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Qatar's foot off the brake

With an eye on Iran's rapid exploitation of the shared North Field, Qatar has lifted its development moratorium

"We have to be very careful to see that the reserves are managed for the long term…(and) about reserves, pressures, and how to continue for as long as we can," said former Qatari energy minister Abdullah al-Attiyah. Attiyah was speaking in 2005, shortly after the government had imposed a four-year moratorium on new projects in the giant offshore North Field, the enormous jewel in Qatar's energy crown.

Twelve years later, with production averaging around 20bn cubic feet a day, the moratorium has been lifted. Qatar Petroleum's (QP) president and chief executive Saad al-Kaabi said in April that since 2005 the company had been "conducting extensive studies and exerting exceptional efforts to assess the North Field, including drilling a number of appraisal wells to better estimate its production potential". QP has decided that "now is a good time to lift the moratorium", with work to start on a new 2bn-cf/d gas-export project, increasing current production by about 10% and adding 400,000 barrels a day of oil equivalent to Qatar's output.

Kaabi added that the new project would "further strengthen Qatar's leading position as a major player in the global gas industry". He might well have been glancing across the Gulf to Iran as he made that remark. For Qatar's awareness of the vigour with which the Iranians are developing their half of the shared field (called South Pars in Iran) is one factor in Doha's decision to lift the moratorium and ensure that it doesn't lose that leading role.

Playing catch-up

The reality is that two giant gas producers are dipping into the same reservoir, one silently determined not to be outdone by the other. Doha's development of the North Field over the past two decades—building the world's largest LNG business, with exports of 77m tonnes a year—happened while Iran was unable to do the same at South Pars because of sanctions.

But now Iran is playing catch-up. It recently inaugurated six new projects in South Pars, as production there continues to rise. According to Iranian officials, today it averages 18bn cf/d, up from 15bn cf/d a year ago, with an eventual target of 28bn cf/d or more. But oil minister Bijan Zanganeh denies that Iran is in competition with Qatar for the shared gas, telling Bloomberg that the Qataris "can carry out their development projects as we do ours. We do our job and let them do theirs".

Qatar, for its part, has not directly cited Iranian expansion as a reason for lifting the North Field moratorium. But by doing so, it is sending out a clear signal: it will not sit on its hands while Iran presses ahead on its side of the line. A message is also going out to the wider LNG-producing world that Qatar won't leave the field open to Australia, the US and others as global competition for markets intensifies.

20bn cf/d - Average output at Qatar's North Field

When Australia's Ichthys project comes on stream and ramps up in 2019 that country's capacity will rise to about 80m t/y. But Qatar has the potential to leap-frog Australia by producing an extra 15m t/y of LNG supply or piped exports. This would also provide a clear rebuff to President Vladimir Putin's recent claim that Russia was set to become the world's largest LNG producer.

The latest North Field decision suggests, too, that Qatar has capitulated on prices and is ready to accept that its former target sales price of $10 per million British thermal units—and even its more recent and pragmatic $7.50/m Btu—is no longer achievable. In the current buyer's market, Doha's willingness to loosen sales terms, allowing for re-shipping of cargoes and easing of take-or-pay obligations, has already been bearish.

Kaabi said the current low global gas prices would not deter North Field expansion. The latest development project would come online "in five years or so", by which time he expected that global prices would have recovered, meaning there "should be a good market for gas".

In short, Iran, Russia, Australia, the US and the rest need to sit up and take notice. By lifting the North Field moratorium Qatar is telling them that it's back in the gas production expansion business; and if anyone wants a contest, then, after a 12-year break, QP is up for it. The foot is off the brake.

Gas grab: Qatar and Iran share the North Field
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