By ROBERT TUTTLE
Blazing gas flares 70 meters high brighten the night sky
above Qatars Ras Laffan Industrial City. The
295-square-kilometer complex houses the worlds largest
assemblage of liquefied natural gas (LNG) plants and the
biggest port for LNG exports on the globe.
Ras Laffan chills to a fluid more gas in a year than Canada
consumes and then ships it to run electric plants and warm
homes from Tokyo to Buenos Aires. The gas facilities
within its grounds
produce almost a third of the worlds LNG exports,
Bloomberg Markets will report in its May issue.
The government takes every precaution against sabotage. Entry
to the Industrial City for those who dont work there is
severely restricted; photography inside the facility is
forbidden. Ras Laffan is what makes Qatar the richest nation
in the world, with a per capita income for its citizens of
$101,000 in 2012, according to International Monetary Fund
The greatest threat to Qatars enormous wealth is
competition. Other nations are challenging its LNG dominance.
Australia is constructing liquefaction plants that will more
than triple its annual LNG-manufacturing capacity to 85
million tons by 2018, surpassing Qatar, according to data
compiled by Bloomberg Industries.
Taking advantage of new production from hydraulic fracturing,
US companies such as Houston-based Cheniere Energy and
ConocoPhillips; Richmond, Virginiabased Dominion
Resources; and San Diegobased Sempra Energy have sought
US Energy Department approval for 37 LNG export project
US producers have signed contracts to supply Asian LNG
buyers, including GAIL India
, Korea Gas and Tokyo
Electric Power, at prices that undercut what Qatar is being
paid. Canada, Mozambique, Russia and Tanzania also plan new
LNG export plants, according to Bloomberg Industries data.
The global LNG market is going to loosen, and that has
a big impact for the Qataris, says Trevor Sikorski, a
gas, coal and carbon
analyst at consulting firm
Energy Aspects in London. Pressure will mount through
the rest of this decade. First, you have the Australians, and
then you have the US.
LNG spot prices in northeast Asia, where Qatar shipped 63
percent of its LNG in 2012, could fall as low as $12/MMBtu by
2016 as new supply enters the market, Sikorski says. They
climbed to a record $19.70 in February, according to the New
Yorkbased Energy Intelligence Groups World Gas
Qatar faces diminished market share and the possibility of
lower prices just as the country embarks on $200 billion of
infrastructure spending before hosting the 2022 soccer World
Cup. Gross domestic product growth is project
ed to slow to an average of
6.3% in the next five years after increasing an average of
11% annually for the five years ended in 2013, according to
Qatars response is typical of its free-spending
government: Sheikh Tamim bin Hamad Al Thani, the
emirates ruler, is buying up the competition. Qatar
Petroleum International, the state energy companys
foreign investment unit, has purchased stakes in gas and oil
fields in Brazil, Canada and the Republic of Congo since
QPI owns a 70% stake in Houston-based Golden Pass Products, a
joint venture with ExxonMobil that operates an LNG import
terminal in Sabine Pass, Texas. QPI is seeking final
permission from the Energy Department to add an export
terminal to the existing import terminal.
In addition, Qatar Holding, the foreign investment arm of the
sovereign wealth fund, has taken stakes in Royal Dutch Shell
and Frances Total, both of which operate LNG plants
around the world.
We are capitalizing on our experiences and successes as
the biggest LNG producer and exporter, Qatari Energy
Minister Mohammed bin Saleh Al Sada wrote in a February
e-mail to Bloomberg Markets. It is natural that we
expand our LNG business to cover other parts of the world,
including the United States.
Al Sada says the surge in gas production around the globe
just proves there is great demand for Qatars main
export. He says it is evidence that natural gas will
have a bigger share in the worlds overall energy mix;
this is advantageous.
Forty years ago, Qatar was a petroleum backwater compared
with its Persian Gulf neighbors Kuwait, Saudi Arabia and the
United Arab Emirates. Its transformation began in 1971, when
Shell discovered Qatars North Field, the worlds
largest gas reservoir. Little was done to develop the field
until the country completed its first LNG plants at Ras
Laffan in 1996 in partnership with Mobil.
During the next 15 years, 14 LNG plants were built, all of
them in partnership with Western petroleum companies. The
plants are capable of producing a total of 77 million tons of
the fuel each year. Proceeds from gas exports have given
Qatar the highest per capita GDP in the world, 29% higher
than No. 2 Luxembourg.
Shell left Qatar in the early 1990s amid low oil prices and
returned in 2002. It spent $21 billion building an LNG plant
at Ras Laffan and another facility called the Pearl, which is
the worlds largest gas-to-liquids plant. The Pearl
plant turns natural gas into 140,000 bpd of liquid fuels that
would normally be made in an oil refinery
, including kerosene for
jet fuel and base oil, which is used to make motor oil for
There is probably no other country in the world where
it could have happened that Shell would have had the
confidence to invest $21 billion of its own cash, says
Rob Sherwin, Shells deputy country chairman. It
has become, in just a decade, a new heartland for
The Qatari government has put a moratorium on further
development of the North Field so it can assess ways to
maintain output levels and has suspended construction
of new LNG plants.
That creates an opening for competing nations.
In Australia, London-based BG Group is scheduled to start up
its Queensland LNG export plant in the fourth quarter, while
Adelaide-based Santos and Sydney-based Origin Energy are due
to launch plants next year. San Ramon, Californiabased
Chevron and ConocoPhillips are also building LNG export facilities
, as is Texas gas
The current gas exporters see that their world is changing.
The USs new ability to produce gas by cracking
underground shale deposits is a game changer for
the industry, says Mohammad Hossein Adeli, secretary-general
of the 13-nation, Doha-based Gas Exporting Countries Forum.
US exports are a particular challenge because their price
wont necessarily follow a longtime convention that
links LNG tariffs to the price of oil, says Thierry Bros, a
gas analyst at Paris-based bank Societe Generale. Under the
arrangement, Japan bought LNG for an average of $16.06/MMBtu
in 2013, according to LNG Japan. US gas futures, meanwhile,
traded at an average of $3.73.
The cost of liquefaction, shipping to Asia and turning LNG
back into gas will add $6 to $8/MMBtu to the price of the US
gas, according to an April 2013 report by NERA Economic
Consulting. Thats still a bargain for Japanese and
other Asian importers.
With the US LNG exports looming, Japanese and other
Asian companies do not want to pay oil-indexation
prices for the gas any longer, Bros says. Qatar will
have to adapt.