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Qatar: Glitch hits LNG exports

Mechanical glitch causes shutdown for Qatargas

Qatargas 1, a liquefied natural gas (LNG) plant, shut down exports last month after a mechanical fault disrupted production from the facility, which accounts for a third of the country's LNG sales to the world. The problem, which began on 8 January but became public only later, coincided with a dispute between Russia and Ukraine that prevented gas supplies from reaching Europe. Some LNG supplies to Europe were affected by Qatargas' production halt.

The company, one of the country's two state-controlled firms that produce LNG, hoped the plant would return to full production by the end of last month, although, as Petroleum Economist went to press, the cause of the fault had not yet been revealed.

The country's European customers are in the west of the continent, so the shut-down had little effect on events in the Russia-supplied east. In Asia, the plant's buyers also recorded lower-than-expected demand, easing worries about a global LNG shortage while production was down.

But the timing for Qatar was bad, especially as questions continue to arise about the country's long-term LNG plans. Last month, the energy minister, Abdullah bin Hamad al-Attiyah, said an examination of the country's gas reserves could now take until 2013, suggesting that a moratorium on new developments would last at least as long.

Qatar hopes to increase its LNG export capacity to 77m tonnes a year (t/y) by the end of 2010. Capacity is presently 38m t/y, making the country the world's largest producer and exporter. But a tight contracting market and slower-than-expected progress on expansions mean that the target export capacity is likely to be met later, possibly in 2012, say analysts.

More profound questions remain about the state of the North Field, the largest gas reservoir in the world and the bedrock of Qatar's export business. "Qatar is sending strong signals that further upstream North Field development will not be on the cards for quite some time," wrote Global Insight analyst Samuel Cizsuk in a recent research note.

The examination of the North Field's condition was originally set for completion by 2010, when a decision to lift the moratorium would be made. Meanwhile, with new LNG output due on stream in the next three years from Australia, an emerging force in global LNG markets, Qatar is wary of winning too dominant a position in a saturated market. In the last year, prices have fallen significantly in Asia, the world's most active LNG import region. One industry source says some cargoes in Asia are now trading for as little as $6/m Btu – less than half prices seen in 2007.

The government declared a moratorium on new developments of the North Field in 2005, giving Qatar Petroleum an opportunity to assess the long-term prospects for its development. The field's reserves are estimated at 900 trillion cubic feet (excluding the Iranian section of the field, called South Pars) – about 15% of the world's total. The moratorium on development is increasingly likely to affect supplies to neighbouring consumers in the Mideast Gulf, although the country has also put a cap on LNG export expansion beyond the existing targets.

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