Room for Qatar?
Qatar's plan to increase LNG-export capacity should not trouble Australia's position in key Asian markets
Qatar's recent announcement that it plans to expand its liquefied natural gas export capacity from 77m tonnes a year to 100m is hardly a surprise. Qatar has the world's third-largest proved gas reserves, estimated by BP to be nearly 900 trillion cubic feet. If there is a surprise it is that the moratorium on further development of its North Field has been in place for so long-more than a decade during which other countries with more limited reserves, notably Australia and the US, have been aggressively developing new projects.
Still, the world of LNG is full of surprises. Russia has larger gas reserves than Qatar but while it is a major gas supplier to Western Europe, it is a minor player in North Asia, despite its geographical proximity. Iran also has larger reserves than Qatar and, but for sanctions, could be a major LNG exporter.
Australia is another surprise, a country with reasonable gas reserves but only a fraction of those in Russia, Iran or Qatar. Yet Australia is on its way to becoming the world's largest LNG producer.
Last fiscal year (2016-17), Australian LNG exports jumped to 51.4m tonnes, up from 37.5m the previous year. This year, we expect Australian exports to pass 60m. All three trains from Chevron's massive 15.6m-t/y Gorgon project are now producing-it shipped 17 cargoes in July. The first train of Wheatstone (8.9m t/y), Chevron's other project, is in the final stages of commissioning. Further north, the remote Browse Basin is a hive of LNG activity. The central processing facility at Inpex's 8.4m-t/y Ichthys project is now on location and Shell's 3.6m-t/y Prelude floating LNG facility is now in Australian waters after the long voyage from South Korea. Adding up all of this activity, Australia is well placed to at least equal Qatar's 77m t/y by the end of the decade.
How did it happen that Australia will soon rival Qatar when it ranks behind 12 other countries in gas reserves? Part of the answer is being in the right place at the right time. Although Australia is well down the global ranking of gas reserves, it does have the second largest trove in the Asia-Pacific, after China. Being a free-market OECD economy in the Asia-Pacific region with a small domestic market has also helped.
As a result, Australia is now the largest LNG supplier to Japan and China and ranks second in exports to South Korea. In May, Australia LNG accounted for 44% of the seaborne gas China imported, 31% of Japan's and 21% of South Korea's.
While Qatar is the world's largest LNG producer, Australia exports more LNG to North Asia than Qatar and at lower average delivered prices. In May, Australia exported 3.7m tonnes at an average price of $8.10 per million British thermal units, while Qatar exported 2m at an average of $8.62/mBtu.
Are Qatar's expansion plans a threat to Australia? Yes and no. If bigger is better, Qatar is likely to overtake Australia again, as well as all other LNG exporters, as it moves towards 100m t/y.
But LNG trade is not a zero-sum game and just as Australia's expansion has not come at the expense of Qatar's, nor need Qatar's growth be at Australia's expense.
We can clearly see the changes in sources of Asian LNG between 2012 and 2016. Imports from Australia increased by 22.4m tonnes. However, shipments from Qatar also increased, by 3.9m tonnes. Most of the countries supplying reduced volumes were either more distant (like Nigeria) or suffering supply constraints (Indonesia, Yemen and Egypt).
Figure one shows the changes between 2016 and 2012 in the volumes exported by Australia and Qatar to Asia, the Middle East/Africa, Europe and the Americas. Growing Australian exports have almost entirely been destined for Asia. Qatar, though, ships its gas to a wider range of markets and increased its volumes to both Asia and the Middle East/Africa, while exporting less to Europe and the Americas.
The biggest threat to Australian export volumes is closer to home. Australia's biggest LNG project, the North West Shelf, is facing field decline about five years from now and will need gas from other fields. The project partners are currently assessing a possible pipeline from the undeveloped Calliance, Brecknock and Torosa fields in the Browse Basin, which contain 20.7 trillion cf of 2C recoverable resources. Other third-party fields in the Carnarvon Basin are also being considered. Darwin LNG is also facing decline in a similar timeframe and the operator, ConocoPhillips, is assessing possible development of the Barossa and Calliance fields. As brownfield developments, both have a good chance of being cost-competitive for the Asian market. However, first production is unlikely for between five and seven years, the same timeframe as Qatar's planned expansion.
As Qatar expands production towards 100m t/y, Australia is likely to slip down the ranking of LNG exporters. But it will remain a major force in global LNG.
It may well still be able to maintain peak production but this will depend on how quickly decisions can be made about developments to backfill the Karratha and Darwin plants. If these decisions lag it may well be that Qatar turns out to be in the right place at the right time.
GRAEME BETHUNE is CEO of EnergyQuest