Exporting energy

by  — 26 November 2012

With 79 million tonnes of liquefied natural gas (LNG) produced every year, Qatar is continuing to secure long-term and short-term supply deals in major markets, targeting both developed and emerging economies.


On September 12, the international press reported Qatargas was to supply more than 20 million tonnes of LNG to Japan in the short term to bolster the latter’s energy security after last year’s earthquake. Japan is the world’s largest buyer of LNG, and its imports have soared since the 2011 earthquake triggered the Fukushima nuclear disaster, leading the country to shut down all its nuclear plants. Qatar has been one of the main beneficiaries: official Japanese figures suggest that the Gulf state’s exports to Japan grew from less than US$10 billion (QR36 billion) in 2009 to US$21.6 billion (QR78 billion) in 2010 and US$30.05 billion (QR1 trillion) in 2011.

In June, Qatargas announced it had signed a long-term deal with Tokyo Electric Power Company (TEPCO) for LNG supply. TEPCO is Japan’s largest LNG buyer and was one of Qatargas’ first LNG customers. It will now double its purchases from Qatargas to two million tonnes per year. The Japanese deals reinforce Qatar’s position both as a reliable long-term supplier and as a provider with the capacity and technology to respond quickly to short-term needs.

CNOOC, the third-largest Chinese oil company and owner of the Zhejiang Ningbo terminal, buys two million tonnes per year from Qatar, while PetroChina, Asia’s largest oil and gas producer, receives three million tonnes. LNG exports to China may rise further in the coming years as the country’s energy needs intensify.
Qatargas, which has an annual LNG output capacity of around 42 million tonnes, currently exports to 21 countries, and the firm is looking to increase that number.
In April, India’s commerce ministry said it aimed to double its LNG imports from Qatar to 15 million tonnes over the next three to four years, as well as providing three million tonnes in short-term supply to address immediate energy needs. Likewise, in February South Korea signed a 20-year deal with Qatar’s RasGas – the second largest LNG producer in the world – for two million tonnes of supply per year.

The many export deals are the fruit of Qatar’s large-scale investments in LNG capacity over the past two decades. The long-term agreements also reflect an awareness that the global liquid gas sector may be in a transitional stage, with supply expected to increase substantially over the next eight years – by up to 250 million tonnes per year, according to the International Energy Agency.

This could bring prices down and remove their link with crude oil. Qatari producers usually prefer contracts that set prices according to those of crude oil, on an energy-equivalent formula. Australia and the United States (US) are both investing particularly heavily in LNG, with the US potentially being able to produce 45 million tonnes per year by 2020.

“The emergence of gas in other parts of the world is changing the global dynamics and landscape of the gas industry,” Marjo Louw, the country president of South African energy firm Sasol in Qatar, told OBG. “The US, for instance, stopped importing LNG and may become an exporter.”
Pricing structures may well change over the coming years, in which case Qatar’s long-term deals are wise forward-planning. But even if the link to crude does loosen, increases in capacity reflect an expectation for rising demand. Qatar, with its huge capacity, is well placed to meet that demand – as well as to provide emergency supply where and when needed.

Thomas Bacon is an analyst at Oxford Business Group.

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