Conoco Wins Final Stake in Qatar LNG Expansion

Qatar has surprised industry watchers by selecting ConocoPhillips over dominant LNG investor Exxon Mobil to take the final equity position — a 6.25% stake — in the second phase of its giant North Field LNG expansion.

Several weeks ago, QatarEnergy had stated that "three new partners will be entering" the 16 million ton per year North Field South (NFS) project in addition to TotalEnergies.

The assumption was that this would be Exxon Mobil, Shell and either Eni or ConocoPhillips, the other two short-listed firms. Exxon had won a stake in the North Field East (NFE) project, the 32 million ton/yr Phase 1 of the expansion, in June.

The first sign that Exxon might not play a leading role in Phase 2 of Qatar's expansion came with the award of a 9.375% stake in NFS to Shell on Oct. 23.

Given a previous announcement that 25% of the equity would be made available to strategic international investors, and the prior award of 9.375% to Total, that left just 6.25% — in effect a junior stake.

But Exxon is a heavyweight in Qatar. The US major pioneered the 7.8 million ton/yr megatrains and QatarMax tankers that helped revolutionize Qatar’s LNG industry.

The US major is an investor in nine of Qatar's existing 14 LNG trains and lead partner on two major Qatari pipeline projects.

And in addition to being one of the three biggest international investors in the Phase 1 NFE, Exxon is also partnered with QatarEnergy in the 18.1 million ton/yr Golden Pass LNG project in Texas.

The NFS news comes hard on the heels of a decision to separately market Golden Pass LNG volumes, doing away with a specially created joint marketing vehicle, Ocean LNG, that QatarEnergy and Exxon had created.

Tight Terms

It could be that the bar for entry was set too high. Qatar is understood to have leveraged the North Field project's natural advantages to squeeze exceptionally tight terms out of investors. In addition to economies of scale and low-cost gas, profitability is boosted by large volumes of valuable associated liquids (see table).

Speaking to Energy Intelligence in August, Exxon Head of Global LNG Peter Clarke described Qatar as "probably the world's most competitive LNG supplier."

Further, QatarEnergy has invested over $250 million in a range of decarbonization technologies, including carbon capture and storage and solarization of utilities, to deliver what it is touting as the lowest-emissions LNG on the market.

"This will enable our LNG to play an important role in supporting a pragmatic, equitable and realistic energy transition," Saad al-Kaabi, Qatari energy minister and QatarEnergy CEO, said at Sunday's signing ceremony with ConocoPhillips.

ConocoPhillips' Qatar Focus

ConocoPhillips has looked at investing in the Middle East a few times over the past 20 years. It considered participating in Saudi Arabia's strategic gas opening in the mid-2000s, and it performed due diligence on Iraq's 2009 upstream bid rounds.

It actually signed a $10 billion agreement in 2008 with Abu Dhabi to develop the Shah ultra-sour gas field, only to controversially pull out of the project two years later.

In short, ConocoPhillips has largely signaled that it does not view the region as a natural investment fit — with the exception of Qatar.

The company has always valued its historical investment in the Qatargas 3 project, and won a 3.125% stake in the Phase 1 NFE expansion in June. Furthermore, sources say, CEO Ryan Lance enjoys good personal relations with Qatar's emir.