Qatar’s ‘risky’ LNG ramp-up

Buyers of Qatari LNG could lobby for a 'risk discount,' one analyst said. (Reuters)
Updated 15 November 2017
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Qatar’s ‘risky’ LNG ramp-up

LONDON: Qatar’s decision to significantly expand output of liquefied natural gas (LNG) from the massive North Field in the Arabian Gulf carries significant risk, according to US-based research group Rapidan Energy Group.
Even though maritime routes through the Gulf, Strait of Hormuz and the Suez Canal have remained open to tankers carrying Qatari LNG in the wake of the dispute between Doha and some of its Arab neighbors, initial fears they could be closed will not be lost on potential buyers, said the consultancy’s New York director Leslie Palti-Guzman.
Speaking to Arab News, she said buyers could lobby for a “risk discount” on price as the standoff had exposed Qatar’s geopolitical and geographic vulnerability.
“At the end of the day, the LNG business relies on the safety of shipping lanes but there is diminished market confidence in Qatar,” said Palti-Guzman.
Qatar’s decision earlier this year to boost capacity to 100 million tonnes by 2022 would mean oversupplying an already glutted market — something that would probably keep down spot prices to about $6 per million British thermal units (mbtu), or perhaps even $5 per mbtu, she added.
Extra Qatari supply would also likely lead to lower global liquefaction utilization rates at soon-to-be launched facilities, making them less economic.
A decision to lift a 2005 moratorium on additional production from North Field was made before the standoff with other Gulf states, which erupted in June. But since then, Qatar has detailed an aggressive expansion strategy — one that was likely to be only “half successful,” said Palti-Guzman.
North Field currently accounts for nearly all of Qatar’s gas production and around 60 percent of its export revenue. On the basis of North Field reserves, Qatar has grown its LNG exports from 1.9 million tonnes in 1997 to a record 78.7 million tonnes last year, according to Platts.
A major challenge for Qatar is renewing 8 million-plus tonnes of expiring long-term LNG contracts.
“These days, buyers want flexibility and they want short-term. They are not looking for a 20-year long-term supply contracts; buyers will want to hedge in order have energy security,” said Palti-Guzman, alluding to Qatar.
The LNG market has become ferociously competitive. Not only is there a threat from US shale but also a significant challenge from Australia, trading houses and over-committed buyers which, like Qatar, are targeting potential customers in South Asia and the Middle East.
Additionally, new players such as India and Japan are up and coming, while in the Middle East, the Russians have been increasingly active.
Putin said earlier this year Russia wanted to be the world’s largest LNG producer. According to Russian media, Bahrain has been holding talks about buying LNG from Gazprom, Rosneft, or both.
While Qatar is currently the world’s largest LNG exporter and lowest-cost producer, it remains to be seen how well it can adapt to new market conditions.
One development that suggests it can is its involvement in an extension project at Golden Pass LNG terminal in Texas. The expansion would enable the facility to export LNG as well as take in imports. The venture is a partnership between Qatar Petroleum International and ExxonMobil affiliates.
Palti-Guzman said Golden Pass shows Qatar can achieve two goals. One is being able and willing to bypass the geopolitical risk around the Strait of Hormuz by having supply outside Qatar for the first time. The second would allow it to optimize its portfolio by opening up arbitrage opportunities between different global LNG markets.
“So there is a commercial aspect, but the main driver remains very strategic,” she said.
Less promising, Palti-Guzman said, is Qatar’s determination to stick to oil indexation and a reluctance to accept emerging Asian hub-based prices. That illustrates Qatar’s resistance, on some levels, to the gradual shift to flexible pricing — resistance that may have to be addressed in the not-too-distant future, she added.


Shareholders of India’s Jet Airways approve debt-for-equity swap

Updated 23 February 2019
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Shareholders of India’s Jet Airways approve debt-for-equity swap

  • The plan will mean the lenders will have a bigger holding than any other shareholder
  • Currently, Chairman Naresh Goyal owns a 51 percent stake in the company and Abu Dhabi’s Etihad Airways owns 24 percent

MUMBAI: India’s Jet Airways said late on Friday that its shareholders approved a plan to convert existing debt to equity, paving the way for the troubled company’s lenders to infuse funds and nominate directors to its board.
Jet’s board last week approved a plan by lenders, led by State Bank of India, for an equity infusion, debt restructuring and the sale or sale-and-lease-back of aircraft.
The plan will mean the lenders will have a bigger holding than any other shareholder.
Currently, Chairman Naresh Goyal owns a 51 percent stake in the company and Abu Dhabi’s Etihad Airways owns 24 percent.
Jet, which had net debt of 72.99 billion rupees ($1.03 billion) as of end-December, has debt payments looming next month, according to rating agency ICRA. It has been unable to pay pilots’ salaries and has outstanding bills to aircraft lessors.
The company, India’s biggest full-service carrier, is struggling with competition from budget rivals, high oil prices and a weaker rupee. The share price took a beating in 2018, losing nearly 70 percent of its value.
In a regulatory filing, Jet said on Friday that 98 percent of its shareholders voted to increase the share capital to 22 billion rupees ($309.8 million) from 2 billion rupees at a special meeting.
Jet, whose financial woes are set against the backdrop of wider aviation industry problems, has been in the red for four straight quarters.