GLM FOCUS: What Qatar’s latest LNG expansion plan means for market

Clare Pennington

28-Feb-2024

LONDON (ICIS)–Qatar’s decision to add a further 16mtpa of LNG production by 2030 has a broad impact across the market, affecting prices, US LNG, buying activity, and shipping.

Two more trains will take Qatari LNG production up to 142mtpa, representing over a quarter of global demand by late in the decade.

As with past projects, Qatar appears less reliant on achieving contractual offtake, equity investments or a resulting final investment decision (FID) to move forward.

The LNG giant’s ability to push ahead with an early announcement strengthens its hand securing offtake at the expense of future competitors, particularly as the market turns in buyers’ favour.

Sources said that Qatar has already been negotiating with buyers in India to secure long-term offtake. Buyers in China are also aware of a strong marketing drive in Asia.

However, offtakers are also showing signs of delaying any agreements where possible, as competition for offtake into the 2030s heats up, said sources.

Current equity-holders did not respond to requests for comment over rights to bid for further investment.

US PROJECTS
Some US sources expected European buyers to continue to prefer US LNG over Qatari supply, avoiding the Suez Canal. Asian buyers, though, see less risk in Qatari supply, sources said.

But the regulatory pause on new US LNG project approvals means little new contracting activity is likely.

Last month, the Biden administration announced it would halt approvals for new US LNG projects until it updates how their economic and environmental impact is evaluated.

That might change either after the US presidential election or when updated guidance from the US Department of Energy (DOE) is released.

How LNG demand will develop is also important to understanding the impact of Qatar’s additional 16mtpa.

“LNG demand is forecast to grow beyond production, capacity in operation or under construction, so new supply sources are required,” said a Shell spokesperson, calling continued investment in LNG “critical”.

Before the latest Qatari expansion was announced, Shell forecast global LNG demand to overtake supply around 2027.

But ICIS Analytics shows demand is unlikely to outstrip supply before 2030, given a less optimistic view on demand growth.

“If we only include projects [with FIDs], there is a chance that in 2030 global oversupply might turn into undersupply,” said ICIS lead Asia gas analyst Alex Siow.

“As such, Qatar’s increased capacity is only exacerbating the current oversupply from 2026 to 2030,” he said, adding there will be “many options for buyers by 2026-2030”.

“Even without the additional 16mtpa from Qatar, many US projects [that have completed FIDs] are already impacted by the global oversupply from 2026.”
The result could be US projects lowering output, increasing maintenance periods, or offering increasingly competitive prices by using mechanisms like financing or declaring sunk costs.

ACTIVE QATARI MARKETING IN ASIA
Many Chinese buyers would like to wait to see if pricing offer levels fall, sources in China said.

And Chinese buyers may not be the only ones not willing to sign new deals just yet.

“Those who can wait at least until after US elections will,” said one source close to South East Asia buyers.

Significantly lower spot prices mean long-term contracts are less attractive for now, strengthening buyer positions.

EUROPEAN GAS PRICES fall
Several trading sources said they were clear that Qatar’s announcement was the key factor in pushing annual 2027 and 2028 TTF contracts down on 26 February.

The TTF 2028 contract price dropped 1.4% to $8.74/MMBtu, with the 2027 contract falling 0.4%. Prices up to 2026 increased the same day.

One trader in northwest Europe noted that increased supply later this decade could help Europe shift from its current role as the premium global market.

“Who [in Europe] wants a 20-year contract?” said the trader.
“Qatari …volumes make sense for Asian buyers …that could free up LNG for Europe from the US and [flexible] volumes.”

Yet Qatar could still turn to Europe for some offtake to add to its terminal capacity rights.

Negotiations for Qatari offtake with buyers in Germany, Austria, Slovakia and the Czech Republic were ongoing in 2023, sources said.

No agreement to deliver LNG into Germany for onward delivery to its neighbours was reached because of perceived high exit fees.

A Germany-based source said the government is also still keen to encourage a shorter long-term contract.

Exit fees could also change. Routes to Austria and the region may include Italy and Greece in future, given that interconnectors from Italy to Greece are being expanded.

SHIPPING
Even as Qatari offtake falls from 2029 into the 2030s, spurring Qatar to secure further volumes, it appears well-supplied with shipping options.

Newbuild prices remain high but have been falling since 2023, dropping from $265m to $262m by early February, according to shipowner Flex LNG.

And with over 100 newbuild vessel slots between Korean and Chinese shipyards, they can afford to wait, according to ICIS analyst Robert Songer. But there are questions over whether it now needs to expand the fleet further (see box-out).

Additional reporting by Yueyi Yang and Fauzeya Rahman

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