SURVIVING A SHALE-FUL FUTURE

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By VL SRINIVASAN

Even as the United States (US) prepares for a big push towards increasing shale production, this spurt in LNG exports is unlikely to hurt Qatar.

Even as Donald J Trump assumed office as the 45th President of the US, his aides posted “An America First Energy Plan”on the website of White House making it amply clear that exploring unconventional energy resources in the country topped his list of priorities.

For too long, the US was held back by burdensome regulations on the domestic energy industry and the new President was committed to eliminate harmful and unnecessary policies. Lifting these restrictions will greatly help American workers, increasing wages by more than $30 billion over the next seven years, the statement said. “The Trump administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own,” the statement added.

In other words, the new government wants to step up shale gas production and enter the global gas markets and this has created a flutter among major gas exporting countries such as Qatar, Australia, Iran and Russia. Among them, Qatar should be more concerned as it has been the world’s largest exporter of liquefied natural gas (LNG), 77.8 million tons per annum (MTPA), accounting for nearly one third of global exports, for the last six years. The International Gas Union has put the total volume of the LNG traded globally at 244.8 MTPA in 2015.

Donald Trump’s pro-independent energy policies is also expected to clear the long-pending proposals of domestic and global companies to increase shale oil and gas production and huge investments are likely to be seen in the country’s oil and gas sector soon.

While the US Energy Information Administration (EIA) estimates that the country has about 200 trillion cubic feet of proved shale gas resources, the World Shale Resource Assessments report of September 2015 claim that the US has around 623 trillion cubic feet of additional unproved technically recoverable shale gas resources.

New markets enthuses US

One of the major reasons for Trump’s decision to increase shale output is the opening of the $5.25 billion new Panama Canallinking the Atlantic and Pacific regions. The new canal, which was opened in June 2016, has more than doubled the capacity of ships (from 5,000 TEUs to around 14,000 TEUs) andis expected to help the American oil and gas firms save nearly a fortnight in time and also one third of cost in transporting theirLNG to new markets in South America, Asia and the Far East.

Another reason cited is that Trump wants more investments in the oil and gas sector, which has seen thousands of oil companies shutting down their operations following a drastic fall in crude oil prices from $124 per barrel in mid-2014 to below $20 in 2016. The companies investing in the oil and gas sector can now look at Latin America, Asia and Europe as the new markets to sell their output for handsome returns on their investments provided the LNG prices remain stable or look upwards in the coming years.

According to Platts Analytics forecast, LNG production in Asia is set to increase to 127 MTPA in 2017, up 16% on 2016, led by increased capacity in Australia, while commissioning of the world’s first floating LNG plant in Malaysia heralds new global opportunities for LNG production.

“Nevertheless, Asia will continue to be a net LNG importer as demand across the region is expected to grow 6% to 195 MTPA in 2017. While demand in the large, mature Japanese and Korean markets is likely to remain flat, energy-hungry nations such as China and India are expected to boost their imports of LNG by 28% and 38% respectively,” the forecast said.

Russia and China have already entered into an agreement in 2014 to lay a huge gas pipeline linking Western Siberia to North-Western China and supply 38 billion cubic metres of gas every year for 30 years. The project will be commissioned by end of the decade.

Qatar cements LNG supplies in Asia

Australia has invested around $200 billion in its existing and new LNG production facilities and its export capacity is likely to be around 106 billion cubic metres (BCM) per year by end of the decade. It is also expected to overtake Qatar as the largest LNG exporter by 2020 while the US is not far behind and may end up as the third largest producer around same time.

As far as Qatar is concerned, the government is confident of retaining its market share despite the entry of the US shale gas in the global gas markets in the coming years as it has already tied up with new customers in South Asia like Pakistan by signing a 15-year deal, re-worked the LNG export deal with India and also looking at supplying more LNG to Bangladesh and Sri Lanka respectively.

Post Fukushima tragedy in 2011, Japan has shut down its nuclear power plants and increased LNG imports from Qatar for power generation while Korean gas major KOGAS has entered into a 20-year deal with Qatar for LNG supplies five years ago.

If Qatar’s plans to lay a pipeline to Europe via Saudi Arabia, Syria and Turkey, which has been hanging fire for the last six years due to unrest in the region, materialises in the near future, it will continue its position as the world’s largest LNG exporter for years to come.

