Interview: Qatar to ink LNG carrier deal as North Field expansion continues apace

Dubai — Qatar is pressing ahead with the expansion of its massive North Field gas field, energy minister Saad al-Kaabi said Monday, regardless of concerns over a global LNG glut and weak demand as the coronavirus pandemic hits economic growth.

The Persian Gulf gas-producer will sign a mammoth order for LNG vessels Wednesday to book ship-building capacity to handle the LNG supplies it expects to come online in the coming years, Kaabi told S&P Global Platts in an interview.

At least 60 ships will be built, worth "billions of dollars" and representing 60% of the world's LNG ship-building capacity, said Kaabi, who also serves as president and CEO of state-owned Qatar Petroleum. The exact number will be determined by who is ordering the LNG.

"It depends how my market mix is going to be," Kaabi said. "It depends on destination, that will give us the exact number I will need. But 60-80 will be a minimum, I think. We have also older ships from the other projects that we will be replacing, which will also come into the count. The first batch, we just finalized with one shipyard, and we will be signing Wednesday. And before the summer here, we will be signing all the shipping."

SERVING THE MARKET

Qatar plans to tap the so called North Field -- the world's largest offshore gas field which it shares with Iran -- to boost LNG exports after lifting a 12-year moratorium on further development in 2017.

It is expanding LNG production capacity aggressively from 77 million mt/year in two phases to 126 million mt/year.

Kaabi said the current global economic crisis would be just a temporary setback, with Doha still aiming to reach 110 million mt/year of LNG capacity in the first phase.

"We are going to be ready to serve the market," Kaabi said. "We will be ahead of others because our position of a determined approach that is very methodical and transparent and continuous. Short-term events do not impact our capital expenditure or how we feel about gas. We think there is a very solid market in the future and we will be there to supply it."

Qatar's hydrocarbons production is currently 22 Bcf/day of natural gas and about 600,000 b/d of crude oil in addition to a further 600,000 b/d of condensates, Kaabi said.

TRADING, PRICING AND CONTRACTS

In his interview with Platts, Kaabi also discussed QP's plans to launch a trading desk, the outlook for the gas market, his preference for gas prices to remain linked to crude oil prices and other topics.

The following transcript has been edited lightly for brevity and clarity.

PLATTS: The coronavirus is having a huge impact on oil prices, and a lot of producers are suffering. Is Qatar still committed to oil-indexed pricing for its LNG?

KAABI: As an oil and gas company, the only risk we are willing to take and that we understand how to take is the oil price. We have lived through these ups and downs and we can withstand these hits. Other risks, we are not comfortable taking. In a long way of answering this, the preference is always to be oil-linked. But it depends on the market. If you look at how our buyers react, when the price is low, they want oil-linked prices. When the price is high, they want Henry Hub. We think we have a good mix of all. You need to have a satisfied customer and a satisfied seller. There will always be a debate.

PLATTS: Have your demand projections for LNG changed at all? There is this race to increase capacity globally. How are you looking at demand beyond 2021?

KAABI: The market will require additional volumes. We think we can compete with anybody around the world on LNG, from a cost-basis point of view. We try to make sure we get our operating costs as low as possible. What others do, believe me, we think the more gas players there are, the better to promote gas, and we think promoting gas for the future is a good thing. If you look at what happened this year, a lot of people have [delayed] LNG projects. That gives us maybe an advantage in the long-term.

PLATTS: Just to reiterate, you are not delaying any projects due to the coronavirus?

KAABI: If I'm drilling wells and buying ships, I'm not backing down.

PLATTS: Can you expand on the shipping purchase?

KAABI: We anticipate holding north of 60, 70 to 80 ships, maybe more. We're actually going to book capacity for about 120 ships. The reason being, we're still not far enough in our marketing side. These ships, you book the shipping, and then you nominate with time over the next few years. If most of my sales, for example, are to India, then I need less ships than to China. If I have to supply Poland, it's completely different than supplying Turkey. It depends how my market mix is going to be.

PLATTS: How much will this cost?

KAABI: The cost of ships, I can't give you an exact number because it's a competitive thing, but it's definitely billions of dollars. One number you might be interested in is, we may be taking up 60% of the entire ship building capacity of the world, for LNG.

PLATTS: The market at the moment is very stressed, which we can see in the spot price for JKM. How are you dealing with some of the force majeures that have been declared by buyers. Have you seen a growing prevalence of this?

KAABI: Basically what we told our buyers is, we have a partnership. We don't worry about short-term events. Let's not talk about the legal side of this. Let's see how we can cater to you. We had to divert some cargoes 6-7 days. We had to delay some cargoes 6-7 days. The culture that we have in Qatar is we support our friends and partners in time of need. It's not about trying to take advantage. There is a time for legal and contractual things. But some things like humanitarian issues or things beyond people's control, we try to work things out.

PLATTS: Do you see as a consequence of this, there's a bigger push for the spot market for LNG and that off-takers will look for more flexibility going forward?

KAABI: People have been talking about the spot market and saying all the long-term deals are done. And you look at the last three years, and we've signed with several buyers. If you're going to have an environment where gas is going to be a predominant fuel for your power, you can have 60-70% of your supply in term, and maybe trade the rest in spot. One of the things that created the spot market going higher is a lot of the projects that have come online, especially in the US, with the shale revolution and the terminals that were put up. A lot of these terminals, people are pulling out of them because of what is going on with the capital markets. A lot of the projects in the US are stopping now. There will be room for spot, but still long-term contracts will be predominant.

PLATTS: Would Qatar look at establishing an LNG trading unit? If so, would it also trade oil?

KAABI: We are developing a trading arm for QP. We are going to announce the first trade as our introduction to the world that we have started trading, and that is going to be quite soon. We have been working on it for about a year and a half or so. We have the manpower, the traders, the platforms, and we are ready to go soon. We will start with our strength, which is LNG, in the beginning. And we will be looking at third-party LNG, not only ours.

PLATTS: Do you have a plan to expand in other low-carbon energy supply areas such as hydrogen?

KAABI: Qatar will be in a good position to look at hydrogen because of our gas resources. But it's a very tricky area. It'll take time to mature. We're watching it closely. Once it becomes mature to where there's a good chance for us to commercialize this area, we will be interested in looking at it.

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