Qatar seeks contracts to sell LNG to Asia

Mar 07, 2012 12:00 AM

Qatar is seeking contracts to sell liquefied natural gas to Asia for as many as 20 years as the prospect of booming supplies from Australia, the US and Africa raises the likelihood of a slide in prices.
Ras
Laffan Liquefied Natural Gas, a venture between ExxonMobil and the Qatari state, thats the biggest supplier to India, agreed last month to boost shipments to South Korea by 2 mm tons a year in the next two decades. The company signed a similar commitment with a Taiwanese buyer in December.

Qatar Liquefied Gas, the worlds largest LNG exporter, said March 1 its negotiating a multiyear sale of the fuel to Pakistan. Qatar, which produces more LNG than any other country, is seeking to complete larger and longer export deals amid a surge in global supplies thats encouraging buyers to call for an end to costing the fuel based on oil prices.
The
world may face an LNG 'glut' in the next eight years as production from hydraulic fracturing, or fracking, of shale deposits swells inventories, Sanford C. Bernstein said in a February report. US gas traded at the lowest level in 10 years in January, while Brent crude jumped to a 3 1/2-year high in March.

Its better to lock in oil-indexed prices today than have competitors from 2019 offering a price based on the US spot market,Thierry Bros, a senior analyst at Societe Generale in Paris, said.
Qatar can no longer sell LNG to the North American market, as was originally planned, after the US shale-gas revolution.

Five times cheaper
Gas
at Henry Hub in Louisiana fell to $ 2.23 per mm Btu in January, the lowest price since 2002, and settled 2.3 % lower at $ 2.302 in March. The US benchmark price averaged $ 3.26 per mm Btu in December, about one-fifth of the average Japanese LNG import price that month.
Brent rose to $ 124.12 a barrel on the London-based ICE Futures Europe exchange, bringing its gain this year to 16 %, as the standoff over Irans nuclear program raised concern that supply will be disrupted.

Qatar
typically tries to sign agreements at prices tied to crude on an energy-equivalent basis, Ibrahim Al Ibrahim, the Qatari emirs economic adviser, told at the RasGas signing at the capital, Doha, in February. Neither RasGas nor its Asian buyers disclosed the pricing of their new contracts.
The price is quite good,Ibrahim said of the Korean agreement.Its way different from the prices in other markets. The gap is huge between the Far East and Europe and, of course, if you put in the US, its even bigger.

Pressure on prices
The
RasGas agreements, Qatars first multi-decade pacts with Asian buyers since 2008, coincide with a 10 % cut in long-term prices by Russias Gazprom, the worlds biggest gas producer, to its pipeline customers in Europe.
What we are hearing is there is pressure on the long-dated pricing of LNG contracts, and its possible that Qatar is looking at securing long-term offtake in anticipation of reduced spot prices because of a glut five years down the line,Neil Beveridge, a senior analyst at Bernstein in Hong Kong, said.The sense is that the current spot market remains tight but pricing is coming off on the longer-dated contracts.

Global supply of LNG, natural gas chilled to a liquid for ease of transport, will swell by as much as 250 mm tons during the next eight years from Australia, North America and Africa, according to Bernstein.
World capacity was 270 mm tons in 2011, according to the International Energy Agency.

Australian
ventures
Qatar
raised annual LNG capacity to 77 mm tons last year with the start of its 14th liquefaction plant. The country originally earmarked as much as one-third of its supplies to North America before diverting some to Asia.
Australia
is developing eight LNG ventures to take advantage of growing Asian demand for less-polluting alternatives to coal. The projects will add a combined 70 mm tons a year of capacity, according to Beveridge. Chevron, Royal Dutch Shell, Woodside Petroleum, ConocoPhillips and BG Group are among those building export plants to supply countries including China.

The
US will be able to produce about 45 mm tons of LNG a year by 2020, according to BG, the UKs third-largest producer. The US exported less than 500,000 tons in 2010, according to US Energy Department data. The US would overtake Qatar as the worlds top LNG producer if planned projects are built, Bros said. GAIL India, Indias biggest natural-gas distributor, said in December it agreed to import 3.5 mm tons from Cheniere Energy Partners in Louisiana.
US LNG is a game-changer, in that Qatar is effectively worried that its oil-linked formula could be at risk after 2020,Bros said last month.

Interest
in US
Rising
US gas output is attracting Qatari interest in investing in the resource. Chesapeake Energy, the second-largest US natural gas producer after ExxonMobil, has fielded inquiries this year from the emirate about investing in onshore North American gas projects, Aubrey McClendon, chief executive officer of the company, said.
Qatar
Petroleum International, the foreign investment unit of the state-run energy company, may invest in North American shale gas with an international oil company, Chief Executive Officer Nasser al-Jaidah said in December.

Asia
demand
Rising
demand in Asia may still soak up some of the additional supply, according to Beveridge. Japan, the worlds biggest LNG consumer, bought record volumes in January after most of its atomic reactors closed following the March 11 disaster at the Fukushima Dai-Ichi nuclear plant, forcing power utilities to increase their dependence on fossil fuels.
Japanese
import prices for LNG climbed 51 % last year to $ 16.66 per mm Btu at the end of December. US gas futures declined 32 % over the same period on the New York Mercantile Exchange.

Yemen
LNG said last month it has redeployed fuel exports to Asia amid weaker demand in the US. The Sanaa, Yemen-based company will supply Korea Gas with 20 cargoes a year through 2014, it said.
New centers of LNG supplies are emerging with the rise of unconventional gas and new exploration in North America and East Africa, and the world could be faced with a new global LNG glut by 2018,Beveridge said.

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