The global oil and gas market has seen sharp fluctuations in the recent past, however, the market seems to have found some stability for now. In spite of recent ups and downs, Qatar is expected to maintain its dominant role in the global energy market.
“New power plants, proliferation of vehicles and industrial growth across the globe will ensure that gas remains a much sought after commodity in coming years. Additionally, gas is a clean and relatively low-cost source of energy in comparison to other hydrocarbons, such as coal and oil”
The demand for gas is forecast to grow, helped by multiple factors and this works in favor of Qatar, as it is the world’s largest exporter of liquefied natural gas (LNG). New power plants, proliferation of vehicles and industrial growth across the globe will ensure that gas remains a much sought after commodity in coming years. Additionally, gas is a clean and relatively low-cost source of energy in comparison to other hydrocarbons, such as coal and oil.
“Now growing number of countries around the globe have started producing power using gas as a fuel. They are shifting from coal and oil as gas is a cleaner fuel compared to other fossil fuels,” said a Doha-based energy market analyst working with a brokerage firm.
Although there may not be unanimity about the future course of prices in the gas market, it is almost certain that the demand for gas is going to be high in the foreseeable future. Most of the industry bodies have indicated in their projections that gas will be a sought after commodity in coming years.
“Price fluctuation in the global energy market is not a new phenomenon. In the past, we have seen prices of oil falling and then recovering. We have seen these cycles in the past and will see them in the future too. Every market has demand and supply cycles and the energy market is not an exception. In the cycle, the prices fall when supply exceeds demand,” said the analyst.
“Falling prices compel suppliers to cut supplies and investments for new production. Declining supplies create condition of demand exceeding supply and prices rise again. This is what is happening with the energy market currently. Demand for clean energy is set to grow globally and natural gas will benefit from it,” he added.
“Gas demand is growing and it is expected to continue to grow for the next 25 years, according to the Gas Exporting Countries Forum (GECF) – the apex body of world’s leading gas producers”
Gas demand is growing and it is expected to continue to grow for the next 25 years, according to the Gas Exporting Countries Forum (GECF) – the apex body of world’s leading gas producers.
“Over the period 2015-2040, global gas demand is expected to grow by 1.6% per year and to exceed 5200 billion cubic meters (bcm) by 2040. The market share of gas is likely to increase from 21% in 2015 to over 25% in 2040,” the Global Gas Outlook 2040 released in January, by GECF, stated.
The strength of demand for natural gas partly reflects the fact that gas has gained share from coal, helped by government policies which encourage such a shift that has supported the growth in demand for gas.
Natural gas is projected to grow at more than twice the rate of either oil or coal, with its share within the primary energy market increasing throughout the outlook period 2016-2035, BP, the British multinational oil and gas company, stated in its ‘Energy Outlook’ released last month.
“By 2035, fossil fuels will still make up 95% of the demand, with the share of natural gas rising from 50 to 52%. Oil’s share will fall from 48% to 42%. Natural gas is expected to grow faster than oil or coal, with consumption increasing by 1.6% per year between 2015 and 2035,” BP’s 2017 Energy Outlook noted.
While both China and Europe have become more dependent on imported gas over the period, an increased diversity in supplies, associated with a rapid expansion of LNG, helps to support gas consumption.
“Most of Qatar’s gas production is exported as LNG. Heavy investment in LNG facilities over the last 20 years and a vast ramp up in production have made Qatar the world’s largest LNG exporter, driving the establishment of a global LNG market”
Most of Qatar’s gas production is exported as LNG. Heavy investment in LNG facilities over the last 20 years and a vast ramp-up in production have made Qatar the world’s largest LNG exporter, driving the establishment of a global LNG market.
An increase in the number of LNG exporters has made it possible to transport natural gas around the globe. This has opened up a new source of clean energy for many countries and encouraged them to invest in the necessary infrastructure to import and regasify LNG.
“In the LNG export, it is Qatar, Southeast Asia (Indonesia and Malaysia), OECD Pacific (Australia) and North America that take the leading role, or are set to predominate in the medium-term (2020),” the GECF report stated.
“Export volumes (of gas) from the region are expected to increase over the outlook (2015-2040). LNG is the dominant export mode from this region, with the Middle East being the world’s largest LNG export region. The Middle East will maintain this position until 2040, even though its dominance will be contested by the emergence of important competitors from OECD Pacific, North America and in the long term from East Africa,” the GECF report added.
