Photographer: Brendon Thorne/Bloomberg

Qatar Passes First Test in LNG Expansion. Now Partners Can Join

  • Expansion could cost almost $28 billion: Sanford C. Bernstein
  • Project moving ‘full steam ahead’: Qatar Petroleum’s Al-Kaabi

Qatar managed to keep liquefied natural gas exports flowing last year even under a Saudi-led embargo, passing its first test in its plans to expand LNG production.

Now the world’s biggest LNG exporter gets to pick who its partners will be.

Qatar ended 2017 with LNG exports slightly above its 77 million ton annual capacity, mirroring levels recorded in previous years, according to ship-broker Poten & Partners Inc.’s data compiled by Bloomberg. The result bodes well for state-run Qatar Petroleum’s plan to increase output by 30 percent to 100 million tons in five to seven years.

Energy companies "are not dissuaded from wanting to explore financing or investment opportunities," said Richard Mallinson, an analyst at Energy Aspects Ltd. in London. The embargo didn’t lead to a “disruption of supply so that will be reassuring for buyers who are concerned about political risks.”

India’s Petronet LNG and Total SA have publicly expressed interest in buying stakes in the expansion. The project is moving "full steam ahead," Qatar Petroleum Chief Executive Officer Saad Sherida Al-Kaabi said earlier this month. All companies in the world that want to expand in LNG “are knocking on QP’s door,” he said.

Cost Leader

Qatar will spend less than competitors to expand its liquefied natural gas output

Source: Sanford C. Bernstein

Note: Net present cost of new LNG; includes capital expenditure, gas and shipping

Companies in China, Russia, the U.S. and Europe approached Qatar Petroleum in recent months to participate in the expansion, according to one person with knowledge of the talks who asked not to be identified because the information is private.

Stakes are high for global energy companies. Winners in Qatar’s expansion will get a slice of what will be the lowest-cost LNG project as the market swings from surplus to deficit next decade. New supplies are especially attractive to buyers of the fuel in Asia where demand is rising.

The 23 million tons of new LNG production could cost about $27.6 billion, according to Sanford C. Bernstein Ltd. That’s a bargain compared with the $88 billion that Chevron Corp. spent to build the 24.5 million ton per year Gorgon and Wheatstone export developments in Australia.

Qatar Petroleum didn’t respond to emailed questions or to a request for an interview.

Saudi Arabia and its allies accuse the Qatari sheikhdom of funding terrorism and maintaining cozy ties with regional rival Iran. The allegations, which Qatar denies, pit Saudi Arabia, the world’s largest crude exporter and biggest supplier in the Organization of Petroleum Exporting Countries, against the group’s smallest Arab producer.

Read more about Qatar Petroleum’s LNG expansion plans here

Deciding the partner will largely depend on commercial consideration, but geopolitics also has a role. Qatar Petroleum’s CEO said co-investors will be selected without a tender process. Since the embargo started in June last year, the country has sought to shore up relationships, purchasing U.S. military jets, Italian naval ships and planes from France.

"There are diplomatic and trade advantages of making links and strengthening links," Mallinson said.

— With assistance by Kevin Varley, and Perry Williams

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