia, Thailand and Indonesia were also important, with volumes to those countries increasing in aggregate by 3.7 million tonnes. Demand also increased in Latin America, with Mexico and Brazil showing the third and fourth strongest year-on-year growth respectively.

The spot and short term LNG market reached 73.5 million tons in 2012, or 31 percent of total volumes. This is up from 65.1 MT in 2011. Qatar and Nigeria accounted for almost half of the spot exports. As a whole, Asian buyers made up 72 percent of spot LNG in 2012, but Japan, Korea, and India alone accounted for 61 percent.

Global LNG War

Qatar’s Ras Laffan industrial city is a 295-square-kilometer complex which houses the world’s largest assemblage of liquefied natural gas plants and the biggest port for LNG exports on the globe. The gas facilities within its grounds produce almost a third of the world’s LNG exports. It is no wonder then that Qatar remains the world’s largest liquefied natural gas (LNG) exporter but competitions are emerging. Other nations are challenging its LNG dominance.

Australia is constructing liquefaction plants that will more than triple its annual LNG-manufacturing capacity to 85 million tons by 2018, a target that will surpass Qatar. Houston-based Cheniere Energy and ConocoPhillips, Dominion Resources and Sempra Energy have all sought US Energy Department approval for 37 LNG export projects. Canada, Mozambique, Russia and Tanzania also plan new LNG export plants.

US LNG producers have signed contracts to supply Asian LNG buyers, including GAIL India, Korea Gas and Tokyo Electric Power at prices that undercut what Qatar is being paid. US exports are a particular challenge because in 2013 for instance, Japan bought LNG for an average of $16.06 per million BTUs whereas US gas futures over same period traded at an average of $3.73. Even with the cost of liquefaction, shipping to Asia and turning LNG back into gas which will add $6 to $8 per million BTUs to the price of the US gas, that would still be a bargain for Japanese and other Asian importers. 

China just signed a long term deal to buy natural gas from Russia. The agreement gives China, the world’s biggest energy consumer, greater leverage when negotiating LNG contracts because the additional Russian gas may cut prices. The agreement will provide 38 billion cubic meters of gas annually over 30 years via a yet-to-be-built pipeline to China. China increased imports of LNG jumped 27 percent in 2013 to 18.6 million metric tons, making it the world’s third-biggest importer behind Japan and South Korea.

Qatar fights back 

Qatar’s response to the growing LNG competition is to buy up the competition. Its foreign investment unit has purchased stakes in gas and oil fields in Brazil, Canada and the Republic of Congo since April 2013. It owns a 70 percent stake in Houston-based Golden Pass Products, a joint venture with Exxon Mobil that operates an LNG import terminal in Texas. Qatar Holding, the foreign investment arm of the sovereign wealth fund, has also taken stakes in Royal Dutch Shell and France’s Total SA, both of which operate LNG plants around the world.

But more strategically, Qatar is looking for long term export deals with new customers and working to extend existing contracts. Qatari LNG cargoes to Europe under medium or long-term contracts will rise by 22 percent in 2014, the largest increase since 2009. Under the new deals, Germany’s E.On will receive 1.5 million tons a year for five years from 2014, while the UK affiliate of Malaysia’s Petronas will receive 1.14 million tons a year for five years. In November 2013, Qatargas and Centrica signed a $4.4 billion deal to deliver up to 3 million tons a year of LNG to the UK until 2018, building on an agreement signed in 2011 that had expired in 2014. Qatar has also opened up a series of new export channels over the last five years, supplying fellow Gulf states UAE and Kuwait, Argentina, Brazil and Chile while exploring new buyers in Eastern Europe – Croatia and Bulgaria – and India, Pakistan and Turkey.

The Qatari government has put a moratorium on further development of the North Field so it can assess ways to maintain output levels and has suspended construction of new LNG plants. The moratorium on new gas export projects is set to remain in place until at least the end of 2014. They believe that restricting new LNG capacity would help protect the value of Qatar’s existing contracts, some of which expire within the next 10 years and will be subject to price negotiations. Thus, new gas reserves are most likely intended to supply feedstock for the domestic petrochemicals industries, rather than new LNG plants.

Lessons for Nigeria

Nigeria’s share in global LNG market under the emerging circumstances is being threatened by a seeming lack of drive to push through existing investments in LNG projects within the country. The delay in achieving the Final Investment Decisions (FID) on key LNG projects such as Brass LNG, OKLNG and NLNG Train 7 will further add to the country’s loss of key LNG export portfolios.

The bullish approach of the Qataris is lacking. Nigeria’s state-run oil company, Nigerian National Petroleum Corporation has not shown the appetite that it can be a commercially-viable enterprise and compete with other NOCs and IOCs over hydrocarbon projects within the country and across the globe. Given Nigeria’s leading role in LNG production in Africa, the country should have thought of investing in Mozambique and other parts of Africa with LNG potential.

The continued delay in the passage of the much awaited Petroleum Industry Bill (PIB) remains an albatross in the oil and gas sector.

Frank Uzuegbunam