Qatar plans new gas output boost amid global price collapse

(Reuters) - Qatar will raise natural gas production despite a recent steep drop in global prices, in a long-term bet on rising demand for the less polluting fuel in Europe and Asia.

QatarEnergy chief Saad al-Kaabi said on Sunday a new expansion of its liquefied natural gas (LNG) production will add 16 million metric tons per year to its expansion plans, bringing total capacity to 142 million tons per year (tpy).

The Qatari announcement comes as Asian LNG prices have recently collapsed to a nearly three-year low as higher-than-usual temperatures during the Northern Hemisphere winter have slashed demand. LNG is gas that is super-cooled to a liquid, which reduces its volume to allow for transport by ship.

Asian and European gas prices surged to a record in 2022 following Russia's invasion of Ukraine and the subsequent cutoff of Russian gas supplies to Europe.

Amid the price surge, U.S. gas suppliers filled the supply vacuum, establishing themselves as the world's biggest LNG exporter in 2023, surpassing Qatar, though Qatari supplies also helped to replace the volumes.

The Qatari announcement also follows a decision from U.S. President Joe Biden to pause approvals for applications for new LNG export terminals for environmental reviews, prompting warnings from gas importers that the move would compromise future energy security worldwide.

In the announcement, Kaabi said Asian gas markets would continue to grow and Europe would still need more gas for the foreseeable future.

"We still think there's a big future for gas for at least 50 years forward and whenever we can technically do more, we'll do more," he said at a news conference in Doha.

"We see that Europe is going to need gas for a very, very long time. But the growth in Asia is definitely going to be bigger than the growth in Europe, basically driven by population growth."

With this added boost, output from Qatar's North Field will rise from 77 million tpy of LNG currently to 142 million tpy by 2030, an 85% increase in production.

Even as prices have dropped, major gas producers such as the U.S., Australia and Russia are seeking to increase output, betting on further demand growth and to profit from their gas supplies amid worries that it might not be needed decades from now if the energy transition makes green energy cheaper.

This latest expansion may not be the last for Qatar as Kaabi said appraisals of its gas reservoirs would continue and production would be further expanded if there is a market need.

BEARISH CYCLE

Analysts at Goldman Sachs said in a note on Sunday the Qatari expansion will extend the "bearish cycle" they see for LNG markets for the second half of this decade.

New global capacity expected to come by the end of the decade is equal to half of the global LNG supply in 2023, they said.

The "oversupply will in our view lead to increasing risks, especially from 2026, when we expect the Qatari expansion to start to come online, that global gas prices decline to supply cash costs, potentially leading to the cancellation of U.S. LNG exports, much like in 2020," they said.

But, they said, Qatar benefits from the expansion announcement since it is a low-cost LNG supplier and it adds to the image of Qatar as a dependable supplier, especially after the U.S. pause was announced.

State-owned QatarEnergy has already signed some supply deals with European and Asian partners for the North Field expansion project, which was expected - prior to Sunday's announcement - to begin producing 126 million tpy of LNG per annum by 2027, from the current 77 million tpy.

Exploration activities in the west of the North Field prompted the company's decision to expand further.

Kaabi did not give a cost for the project but said it would be in the billions of dollars.

"We will start preliminary engineering studies for the project and then at the right time we will announce how much is the cost when the project is settled."

In December, Kaabi told Reuters that QatarEnergy had been drilling wells to assess expansion opportunities beyond the North Field East and North Field South phases.

This latest expansion will require the construction of two LNG trains, in addition to six already underway for the earlier expansions.

On partnerships for the new trains, Kaabi said QatarEnergy will go ahead and begin the engineering phase of this project on its own without seeking partners and then take a decision on partnerships later.

The North Field is part of the world's largest gas field which Qatar shares with Iran, which calls its share South Pars.

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