Qatar’s Massive “Business Case” for LNG Will Bring Energy Dominance – and Lots of Cash – Canadian Energy News, Top Headlines, Commentaries, Features & Events – EnergyNow

With a two-phase mega-expansion already underway and an enormous new buildout now on the horizon, the small Gulf nation of Qatar is setting itself up to control about a quarter of all liquefied natural gas by the end of the decade — and with it, a growing share of the world’s influence and wealth.

Qatar’s energy minister Saad Al-Kaabi unveiled last Sunday plans to boost capacity another 13% on top of its previously announced projects, together lifting the nation’s output of LNG from 77 million metric tons per year today to 142 million tons by 2030. That puts the peninsula with fewer residents than the state of Mississippi on track to produce the equivalent of about 7.25 million barrels of oil per day. Most of that will be exported, essentially matching the oil shipments from the region’s reigning energy giant, Saudi Arabia.

And it might not stop there.

“We are going to keep appraising. If there is more that’s available to produce, we will be producing more,” Al-Kaabi said at the press conference broadcasting the news. The only thing that would stop Qatar from expanding further is if it no longer sees the demand for it, he said. “We believe there’s a huge market available there.”

As Qatar grows its LNG exports, the country that already has one of the highest GDPs per capita will be raking in even more cash. Hydrocarbons including LNG accounted for around 44% of Qatar’s gross domestic product in 2022, estimates Moody’s Investors Service. Once it’s all online, the additional supply will increase annual revenue by about $31 billion, according to Bloomberg calculations based on prices of recent long-term contracts that assume oil at around $80 a barrel. In an interview with Bloomberg News, Al-Kaabi confirmed that the new revenue will be in the tens of billions of dollars range, without giving an exact amount.

In short, the expansion will help make one of the richest nations much richer.

“We’re a country that’s an exporter of gas. We have no other revenue really,” Al-Kaabi said in the interview. “We need to make sure that our kids and their kids are in better shape hopefully than even people today.”

Fifty years ago, Qatar was largely seen as a fossil-fuel backwater compared with its Persian Gulf neighbors Kuwait, Saudi Arabia and the United Arab Emirates. Qatar’s North Field, part of the world’s largest gas reservoir, was discovered in 1971, but producers were more interested in finding oil at the time. So little was done to develop the gas field until the country completed its first LNG export facility in 1996.

Now, Qatar’s even larger-than-expected plans for LNG will cement its standing for decades to come in the fastest growing fossil fuel market. Countries moving away from oil or coal but struggling to go all in on renewables are seeking alternatives, and Qatar’s long-term contracts will lock them into supplies of LNG well past 2050. Roughly 20 countries from India to Italy have already inked long-term deals to buy seaborne gas from state-owned QatarEnergy, with more customers likely to emerge.

“Qatar is strategically looking at the long term to grow its own market share and to encourage a growth in global gas demand,” said Steven Wright, an associate professor at Hamad Bin Khalifa University in Qatar. “As a state energy company and the biggest global player in LNG, its calculations can afford to be longer term.”

Although Qatar is betting tens of billions of dollars that natural gas will be the last major fuel market standing amid the energy transition, others say the outlook isn’t so rosy. The International Energy Agency expects gas demand to peak in all forecast scenarios by 2030; even global energy giant Shell Plc said gas consumption is already past its highs in some markets including Europe and Japan, based on its interpretation of Wood Mackenzie data. Ongoing attacks by Houthi militants on vessels transiting the Red Sea in retaliation for Israel’s war in the Gaza Strip also risk jeopardizing the region’s exports.

Likewise, Qatar only reaps that expected windfall if it can successfully sell its expanded capacity. Unlike US LNG projects, which don’t break ground until they’ve lined up customers for 10 years or longer, Qatar has been funding its buildout without full assurances the demand will materialize. For much of 2023, Qatar’s new contracts lagged sales out of the US, a trend some attributed to its inflexible contract terms, including large volumes, long time frames and strict delivery rules. Toward the end of 2023, however, customers reemerged. Qatar signed the most deals among suppliers in the fourth quarter, BloombergNEF data show, outselling the US for the first time since early 2021.

“Customers want a certain thing from Qatar, which is typically large volumes, highly predictable,” said Meg O’Neill, chief executive officer of Woodside Energy Group Ltd., the biggest Australian LNG exporter.

