U-turn: Qatar woos to sell more LNG

The world has turned around for Abdullah Bin Hamad Al-Attiyah, the Qatari deputy prime minister and minister of energy. Al-Attiyah is in Delhi trying to convince India to take more of Qatar’s gas.
Barely two years ago Qatar could not wait for 2010 to arrive, when it would have a national LNG production capacity of 77 million tonnes per year.

2010 is here, and as promised, Qatar is set to own around one-third of the world’s total LNG production capacity.

However, contrary to expectations, it is Qatar which is chasing India and not the other way round.

“When the (Indian) companies approached us earlier, all our LNG was sold out. But since then, we have had diversions,” explains Al-Attiyah on his visit. The deputy premier now wants India to up its annual LNG purchases from his country to 11.5 million tonnes from 7.5 million now in the next three years. “We hope to reach an agreement within a few weeks,” he adds.

Qatar is in talks with the state-owned Gas Authority of India (GAIL) and Petronet LNG trying to enter into long term supply contracts, especially since India will have more than doubled its LNG handling capacity by the end of this year.

India used to import around 10 million tonnes of LNG till a year ago, about 70% from Qatar, with its LNG import facilities running on full.

Thanks to expansions at Dahej, Kochi and the ressurection of the Dabhol terminal, that capacity is likely to cross 20 million tonnes by the end of the year.

However, GAIL and Petronet are playing hardball, pointing out that India already has more gas than it could use thanks to Reliance Industries’ prolific D6 block that has a capacity of 20 million tonnes per year.

“What will we do with more gas,” asks a Petronet official, “We don’t have the pipelines to handle more. Reliance can supply an extra 5 million tonnes tomorrow if we can find ways to connect those who need it to the pipeline,” he adds.

Another reason for the reluctance is the high prices Asian countries have been paying for liquified natural gas shipped in super tankers.

Prices in Asia are still around $10 per thousand cubic feet, compared to around $5 in the US and Europe, primarily because Asian customers tie gas price to oil price.

The new LNG facilites have fundamentally altered the market, says Fereidun Fesharaki, chairman of FACTS Global Energy, US.
“For the next 10 years, oil and gas have divorced. They will go in their own directions,” he says.

With more and more production capacity scheduled to come online in the next five years, the game is likely to favour buyers rather than producers.

From 250-300 million tonnes per year, LNG production capacity is likely to increase to around 400 million tonnes in 2015.

“Out of this, North America is likely to import 25-35 million tonnes, Europe is likely to import around 35 million tonnes and Asia’s likely to buy 190-230 million tonnes. That still leaves about 115 million tonnes of LNG that has nowhere to go,” says Vipul Tuli, director at consulting firm Mckinsey & Co’s India unit.

With lower gas prices, India may be able to shift part of its power generation from coal to gas, he adds.

“At $9 per mmbtu [1,000 sq ft], gas-based power can only be used to meet peak power demands. At $5 beach prices, there is virtually unlimited demand from power plants in India, as much as 200 million tonnes a year,” he said.

India currently uses around 170 million tonnes of natural gas, mostly from ONGC and Reliance Industries.