The switch to a cleaner source of energy as well as strong economic growth has made the Asia Pacific region the largest market for Qatar’s LNG exports. Qatar’s LNG exports are not confined to Asia. Cheaper LNG prices relative to piped-gas prices in Europe have prompted the UK to switch to LNG.
International trade in gas happens through long-distance pipelines and in the form of LNG. Gas is transported through pipelines or through vessels (ships). Most of the existing international pipeline networks are concentrated in Europe which is the main pipeline gas market, with a large number of gas export corridors oriented towards it.
According to GECF, non-Organisation for Economic Co-operation and Development (OECD) Asia is also an evolving gas pipeline market with some projects already completed (from Turkmenistan and Myanmar) and many projects under development in Russia, the Caspian and Iran.
“China and India – which are set to continue driving a rise in demand – were two of the fastest growing buyers, increasing their imports by a combined 11.9 MT of LNG in 2016. This boosted China’s LNG imports in 2016 to 27 MT and India’s to 20 MT”
China, India, North America, and the Middle East are the main regions that will drive the demand for gas higher in the coming years.
“Gas demand is expected to increase in every region; however, the bulk of the additional gas demand comes from non-OECD Asia, North America, and the Middle East. Non-OECD Asia accounts for 43% of the total additional gas demand over the forecast period, with China and India together contributing over 30% of the increase,” said GECF report.
“In OECD region, natural gas approaches oil consumption as a dominant fuel by the end of outlook period with a share of 32% in primary energy. However in non OECD natural gas remains the third most consumed fuel, still behind coal and oil and reaching a share of around 22% by 2040,” added the report.
Power, Transport, Domestic and Industrial Sectors are set to increase consumption of gas in coming years. Power sector is by far the biggest source of additional gas demand. Gas use in power sector is projected to grow by 2.2% per year which is faster than global gas demand growth (1.6%). Then power sector share of global gas demand would increase from 35% today to 41% in 2040.
The world holds plenty of natural gas resources (532 trillion cubic meters or tcm) of which almost 178 tcm are identified proven conventional reserves (33%) and 354 tcm are other gas resources.
The volume of the global gas trade is expected to increase from 2015 levels by 60% by 2040 reaching a level of 1,650 bcm, growing annually by almost 2.1% on an average. It is estimated that currently global gas trade represents around 30% of all global gas marketed production.
Within the natural gas trade, share of LNG will dominate compared to the piped gas. Demand for LNG is rising making gas the fastest-growing fossil fuel among Asian economies.
Asia remains the largest destination for LNG. China, India and other Asian countries all increase their demand for LNG, helping gas grow faster than either oil or coal in each of these economies.
A little more than 1,000 bcm of gas was traded globally in 2015, of which almost 300 bcm was LNG (30%) and the remaining piped. By the mid-2020s international gas trade is expected to exceed 1,250 bcm, with potentially a 43% share for LNG.
After that the LNG trade is likely to slow down and stabilize to remain in the 40-45% range because of the parallel growth in piped gas by 2030, especially from CIS to non-OECD Asia. On an annual average basis, LNG trade will grow by 2.8%. GECF will remain dominant in the LNG trade and its share will represent an average above 60% of global LNG trade by 2040.
Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates, and Venezuela are member countries of GECF while Azerbaijan, Iraq, Kazakhstan, the Netherlands, Norway, Oman and Peru have the status of Observer Members in the forum.
“LNG grows seven times faster than pipeline gas trade, such that by 2035 it accounts for around half of all globally traded gas – up from 32% now”
“LNG grows seven times faster than pipeline gas trade, such that by 2035 it accounts for around half of all globally traded gas – up from 32% now,” said BP Energy Outlook.
LNG-based trade is important because, unlike pipeline gas, LNG cargoes can be redirected to different parts of the world in response to regional fluctuations in demand and supply. As a result, gas markets are likely to become increasingly integrated across the world.
The global LNG capacity is a little over 300 million metric tons (MT) and most if it is located in the Middle East (centered on Qatar), plus Africa (Algeria and Nigeria), Southeast Asia (Indonesia and Malaysia) and also Australia which has already starting playing an increasing role in Asian gas markets.
If cost of gas trade through pipelines increases in future, it will benefit the LNG trade. It will be cheaper for countries to import LNG than to take gas through pipelines.