The recent US decision to pause the approval of new export permits for LNG facilities amid a backlash from climate-minded voters has also made Qatar look increasingly attractive from a security of supply standpoint. The halt, which hinges on the outcome of the next US election, won’t affect any plants already under construction or in operation but threatens to delay some of the big US projects expected to hit the market toward the end of the decade and beyond.

“That’s a bonanza for a big gas producer like Qatar,” Bob McNally, president of Rapidan Energy Group and a former White House official, said of the US policy move.

The LNG expansion is expected to be well insulated from future energy price shocks. The breakeven oil price of Qatar’s economy is already the lowest in the Middle East, and it could reach $40 per barrel by 2026, Fitch Ratings Inc. said last year. Any further expansion of exports could bring that down even more. That’s a far shot from Saudi Arabia’s required $80 or more. And the more capacity Qatar brings on, the more it could limit future growth from other producers. Even if Qatar floods the market and LNG prices come sharply down, the well-funded company can afford to sweat it out longer than many of its rivals.

Qatar’s expanded role in the world energy trade will allow it to wield greater geopolitical power from Beijing to New Delhi, in addition to the wider Middle East. Host of the 2022 soccer World Cup and self-styled global negotiator, Qatar insists it doesn’t use its gas resources to push a political agenda. Still, “more hydrocarbon revenue means more leverage for Qatar as a diplomatic player and as an external investor,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies.

The war in Gaza thrust Qatar to the forefront of regional geopolitics because it hosts many political leaders of Hamas, designated a terrorist organization by the US. Still, Washington has praised Qatar for being a key mediator between Israel and Hamas and helping get some hostages held by the group in Gaza released.

New LNG earnings will primarily be funneled into the Qatar Investment Authority, or QIA, the nation’s sovereign wealth fund. It’s a common playbook for oil-rich Gulf monarchies, including Saudi Arabia and the UAE: By investing heavily in fossil fuels and then using that revenue to fund other ventures, countries build the investments they’ll need to protect themselves from a world that going forward doesn’t need those products as much — or at all.

In the last few years, Qatar has focused many of its investments in technology and health-care opportunities abroad. Nearly four out of five of Qatar’s investments in the last year were in the US or India — two key allies in both the energy and political arena. Al-Kaabi said the fund will be focused on having a diverse portfolio for steady growth over the long term, without divulging details.

The Emir of Qatar, Sheikh Tamim Bin Hamad Al Thani, “always wants to make sure that the Qatari people are well taken care of, but also thinking about the next generation and making sure that through QIA we are putting enough investments for the future generations and building the wealth of future generations,” said Al-Kaabi, who also sits on the board of the fund. “There will be a lot of exciting things outside the country.”

Because Qatar’s economy depends so much on selling LNG, Al-Kaabi often takes a personal approach to contract negotiations. He’s been known to fly into India to iron out last-minute details of a contract or hold one-on-one meetings with European energy majors. When the 2011 Fukushima nuclear disaster forced Japan to shut its reactors, Qatar came to the rescue with additional gas deliveries. When the Covid pandemic dashed Indian LNG demand in 2020, Qatar allowed the nation to reschedule shipments — no questions asked.

Compared to when Qatar first began exporting LNG in the 1990s, it now faces much more competition for the super-chilled fuel, especially from the likes of US and Australian suppliers, as well as newcomers in Africa. Although QatarEnergy is by far the largest single company exporting LNG, the US as a whole is still a bigger player in the industry, given its multiple LNG operators sourcing gas from US shale basins, including from the prolific Permian. QatarEnergy itself is the majority owner of a US terminal, Golden Pass LNG, which was originally built to import LNG and now is undergoing an expansion to export it instead.

Amid the rising competition, Qatar is leaning into its reputation as a reliable — if unusually demanding — supplier, in hopes that its unique model wins over customers in the long term.

For the last 20 years of importing from Qatar, “they have not defaulted a single cargo despite so much volatility,” said Akshay Kumar Singh, the head of Petronet LNG Ltd., India’s top LNG buyer. “Not a single cargo.” Petronet renewed its contract with Qatar in February with better prices.

“You build your reputation over decades and can lose it over a cargo,” said Al-Kaabi. “Credibility goes a long way.”