Qatar eyes LNG top spot as it primes 64% output boost

On 25 November, Qatar Petroleum (QP) announced that it will boost output from Qatar LNG by 64% - from 77 million tonnes per annum (tpa) at present to 126 million tpa by 2027 – following a successful appraisal of the North Field’s onshore extension, near Ras Laffan Industrial City.

Liam Kelleher, from  Wood Mackenzie’s gas and LNG team said: “QP had already been targeting an increase to 110 million tpa, via the four 8 million tpa megatrains at the North Field Expansion (NFE) project.

"This latest announcement will add a further two 8 million tpa trains to the development.”

The decision follows successful well tests confirming the productivity of the North Field’s onshore extension.

QP announced an increase in the recoverable resources of the North Field to 1760 trillion cubic feet (cf), a significant increase from the previously stated 900 illion cf.

Capacity boost

However, the stated resource increase follows years of further reservoir re-evaluation of the wider field during the moratorium, rather than just the onshore additions.

Kelleher said: “The increase in the capacity of its NFE project is a bold move by QP. After a record year for project sanctions in 2019 (63 million tpa year to date), and with 2020 set to be of a similar scale, the LNG market looks well supplied from the mid-2020s.

“But as Qatar is the lowest-cost LNG producer globally, it can withstand lower prices for longer than any of its competitors. While the resource upgrade might justify the expansion, our view is that the push to capture market share, coupled with the increasing speed of the energy transition, are key motivating factors.

“The resource upgrade could help lower upstream costs, which are already low. We estimate the brownfield LNG plant unit costs at $560/tonne, the lowest of all pre-FID projects globally.

“QP indicated that it is looking to start engineering studies immediately. The project’s capacity growth throws up questions on the timing of project sanction.

New challenges

"QP had targeted award of the engineering, procurement and construction contract for the previously proposed 32 million tpa expansion by the first quarter of next year.

“However, the upstream component an onshore development is an entirely different engineering proposition from the repeat design of the eight offshore platforms. A large development in the region of the industrial city would bring new challenges.

"QP may choose to sanction the already designed 32 million tpa in 2020, with the additional 16 million tpa sanctioned in 2021/2022, following completion of engineering studies.”

He added: “The change in project scope also raises further questions on QP's relationship with potential partners.

Confidence

"QP had stated that partner selection would also be announced the first quarter of 2020, if indeed at all.

"With the ability to self-finance the development and confidence in its own technical capabilities, QP has questioned the need for partners in the NFE expansion.

“An additional 16 million tpa in the market by 2027 will put LNG prices under pressure. And with some of the main contenders for partner selection increasingly exposed to LNG prices, eyebrows will be raised at the announcement.

Going global

“Yet with the bidders hoping to win favour ahead of partner announcement, QP has rapidly built a major global footprint by partnering with them in upstream acreage abroad. 

"The prospective partners have been key to QP’s international expansion efforts after Qatar left OPEC. QP may look to use the additional trains as leverage to secure an even greater global footprint as it seeks to internationalise.

“By increasing its LNG capacity sooner rather than later, QP will accelerate the development of its resources. It will also push to maintain market share and retake its position as the world’s number one LNG producer.

“Australia has already overtaken Qatar in 2019 to secure top spot, but the US is rapidly moving towards number one.

"The expanded development will allow Qatar to not only keep pace with US expansion but make US LNG producers question the need for further developments.

"QP had already limited the space for US LNG competitors when it took FID on Golden Pass in February 2019, with partner ExxonMobil stating that exports will start in 2024.”