Qatar’s ability to maintain its global ranking in producing and exporting liquefied natural gas (LNG) is currently being questioned, especially amid the ongoing changes whether on the industrial level, or on the geopolitical level.
The transformations in the global liquefaction industry, particularly technological development, contributed to improving the efficiency of the industry’s productivity and greatly decreased the costs of setting up liquefaction facilities. This tempted several countries to invest in this field, which came at Qatar’s expense. On the geopolitical level, the current crisis between Qatar and the Quartet countries, is one of the most significant developments, which represents a challenge to Qatar’s role in producing liquefied gas. The crisis, thus, pressures Qatar’s capabilities to secure the required foreign investments to maintain its status within the industry. The crisis further tempted Qatar’s rivals to expand their investments to take away from Doha’s share in the global market.
Reality vs. Ambition
According to 2016 statistics, Qatar has the world's third-largest natural gas reserve, after Russia and Iran. It has 858.1 trillion cubic feet, equal to 13 percent of the world's total gas reserves. In terms of gas production, Qatar is the world’s fourth largest producer after the US, Russia and Iran, as it produces 17.5 billion cubic feet daily, which amounts to 5.1 percent of global production.
What significantly distinguishes Qatar is that it is among the top producers and exporters of LNG. Its share was 22.7 percent of the global liquefaction production, which amounts to 339.7 million tons a year. Out of the global liquefied natural gas trade, which reached 258 million tons, Qatar exported 77.2 million tons, estimated to be 30 percent. Qatar’s significance enhanced after the LNG industry witnessed quick growth that reached 6 percent between 2010 and 2014 and increased to around 10 percent between 2015 and 2016. This helped increase the relative weight of liquefied gas as part of the total natural gas consumed globally covering around a quarter of the world’s energy needs.
Qatar, for years, has adopted a national strategy to defend the national gas sector. It’s called “Qatar’s Gas Strategy.” The Business Monitor International expected this strategy to contribute to the increase of Qatari gas production to reach at 190 billion cubic meters a year, as of 2018. Moreover, around two weeks after the Qatar crisis erupted, Saad al-Kaabi, the CEO of Qatar Petroleum, announced Qatar’s intention to raise its production of liquefied gas by 30 percent to reach 100 million tons by 2024, aiming to be ranked as the world’s first liquefied gas producer.
Challenging the Crisis
In the past phase, there have been indicators that Qatar began to worry of the Gulf crisis’ possible repercussions on its national liquefied gas industry. This was clear during the statements which Saad al-Kaabi made when he announced his country’s intention to increase its production of liquefied gas. He said: “The project to increase production will be carried out in cooperation with international companies. If Saudi Arabia and its allies exert pressures to prevent this partnership, Qatar will increase the production on its own. If no companies are willing to work with us, we will reach the target of 100 million tons.”
These statements indicate the Qatari government’s worry that the Gulf crisis may make foreign companies reluctant about becoming its partners. This cannot be ruled out in the near future especially if the Gulf crisis expands and the boycotting countries impose new sanctions on Qatar thus making partnerships complicated and costly.
If this happens, it will be tantamount to a strong relapse to Qatar’s production of liquefied gas as the Qatari government will find itself alone while bearing the responsibility of funding projects to develop the liquefied gas industry at a time when it’s already suffering from lack of liquidity as a result of the current crisis. The situation will be more difficult considering that the government will also be responsible for providing the technical and technological support required to develop the national liquefied gas production. This is currently the task of foreign companies; however, the latter’s exit will prohibit Qatar from the chance to keep up with the ongoing technological development in the global liquefied gas production. The technology which Qatar uses will thus not be up to date and it will gradually become useless on the economic level.
Mounting Regional Competition
Qatar’s competitors, whether from neighboring countries or across the globe, have waited for opportunities to compete against it in the LNG industry. The past phase witnessed several developments that reveal these competitors’ intentions.
Few days before Qatar announced its plan to increase the production of liquefied gas, Iran signed a contract worth USD 4.8 billion with a consortium of global companies led by the French oil and gas company, Total. According to the 20 years-long contract, the consortium will invest USD 2 billion to develop phase 11 of the South Pars field, shared between Qatar and Iran. This field is the biggest in the world as it contains 50.97 trillion cubic meters of gas, out of which 6 square kilometers are in Qatari territories, while 3.7 square kilometers are located in Iranian territories.