Qatar is taking steps to consolidate its dominant position in the global energy market. In December last year, Qatar Petroleum announced that it would merge state-owned liquefied natural gas producers, Qatargas and RasGas Co Ltd.
The plan is to integrate the activities of RasGas and Qatargas operating companies under a single entity, named Qatargas, which will operate all of the ventures currently being operated by both entities.
“Qatargas is the largest LNG-producing company in the world, with an annual output capacity of 42mn MT a year”
Qatargas is the largest LNG-producing company in the world, with an annual output capacity of 42mn MT a year, according to its website. While QP owns a majority stake, global energy firms including Total, Mitsui & Co and ConocoPhillips also possess small stake-holdings.
RasGas has a production capacity of about 37mn MT a year, according to its website. It is a 70:30% joint venture between QP and Exxon Mobil.
In February, the Laffan Refinery 2 was inaugurated. This new project doubles Qatar’s condensate refining capacity to 292,000 barrels per day (bpd), which is equal to 100mn barrels per year, making Ras Laffan Industrial City one of the biggest condensate refining locations in the world.
The Laffan Refinery 2 refines 146,000 bpd of condensate from the North Field which is the largest non-associated natural gas reserve in the world. This refinery started its operation at the end of last year, with Qatargas announcing the commercial start-up of Laffan Refinery 2 on 24 December.
The new refinery processes condensate to produce five high-quality products. These products support the energy and industry sectors by providing energy sources and raw feedstock material, namely naphtha, kerojet (A-1), diesel and liquefied petroleum gas in the form of propane and butane. It also creates new economic opportunities by enhancing export capacity and therefore the ability to supply international demand for energy.
Qatar Gas Transport Company (Nakilat) has also stepped up efforts to complement Qatar’s crucial role in the global energy market. Nakilat is a Qatari-listed shipping company that was established by Qatar to own, operate and manage LNG vessels and to provide shipping and marine-related services.
Nakilat’s LNG fleet transports gas to global markets from North Field. Its LNG shipping fleet is the largest in the world, comprising 63 LNG vessels. It also owns and manages four large LPG carriers.
Last year in October, Nakilat Shipping Qatar Limited (NSQL), a wholly-owned subsidiary of Nakilat, signed an agreement with Shell International Trading and Shipping Company Limited (Shell) to begin the planned phased transition of the management of Nakilat’s LNG fleet from Shell to NSQL.
Shell has provided a range of shipping services to Nakilat’s LNG fleet since it was established in 2006. These included the ship management of 14 Q-Max and 11 Q-Flex LNG carriers and the sharing of Shell’s Shipping & Maritime expertise. The vessels will be transitioned in three phases starting from 2016 and it will be managed by Nakilat’s in-house ship management arm, NSQL, which currently manages four large LPG carriers and four Q-Flex LNG carriers.
A review of last year will reveal that the LNG trade performed better than expected. Global demand for LNG reached 265mn MT in 2016, according to Shell’s first LNG Outlook. Many expected a strong increase in new LNG supplies would outpace demand growth during 2016. Instead, demand growth kept pace with supply as greater than expected demand in Asia and the Middle East absorbed the increase in supply from Australia.
China and India – which are set to continue driving a rise in demand – were two of the fastest growing buyers, increasing their imports by a combined 11.9mn MT of LNG in 2016. This boosted China’s LNG imports in 2016 to 27mn MT and India’s to 20mn MT.
Total global LNG demand increased following the addition of six new importing countries since 2015: Colombia, Egypt, Jamaica, Jordan, Pakistan and Poland. They brought the number of LNG importers to 35, up from around 10 at the start of this century.
Egypt, Jordan and Pakistan were among the fastest growing LNG importers in the world in 2016. Due to local shortages in gas supplies, they imported 13.9mn MT of LNG in total. The bulk of growth in LNG exports in 2016 came from Australia, where exports increased by 15mn MT to a total of 44.3mn MT.
LNG prices are expected to continue to be determined by multiple factors, including oil prices, global LNG supply and demand dynamics and the costs of new LNG facilities.
In addition, the growth of LNG trade has evolved into helping meet demand when domestic gas markets face supply shortages.
The international gas trade is currently conducted through medium/long-term gas contracts that are mainly oil-indexed and to a lesser extent, hub-based. A second format of international gas trade is through short spot transactions that can also be either oil-indexed or hub-based.
This article is from BQ Magazine’s Issue 43 – April 2017.
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