Upheaval Prompts Qatar to Review Expansion Plan

Timelines keep slipping on partner selection for the 32 million ton per year first phase of Qatar's LNG megaexpansion. Equity stakes of up to 30% in the world's biggest LNG project were originally to have been awarded in early 2020, but the latest end-March deadline has again been missed. Details are sketchy, but one source says some prequalified firms were asked to resubmit bids back in February. While no firm reason was given, the buzz is that the market upheaval of the past few months has prompted state-owned QatarEnergy to review its whole LNG expansion strategy.  

Exxon Mobil, Shell, ConocoPhillips, TotalEnergies, Chevron and Eni have all made the partner short-list. Doha has also been in talks with Asian customers about equity stakes. But Qatar has made it clear it would be prepared to fly solo on the 48 million ton/yr expansion.  

Asian LNG spot prices of around $26 per million Btu are roughly five times levels when the six firms were shortlisted in 2019. And Europe's determination to pivot away from Russian piped gas has put LNG suppliers even more firmly in the driving seat, with a long queue of prospective customers canvassing Qatari Energy Minister Saad al-Kaabi for contracts.  

Even before the Russian invasion of Ukraine, Qatari LNG occupied a prized market position. Due to its geological bounty and use of emissions-reduction technology at scale, it has substantially lower greenhouse gas emissions than most other supply — helping future-proof it against energy transition pressures.  

Add to this low production costs, ample profits-boosting associated liquids and the ability to supply customers both east and west, and it is easy to see why any foreign investment rethink would come as a blow to prospective bidders. The fact that the Ukraine war has knocked out rival projects in Russia and emasculated the majors' production growth makes the development even more attractive.  

Pivotal  

A slice of the expansion pie would mean different things to different firms, but would be significant for all.

For Exxon and Total, it could counterbalance the loss of their Qatargas-1 project, which expired at the end of 2021. For Exxon and Shell, it could stem years of hemorrhaging net Mideast output — in Exxon’s case a decline dating back a decade.

For Total, it would also aid the drive to transition to advantaged, lower-carbon output. The loss of Syrian gas output in 2011 and its 6.7 million ton/yr Yemen LNG project to war in 2015 means Total has far and away the most liquids-heavy regional output profile of the majors. Some 77% of Total’s 2021 net output was oil, compared to 51% at Shell, with all the other majors in the region running gas-heavy operations.  

For Chevron, a Qatar entry would establish it as a significant regional gas player and show that its 2020 purchase of Noble gas assets offshore Israel would not hinder its ability to win projects in countries that do not recognize Israel.

For Eni, a win would help meet energy transition targets and turn it into a bigger LNG player. Conoco has made public its desire to deepen what has been a very profitable investment relationship with Qatar.  

Some firms will likely be disappointed. But for geopolitical reasons, if nothing else, Doha is still likely to award a significant stake in the project. The blockade imposed on Qatar by its Gulf rivals from June 2017 to January 2021 traumatized the leadership, and it is hard to imagine no US firm winning a share.  

Building Big  

Qatar is not waiting on partner selection to start work. It has imposed an effective information blackout on construction, but there are no signs of delays to the scheduled end-2025 start up. And as far as the LNG storage component is concerned, progress has been good, a Doha-based source says.  

No final investment decision on the project's 16 million ton/yr second phase has been made public. But Doha is already awarding contracts linked to the so-called North Field South development, which will hike capacity to 126 million tons/yr. The latest was a contract let to Tecnicas Reunidas, which the Spanish engineering firm says is for associated liquids and storage and loading facilities for the two second-phase trains.