The field’s magnitude and Qatar’s development of its share played a significant role in motivating Iran during the past decades. After Iran signed the P5+1 nuclear agreement, the government has been working extensively on attracting global investments to serve this end. During the next phase, Iran is expected to witness a boom in gas production, which will present itself as a strong competitor to Qatar. Iran is highly qualified for such a competition considering it ranks first in the world in terms of natural gas reserves.
Moreover, in the past phase Saudi Arabia presented itself as a strong competitor heading towards investing in the liquefied gas industry. Saudi Minister of Energy, Industry and Mineral Resources Khalid al-Falid said in June 2017, during his participation in the Saint Petersburg International Economic Forum, that Aramco will globally invest in liquefied gas production. This measure comes within the context of the kingdom’s Vision 2030. It is scheduled for Aramco to execute this plan, after holding its initial public offering. Saudi Arabia has capabilities that qualifies it to strongly compete in the field as it holds the sixth largest proven reserves of natural gas in the world. Saudi Arabia also intends to diversify the energy resources. The Gulf crisis may also be a motivating factor for the kingdom to expand in the industry and thus put further pressure on Qatar.
Global Competitors awaiting Opportunities
On the global scene, one would realize that the current Gulf crisis tempted several countries to produce and export liquefied gas to compete with Qatar’s ranking in the industry. The Russian company Novatek said it aspires to compete with Qatar, as it is close to finalize its first project to produce liquefied gas by the end of 2017, when it finishes project’s initial phase at Yamal in the Arctic and finalize the last phase six months later. The company also said it will inaugurate another liquefied gas project, which is the Arctic LNG-2. The latter project will make the company a major global producer within 10 years.
It is worth mentioning that Russia ranked 7th in liquefied gas production in 2016 as it produced 10.9 million tons, which is 4.5 percent of the global market shares. When finishing the Yamal project, Novatek will increase its production by 16.5 million tons, thus reaching 27.4 million tons. Accordingly, Russia attempts to be ranked third among liquefied gas producers and exporters after Qatar and Australia. Considering its capacity, particularly its gas reserves, it can strongly compete with Qatar’s global ranking. Novatek ‘s Chief Financial Officer Mark Gyetvay acknowledged this in June 2017 on the sidelines of the London Energy Forum as he said “we have huge ambitions to be just as large as Qatar.”
Meanwhile in the West, the US is the world’s first natural gas producer. Despite that, it is still not considered a major power in the production of liquefied gas as its global rank is 17 and it contributes to 0.1 percent of global production. This is because America’s energy plan did not target export in the past decades and the natural gas, which was locally produced was not enough for local needs. However, energy policies have witnessed major shifts since Donald Trump became president as the US seems more persistent to expand in producing and exporting energy resources, including natural gas.
In general, the energy policy, which the current American administration pursues, is based on the significant developments witnessed in the country’s energy industry during the past years , relying on expanding the advanced forms of technology to crack oil rocks. This helped revolutionize the US’ oil and gas shale industries. Consequently, the US became an exporter of liquefied gas as it sent its first shipments to several countries beginning from Europe, to the Middle East and other countries across Asia.
The US is currently constructing new factories to produce liquefied gas and their exports are expected to reach 60 million tons a year by 2020. It is also planning to dethrone Qatar’s global ranking in this industry by 2024 by exporting 300 million tons of liquefied gas a year.
Moreover, one cannot ignore Australia’s opportunities in expanding its liquefied gas industry in the future. Despite the high production cost there, Australia has been able to sustain its advanced as the second largest producer and exporter of liquefies gas. Its proximity to Asian markets, which are the major importer of gas, grants it a relative balance qualifying it to strongly compete in this industry. Australia is currently implementing several projects to produce and export liquefied gas. This will increase its export capacity to 63.8 million tons a year thus greatly approaching its rival Qatar.
Finally, one might argue that Russian and Iranian chances to compete with Qatar in the production of liquefied gas are low due to their industry’s delay from the rest of the oil sector in Russia and the sanctions that have been imposed on Iran for years. Yet, the US and Australia have greater chances to compete with Qatar particularly on the medium and long terms. The US and Australia would also benefit from the technological developments witnessed by the industry and from the pressures which Qatar is subjected to due to the crisis. All these factors tempt them to expand their industries to cart off from Qatar’s market share.