“While huge amount of gas is coming to the market, the demand is also growing more than for any other fossil fuel and the trend will continue for a long time.”

Minister of Energy, HE Dr Mohammed Saleh AlSada

Minister of Energy HE Dr Mohammed Saleh AlSada re-asserts that his country was not worried about the recent developments in the LNG markets. “While huge amount of gas is coming to the market, the demand is also growing more than for any other fossil fuel and the trend will continue for a long time,” he says.

In its latest report released on January 17 this year, the Doha-based Gas Exporting Countries Federation (GECF) said that the global gas demand was expected to grow faster than primary energy demand between 2015 and 2040, the bulk of which coming from Asia, North America and Middle East, while an additional annual 100 MTPA of LNG was expected to come on stream by 2017-18. Primary energy demand was set to expand 30%, while gas demand would increase by 50% to 5,200 BCM in the said period, the report said.

“Natural gas would be the largest contributor to the increase in total primary energy consumption with a share of 40%, followed by non-hydro renewables (30%) over the review period,” the report, based on the energy reserves in over 130 countries, says.

US-Qatar LNG ties

It is not that Qatar is immune to the changing dynamics of global LNG markets and likely to face a diminished market share and the possibility of prices going down further in the long run.

But Qatar’s confidence stems from the fact that it enjoys a cozy relationship with the new US Secretary of State Rex Tillerson, who was former chairman and CEO of ExxonMobil.

ExxonMobil Qatar participates in 12 of 14 LNG trains of Qatar and along with state-owned Qatar Petroleum (QP) exports over 60 million tonnes of LNG per year through the Qatargas and RasGas joint ventures.

The Qatar Petroleum International (QPI), the investment arm of QP, is also working with ExxonMobil to formed a joint venture company Golden Pass LNG Projects in the US and the Federal Energy Regulatory Commission (FERC) has approved the joint venture’s proposal to build a $10 billion Golden Pass natural gas export plant in Sabine Pass, Texas, in December last year.

The project will be completed in five years and would export up to 15.6 million metric tonnes of LNG per year that will be processed in three liquefication units or trains, each capable of producing 5.2 million metric tonnes a year.

Qatar’s rise in the global LNG markets since 2011 was due to the partnership between QP and ExxonMobil and the latter was instrumental in the tiny Gulf state’s gigantic growth as the world’s largest supplier of LNG. Other US energy firms like ConocoPhillips and Chevron Phillips are also working in Qatar.

No impact, says expert

“The cost LNG production in Qatar, which has the third largest proven natural gas reserves (around 900 trillion cubic feet) after Russia and Iran in the world, is less compared with its competitors and it has already developed infrastructure like LNG production facilities, own a fleet of ships to transport gas and has established a network of world-wide marketing operations.”

 

Dr Mamdouh G Salameh, Energy expert and international oil economist

Energy expert and international oil economist Dr Mamdouh G Salameh says that the US LNG exports will not affect Qatar’s position in in the global gas markets in the foreseeable future. However, the real threat to Qatar’s position comes from Australia in the Asia-pacific region but even that will also depend on Australia’s continued investments in the sector.

“The cost LNG production in Qatar, which has the third largest proven natural gas reserves (around 900 trillion cubic feet) after Russia and Iran in the world, is less compared with its competitors and it has already developed infrastructure like LNG production facilities, own a fleet of ships to transport gas and has established a network of world-wide marketing operations,” he says. With these measures, there is no exposure to rising costs or overruns and Qatar can withstand the price fluctuations in the markets.

He also pointed out that in the context of prevailing low energy prices, the cost of shipping LNG from the US to Europe or Asia is prohibitively expensive. Moreover, the US LNG exports in future will face stiff competition from leading exporters in the world.

Dr Salameh feels that Qatar also need not reduce its LNG prices to defend its market share as the global demand for natural gas was projected to accelerate faster than any other energy source including oil, coal and nuclear energy according to ExxonMobil’s energy outlook to 2040.

“Moreover, most global gas contracts are based on oil-indexed prices. Once oil prices rally, the gas prices are expected to rise as well bolstered by strong global demand,” he says.

The entry of US shale gas in the world markets will help create an LNG price ceiling globally akin to shale oil creating a price ceiling for OPEC oil. It will also provide tough competition for anyone hoping to build new LNG plants like in East Africa, Canada or Russia, he adds.