IHS Global Insight Perspective | |
Significance | The RasGas joint venture between state-owned Qatar Petroleum (QP) and U.S. supermajor ExxonMobil has completed its expansion, bringing its last 7.8-million-t/y mega train onstream and lifting its production capacity through its three subsidiaries—RasGas I, RasGas II, and RasGas III—to 36.3 million t/y. |
Implications | The LNG from Train 7 has been earmarked for the U.S. market, where import demand has fallen significantly due to the explosion in domestic—mainly shale—gas production since the deals were agreed, making it likely that significant volumes might be transferred to the Asian market. Global LNG demand weakness is, however, less of a problem for Qatar then other producers given its economics of scale and high revenues from associated condensates and natural gas liquids. |
Outlook | With RasGas now having completed its ambitious expansion scheme, Qatar only has two remaining LNG trains left to bring onstream before its 77-million-t/y production capacity goal is reached and its domination of the global LNG markets is cemented. |
One of Qatar’s two LNG production and marketing companies, RasGas, yesterday reported having brought its last LNG train onstream, bringing to an end its integrated expansion of gas production from the giant offshore North Field and its treatment, liquefaction, and export of LNG—at least for now. Train 7, the second of two mega trains from the RasGas III venture and the seventh and last planned train from all of the combined RasGas subsidiaries, has a 7.8-million-t/y LNG production capacity and takes RasGas’ combined LNG capacity to 36.3 million t/y.
RasGas—like Qatar’s other LNG producer Qatargas—is mainly a joint venture (JV) between state-owned QP (70%) and operator ExxonMobil (30%), although some of the subsidiaries or individual trains have other or additional shareholders. For RasGas’ this is the case in the smaller first two trains—with a capacity of 3.3 million t/y each—in the RasGas I venture, where QP holds a 63% stake, ExxonMobil a 25% operating stake, South Korea’s KOGAS a 5% stake, Japan’s Itochu a 4% stake, and Nisso Iwai the remaining 3% stake.
The construction of the two RasGas III trains was initially agreed and committed to in 2003, with mounting delays during 2006-08 (when regional contracting markets were overheating) causing significant delays to the development work. This delay, however, was countered with considerable success at the RasGas venture by the decision to pool much more of the contracting work and experience gained on the delayed first two 7.8-million-t/y mega trains from Qatargas II, from 2008 onwards, which RasGas overcome many of the teething problems faced by the delayed mega train projects (see Qatar: 6 March 2009: Further Delays Expected at Commissioning of First LNG Mega-Train in Qatar). This helped reverse some of the mounting delays both at later Qatargas ventures and at the subsequent RasGas III venture, where the first mega train—Train 6—came onstream in mid-2009 (see Qatar: 13 August 2009: RasGas Train 6 Off the Blocks in Qatar and Qatar: 27 March 2009: Short-Term Glut, Long-Term Hope: Qatar's LNG Trains Back On Track).
Market Weakness, Qatari Strength
RasGas III production from trains 6 and 7 has been earmarked for the U.S. markets since contracts were initially agreed amid a demand situation that looked significantly different. Since then, shale gas production has exploded in the United States, while the global economic downturn has had a strong impact on its domestic gas demand. It is also widely believed that the prolonged high oil and gas prices previous to the mid-2008 oil price crash have resulted in some permanent demand destruction, meaning that the overall outlook for the U.S. LNG import market is far form rosy. Having already become the world’s largest LNG producer, Qatar has strived to geographically diversify its client base and create a balance between the Atlantic and Indian Ocean/Pacific basins, a feat that is now being rapidly reversed by its need to send ever-larger amounts of LNG to Asia. The continued rapid Qatari expansion, together with a number of other LNG projects agreed in the pre-2008 climate, has meant that the global LNG markets have entered what looks like a prolonged period of weakness, which might even last until the second part of the decade, when a new wave of LNG production capacity is planned to hit the markets from Australia, running the risk of a new cycle of prolonged weakness.
Qatar has, however, shown little concern about this situation. The emirate has very low production costs given the integrated nature of its upstream operations, which for all its LNG ventures come from the same large gas reservoir, the giant offshore North Field. Low upstream production costs are, however, not its only strength, with the large number of relatively standardised LNG train designs providing the same economics of scale in the downstream segment. Qatar’s largest benefit is perhaps its considerable volumes of associated condensate and natural gas liquids (NGL), which are, for instance, likely to make it the world’s largest liquid petroleum gas (LPG) exporter this year (overtaking Saudi Arabia), according to a Poten & Partners analysis. The vast volumes of NGLs and condensates produced allows it to market liquids highly sought after by refiners for their large high- and mid-distillate yields, without falling under OPEC quotas. Furthermore, the revenues are likely of a scale where the associated production can more-or-less pay for the liquefaction operations, giving the Qatari producers a high tolerance for weak LNG prices.
Outlook and Implications
Future Growth
The completion of RasGas III’s development means that the only remaining development of new Qatari LNG production capacity is at the Qatargas III and Qatargas IV ventures, with one mega train each. Qatargas III is expected onstream in June, while Qatargas IV should be ready by September, completing Qatar’s goal of having installed 77 million t/y of LNG production capacity (see Qatar: 12 January 2010: Remaining Two LNG Mega-Trains to Come Onstream in June, September—Qatargas). After that Qatar has no plans to develop its North Field reservoir any further, with a moratorium on new projects set up already in the middle of the last decade recently having been extended into 2014.
This does not mean, however, that there will not be any additional LNG capacity growth from Qatar, which has said that de-bottlenecking of its mega trains in total is likely to add about 12 million t/y of LNG production capacity in a few years’ time. This could well come at a time just pre-empting the large LNG production capacity expansion in Australia, but is unlikely to deter Qatar, given the economy-of-scale gains to be derived from de-bottlenecking and adding all that capacity at a relatively low cost (see Qatar: 12 January 2010: Remaining Two LNG Mega-Trains to Come Onstream in June, September—Qatargas). Hence, while from many other LNG producers’ perspectives the market might look uncertain for quite some time, Qatar is likely to steam ahead, using the relatively low and attractive LNG prices to cement market share and further diversify its client base—with a special eye on potential new European regasification facilities—in order not to be too reliant on Asian demand now that U.S. long-term growth hopes have been seriously compromised.