OPINION: Qatar Petroleum's mouth-watering $28.75 billion final investment decision on its first-phase expansion at the giant North Field has bucked the trend of an oil and gas industry reeling from the effects of the coronavirus pandemic, but it also posts challenges to other liquefied natural gas projects yet to see the light of day.
The investment plan for the four-train expansion phase — named North Field East — has been touted as the largest single LNG project sanction in history and is set to significantly inflate the emirate's production capacity from a current 77 million tonnes per annum to 110 million tpa by mid-decade.
Qatar has taken a long-term view of the LNG market, taking advantage of its low production costs and rising spot prices as it aims to boost its global market share.
Wood Mackenzie research director Giles Farrer said that, at a long-term breakeven price of just over $4 per million British thermal units, Qatar’s production cost is right at the bottom of the global LNG cost curve.
While the first-phase sanction is likely to boost sentiment for the ailing upstream sector, it could also make it more challenging for other projects in the likes of Australia, the US and Africa to get off the ground.
As project financing becomes even more challenging for giant gas export projects that are dependent on fossil fuels, new investment decisions in liquefaction facilities globally will not come easy.
In addition, the continued growth of renewables also poses risks for the global LNG sector.
Pat Breen, chief executive of London-based consultancy Gas Strategies, last year highlighted a “grim” scenario in which no new LNG export projects may be required to meet global demand after Qatar’s huge expansion scheme.
While this scenario is unlikely and global LNG demand is expected to grow steadily until 2040 — led by the Asia Pacific region — the ongoing energy transition and Qatar’s ambitious export capacity, could create numerous hurdles for many LNG exporters.
(This is an Upstream opinion article.)