LNG developers looking to FID in 2018 will see an increasing LNG supply gap for 2022 and 2023 with Qatar Petroleum Corporation’s announcement that its expansion to add 3 bcf/d of LNG capacity is now targeting year-end 2023 and not as early as July 2022. Last July (July 4, 2017), QPC announced that its 3 bcf/d expansion would be completed within 5-7 years ie. July 2022-July 2024. Today’s announced year-end 2023 timing represents an 18 month delay to that potential early completion date of July 2022 and now closer to the late completion date of July 2024. LNG supply was balanced in 2017 but there are continued large LNG supply additions in 2018 and 2019. The key for LNG buyers is what fills their increasing demand once the 2018 and 2019 supply wave is absorbed. Qatar’s 3 bcf/d expansion was the largest LNG supply project in the July 2022-July 2024 period. This 18 month delay creates the expectation of a bigger LNG supply gap in 2022 and 2023, and should help push more LNG buyers to try to lock up supply. It is certainly a positive for LNG developers and creates a higher likelihood for some of these LNG projects, like Shell’s LNG Canada, to go FID over the summer.
Qatar’s LNG expansion targets to add 3 bcf/d by yr-end 2023. Qatar Petroleum Corporation issued a press release today [LINK] announcing it had awarded the front end engineering and design contract for the onshore LNG facilities needed to liquefy the increased natural gas volumes from the expansion of its Qatar North Field. These new onshore facilities will produce “an additional 23 million tons per annum (mtpa) of LNG, which will raise Qatar’s production from 77 to 100 mtpa, as was announced by Qatar Petroleum last July.” QPC also said “The FEED scope of work will provide the basic design for the addition of 3 x 7.8 mtpa mega-trains of LNG production with associated pre-investment to add a 4th LNG train in the future.” Each 7.8 mtpa train is approx. 1.025 bcf/d, or a total of 3.075 bcf/d for the first 3 trains, and the potential to get to 4.1 bcf/d if expanded to include the 4th train.
The expansion was originally targeted to start July 2022 to July 2024. It is significant that the target is now yr-end 2023 and not July 2022 -July 2024 as indicated last summer. Our July 4, 2017 blog “Today’s Qatar/Russia Gas Supply Announcements Add To The Challenge Facing BC LNG Post The New BC Govt” [LINK] noted Qatar plans to add 4 bcf/d to its natural gas production in 2022 to 2024 and we assumed that this would be exported via LNG. We then wrote “Today, Qatar announced it will add new supply of 4 bcf/d, not 2 bcf/d in 2022 to 2024. Today, Qatar Petroleum announced that it plans to increase its development plan for the south part of the North Field such that it will add 4 bcf/d and not 2 bcf/d. Assuming this all is via LNG, this represents 12% of 2016 LNG export volumes of 33.5 bcf/d. The timing remains for 2022 to 2024. We expect the timing is reasonable given this is expansion/development of an existing super giant natural gas field with existing natural gas/LNG infrastructure. The additional volumes will be basically all for export markets via LNG as LNG represents 88% Qatar’s natural gas exports with the balance being pipeline exported to UAE (one of the four who have cut diplomatic relations with Qatar) and Oman. Qatar is the #1 LNG exporter in the world, exporting 10.1 bcf/d or 30% of global LNG exports in 2016. Australia was #2 at 5.5 bcf/d in 2016.” Note that in the QPC July 4, 2017 announcement, QPC did not specifically state 2022 – 2024 but said “once completed within 5-7 years from now”, which would have put the completion date July 2022-July 2024.
The longer time frame makes sense if this is not an expansion of the existing onshore LNG facilities. Our July 4, 2017 blog also said that the quick 2022 -2024 timing was reasonable given it was an expansion of an existing gas field with existing natural gas/LNG infrastructure. However, we note QPC is being very precise with its language that it is an expansion of the North Field (ie. the offshore existing natural gas field, but does not use expansion when describing the onshore LNG facilities. We were originally going to write a much more bullish blog after seeing the ICIS March 13 story “Qatar unlikely to debottleneck LNG: moving closer to FID” [LINK]. We watched and watched to see if anyone else would have a similar insight. We could only find one other article on the net and on the Bloomberg terminal and that was a pickup of the ICIS story and no other similar stories. That article stated the onshore were going to be greenfield onshore LNG facilities and not an expansion of existing onshore LNG facilities, which meant the expanded LNG would not be on stream until 2025-2026. That would have been hugely bullish if that was true, but QPC today is clearly stating the 3 bcf/d LNG volumes are targeted to year-end 2023. Still bullish but not hugely bullish if the ICIS story was correct. We expect that QPC not calling the onshore an expansion project and the ~18 month start up delay vs last July’s announcement suggests ICIS was partially right, at least on their view that Qatar was building a new greenfield LNG onshore facility.
A delay in likely one of the cheapest LNG supply sources adds to the supply gap post 2022. The big additions for LNG supply projects under construction has been in 2016 and 2017, and continuing in 2018 and 2019. Shell’s recap of LNG projects under construction from their recent LNG Outlook presentation shows that there very little LNG supply planned to come on stream after 2019. This is the risk for LNG buyers that have come off a balanced 2017 market – what happens after the 2018 and 2019 LNG supply additions are absorbed. Qatar’s expansion, or for that matter, any expansion of a brownfield is critical as it can fill the LNG supply gap relatively quickly. It is why a delay of 18 months for low cost Qatar LNG is important to LNG markets. LNG outlooks do not include a list of LNG projects assumed to come on stream up until 2025. But we believe that all LNG forecasts assume that the Qatar North Field expansion is likely one of the cheapest new LNG supply projects for post 2020 and one that is in everyone’s mid term LNG supply forecasts. Exxon’s Global LNG Growth slide from its recent analyst day shows the longer term outlook for the lack of new LNG supply after 2019.
LNG Liquefaction Capacity Adds (mtpa)
Source: Shell
Global LNG Growth (mtpa)
Source: ExxonMobil
This 18 month delay isn’t going to be overlooked by other potential LNG FID projects like LNG Canada, Pieridae Goldboro and others. Since last summer, we have been very bullish in our LNG views that a supply gap would emerge closer to 2020 than the then consensus of 2025. There is no change to that bullish view. The key for LNG buyers isn’t the wave of new LNG supply that came on in 2016 and 2017 and continuing in 2018 and 2019, but what fills demand once this first wave of supply is absorbed. Qatar LNG expansion is broadly viewed as the lowest or one of the lowest cost and lowest risk big LNG supply adds from 2022 to 2025. This 18 month delay from the original expectations early completion date of July 2022 creates a bigger LNG supply gap in 2022 and 2023, and should help push more LNG buyers to try to lock up supply. We expect the 18 month delay is noted by other LNG developers looking to FID in 2018 and that this creates a higher likelihood for some of these LNG projects, like Shell’s LNG Canada, to go FID over the summer. For more on our recent views on LNG Canada, please refer to our March 15, 2018 blog “LNG Canada Reiterates It Wants To Be In Construction in 2018, Feels More Like An Expectation” [LINK] and our Feb 21, 2018 blog “Shell Called Tight LNG Markets >7 Mths Ago, Will They Keep Hinting And Pointing To LNG Canada FID Being Likely In 2018?” [LINK]