Over the last decade, the discovery of massive quantities of unconventional gas resources around the world has spurred a renaissance within global energy markets, redirecting international attention to natural gas as a leading source of energy supply.
Modern technology allows natural gas to be chilled at ultra-low temperatures to a liquid state, called liquefied natural gas or LNG, making it easier to store and transport.
Buyers of LNG process the gas through specialized import facilities that convert it back into its gaseous state.
Qatar: The king of LNG
Since 2006, Qatar has led the world in annual LNG exports, producing a volume of 77 million tons per year (MTPY) at its 14 gas processing and liquefaction facilities, known as “trains” in industry lingo.
RasGas and Qatargas, joint venture companies with state-owned Qatar Petroleum, produce the country’s LNG at the Ras Laffan Industrial City, a compound of gas processing facilities that is home to the largest LNG export terminal in the world and located around 50 miles outside of Doha.
Qatar boasts the third largest natural gas reserves in the world and has a vast resource wealth that makes the nation of around 280,000 citizens the richest in the world in terms of GDP per capita.
The North Field offshore Qatar is the largest non-associated gas deposit in the world and the country’s primary hydrocarbon asset, which it shares with its neighbor across the Arabian Gulf, Iran.
The Gulf nation meets most of its domestic energy consumption through its gas resources, which provide for over 60 percent of government revenues.
Nearly all of the natural gas exported from Qatar takes the form of LNG, with the remainder transported by pipeline to the UAE and Oman.
Early market entry and heavy investment in LNG infrastructure has allowed Qatar to become an LNG powerhouse and the world’s largest exporter of the product.
Of the 29 LNG importing nations, 26 buy from Qatar. In 2005, Qatar halted further development of its North Field, imposing a moratorium on new projects in order to maintain supply stability over the near term.
With no further LNG projects planned in the near term, the emergence of high-capacity LNG projects around the world threatens Qatar’s supremacy as the current market leader as new projects prepare to go online.
New supply from international markets
The bulk of new LNG capacity in the near future will come from Australia, the US, Canada, and East Africa. Regional economics and geographic advantages will make these countries solid competitors for a share of the global LNG market.
Japan, South Korea and Taiwan are the largest buyers of LNG — together importing over half of the supply in the market.
These countries are dependent on imported energy as they have highly industrialized economies and lack domestic energy resources.
China and India will lead LNG demand growth in the future as the countries import greater quantities of LNG to fuel their rapidly expanding economies.
Following the 2011 tsunami that devastated Japan’s Fukushima-Daiichi nuclear power facility, the country decommissioned its nuclear energy program and turned to increased hydrocarbon imports.
Japan currently is the largest buyer of LNG in the world, importing 35 percent of global supplies at its more than 30 re-gasification facilities.
By default, the Asia Pacific region has become the largest market for LNG in the world.
Australia takes the lead
Australia is the frontrunner in the race to overtake Qatar as the world’s leading LNG exporter.
Nearly $200 billion invested in current LNG projects in Australia are set to come online from 2014 to 2017, boosting the country’s export capacity from 2013 levels of 24.2 MTPY to around 85 MTPY by 2017, well above Qatar’s current capacity.
Most of Australia’s LNG is sold to Japan, which buys from both Qatar and Australia on near-equal footing.
Closer proximity to Japan allows Australia to benefit from shorter shipping routes and lower transport costs than Qatar, providing a geographic advantage.
Despite this benefit, Australian LNG projects suffer extreme cost overruns as high as 50 percent, largely driven by expensive labor costs and a stronger Australian Dollar.
“Australia is about cost-competitiveness at the moment,” says Stephen Craen, head of energy project finance at Paris-based investment bank Societe Generale.
“Costs in Australian LNG have been extremely high and it puts new projects in a position that is difficult to compete on price with LNG exports from the US and other emerging LNG exporting countries like Mozambique in East Africa.”
Large-scale LNG projects are underway in Mozambique and Tanzania, seeking to bring as much as 20 MTPY of LNG to market as soon as 2018.
North America is pulling Its LNG Weight
A large resource base and high-capacity export projects in the US position the country to become an LNG leader.
Lower regional gas prices in North America provide a significant cost advantage to both US and Canadian gas producers, making it economical for them to buy and liquefy gas, and then transport it to buyers as LNG.
Although the US possesses the credentials to emerge as a leading exporter of LNG, many regulatory hurdles exist.
Senator Lisa Murkowski of Alaska, who is the Ranking Member of the US Senate Energy and Natural Resources Committee, recognizes the potential of American LNG projects as an opportunity that should not be missed.
“The window for the US to join the global gas trade will not be opened indefinitely. In fact, it is narrowing, and there is a real possibility that the nation will miss out on a historic opportunity.”
The US Congress is evaluating measures that will expedite the regulatory approval process for American LNG projects in order to make them more competitive.
Obtaining authorization to export LNG to countries that do not share a Free Trade Agreement with the US remains a significant challenge.
LNG export projects in the US are mostly located along the Gulf Coast, providing a logistical challenge in accessing Asian markets.
Potential delays in a current expansion of the Panama Canal threatens to interfere with trade routes as American LNG projects come online during the next 3 years.
A typical journey for LNG to reach Japan from the US takes roughly 30 days via the Panama Canal, and up to 50 days around South Africa.
LNG vessels sailing from Qatar and Australia are able to reach Japan in approximately 20 days and 10 days, respectively.
Despite longer trade routes to Asia, the US.is well positioned to supply much closer neighbors in Latin America and Europe.
Canadian LNG export projects are primarily located along the country’s West Coast, providing faster access to Asian markets.
Canada benefits from the same LNG price differentials as the US, with both countries each representing a component of a greater North American market.
Although Qatar is set to abdicate its position as the nation with the greatest volume of annual LNG exports, it will continue to remain a dominant energy player.
Qatar has taken measures to diversify its global energy portfolio and expand its reach to new markets through a series of aggressive investments.
State-owned Qatar Petroleum maintains a 70 percent stake in the Golden Pass LNG project in Texas, which was initially developed with the intent to supply LNG produced in Qatar to the US.
Following the US shale gas revolution, Qatar and its partner in the venture, ExxonMobil, have decided to seek approval from US regulators to convert the existing import facility into a liquefaction terminal.
Outside of LNG, Qatar has invested heavily in oil fields in Brazil and the Democratic Republic of the Congo.
The country has further expanded its global reach by acquiring significant stakes in international oil companies including Royal Dutch Shell and Total S.A.
Global demand for LNG is expected to rise from 2013 levels of 240 MTPY to an estimated 465 MTPY by 2025.
A majority of this demand will be met by ample supply provided from North America, Australia, and projects in East Africa, which together will put downward pressure on international LNG prices and narrow the spreads between them.
With no future LNG projects planned in Qatar as new competitors flood the market, it is reasonable to conclude that as soon as 2018 Qatar will relinquish its claim as the largest LNG exporting nation, with Australia as the most likely contender to surpass its productive capacity.
Despite Qatar’s apparent demotion on the LNG hierarchy, the country will continue to maintain an integral role in global energy markets for years to come.