LNG powerhouse Qatar is pushing its massive export facilities at beyond capacity production levels as it moves to protect market share from Australia and other upstarts amid low prices, in a move analysts have described as similar to Saudi Arabia’s tactics in oil.
The increased output comes as Qatar, the world’s biggest LNG producer, revealed it would pursue a strategy to maintain its share of global production amid low prices. Last year, it renegotiated a key Indian contract that had left the buyer severely out of the money.
Analysts say the moves could further hit prices and Australian LNG projects struggling to ramp up in the low-priced environment, which recently caused Santos to announce it would hold back production from its Gladstone plant.
Qatar’s mantle as the world’s biggest LNG producer is under threat from $200 billion of new Australian projects approved over the past decade.
The investment is bringing on a wave of supply that has overtaken demand growth and is hitting prices that are already much lower than expected when the projects were committed to.
But instead of easing off production of uncontracted LNG, Qatar appears to be following a similar strategy to that of Saudi Arabia in oil by running full tilt.
Credit Suisse analysts say Qatar has the lowest cash costs in the world.
“Qatar again ran at over 100 per cent capacity in 2015, and has been talking in 2016 about considering ‘innovative marketing strategies to protect its market share’,” Credit Suisse co-head of global oil and gas research, David Hewitt, told The Australian.
“If that were to translate to lower prices to secure volume in the spot market, it would put additional pressure on other suppliers, including Australian projects, into the already fragile spot market.”
In the sheikdom’s latest economic outlook, released in June, Qatar revealed concerns about new LNG market entrants that was not visible in its previous reports.
“In a context of surplus shipping capacity and a looming glut in global LNG supplies, Qatar intends to consider and follow innovative marketing policies to protect its market share,” the country’s Ministry of Development Planning and Statistics said.
Neither the Ministry nor Qatar gas responded to requests from The Australian for more details on the policies.
Last year, Qatar exported a record 106.4 billion cubic metres of gas as LNG (77.1 million tonnes), stretching production beyond its capacity of 77 million tonnes.
According to the Platts news service, Qatar’s 2016 first-half production for this year was 3 per cent higher than for the same period last year
, indicating this year could see another record.
Credit Suisse, citing industry sources, says only about 60 million tonnes of Qatar’s annual exports are contracted.
“It could clear the potential excess from 2018 onwards on its own,” the bank says of the coming global oversupply.
“That, however, looks unlikely, as Qatar has the lowest cash costs and could pursue the more recent policy of Saudi Arabia for oil.”
On top of producing flat out, Qatar’s state-owned RasGas last year agreed to cut the price of a contract with India’s Petronet LNG to $US6 to $US7 per MMBtu, up to 50 per cent lower than the $US12 to $US13 agreed earlier, according to Reuters news agency. Qatar also waived a $US1.5bn penalty for taking less LNG than agreed.
Wood Mackenzie analyst Saul Kavonic said the Petronet deal highlighted the risk that LNG contracts would need to be renegotiated, especially if oil prices (which LNG contracts are linked to) rose while spot LNG stayed low.
“If you see it with India, that’s one thing, but if you start to see it with the more traditional buyers, like Japan, South Korea, or even China, that could be more meaningful,” Mr Kavonic said.
“It’s a big risk out there in the market that is keeping some of the big LNG players awake at night.”
Australia produced about 25 million tonnes of LNG last year but is forecast to increase production to 85 million tonnes by the end of the decade as projects approved during the boom continue to ramp up.
While the returns will be low after development cost blowouts and lower-than-expected prices, most should generate cash at current spot prices of $US5 per MMBtu because of low operating costs.
The Santos-run Gladstone LNG project and Shell’s Queensland Curtis LNG projects are two of the higher-cost plants, with Credit Suisse-estimated cash costs of $US7.50 to $US8 per MMBtu.http://www.theaustralian.com.au/business/mining-energy/lng-players-under-pump-as-qatar-goes-all-out-to-lift-output/news-story/da0b8054299532c0a0f89ad9c80765f9