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Tue 27 Oct 2009 12:22 AM

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Qatar eyes China as big new LNG volumes come online

World's biggest LNG exporter set to double production capacity this year.

Qatar eyes China as big new LNG volumes come online
(Getty Images)

Qatar is looking to China to absorb some of the huge increase in liquefied natural gas (LNG) supplies as the world's biggest LNG exporter nears completion of its plan to double production capacity this year.Qatar inaugurates on Tuesday the second of three giant LNG plants it has started up in 2009. The plants are the largest in the world, and were expected to help Qatar's economic growth this year outperform oil-exporting Gulf Arab neighbours constrained by OPEC output quotas.

Tiny Qatar sits atop the world's third-largest gas reserves and has gambled tens of billions of dollars on developing its resources, but a huge amount of new supply is coming to a market which has lost some of its appetite in the biggest economic downturn in decades.

The new facility that super-chills gas for transport as liquid is called RasGas Train 6. Exxon Mobil owns 30 percent of the plant. When it and partner Qatar Petroleum began construction, the supplies were slated for the United States and Asia.

But Asia, led by China, was likely to be the target market as rising domestic gas supplies in the United States cap slow demand from the world's largest economy. The US has seen energy consumption drop sharply due to the recession. In contrast, China posted the fastest rise in oil demand in over three years in September.

"Qatar is going to want to lock up China before anyone else comes in with new production, mainly Iran and grassroots LNG projects in China itself," said Al Troner, president of Asia Pacific Energy Consulting in Houston.

"It is a relationship that is not going to be mutually exclusive, but it is going to get deeper ... China will always take some LNG and I believe that commonly talked about ceiling of about 30 million metric tonnes per year annually is pretty likely... and they will have enormous gas needs."

The world's second-largest consumer of energy imported a record 800,000 tonnes of LNG in September. Imports in October are expected to be at similar levels.

Last week China received its first LNG cargo of about 216,000 tonnes from Qatar, part of a 25-year supply deal between two state companies: the China National Offshore Oil Corporation (CNOOC) and Qatargas.

Qatar was already the world's largest LNG exporter and one of the richest countries per capita before 2009, when it plans to double its LNG capacity to around 62 million tonnes per year.

As the global economy shifts gears into recovery and energy demand revives, Qatar is well placed to reap the rewards of its long-term push to the peak of the LNG exporters league.

"The near-term outlook is good, but it's over the long term that these projects are really going to prove their worth," said Simon Williams, chief economist at HSBC Middle East.

Qatar's growth is expected to run close to 10 percent in 2009 compared with a flat year for the rest of the region, Williams said. Next year, Qatar would again be around 10 percent, while the region grows 4 percent, he added.

Rasgas train six has a capacity of 7.8 million tonnes per year. Trains of the same size, Qatargas trains four and five, have also started up this year. Rasgas train seven was due to be completed by the end of this year.

Train six has already reached full capacity and loaded several cargoes, RasGas executives said on Monday.

Qatar has most of its future gas production on long-term contracts and has showed little concern about shipping so much more gas into a weak market.

Exxon is the largest foreign investor in Qatar and the bulk of Exxon's global production growth in 2009 is coming from the Gulf Arab state.

Qatar has divided LNG production between two firms, Rasgas and Qatargas. Both are majority owned by state oil firm Qatar Petroleum.

The International Energy Agency (IEA) forecasts global demand for natural gas will increase by roughly 50 percent by 2030, despite a challenging outlook for producers with prices still low as LNG production capacity increases and unconventional gas supply continues to transform world gas markets. (Reuters)

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