In recent years Qatar – one of the largest exporters of liquefied natural gas (LNG) – has embarked on a strategy to expand production from its North Field. Russia’s invasion of Ukraine in February 2022 underscored the importance of the project, as European countries move to diversify away from Russian-sourced coal, oil and gas.
The offshore field is one of the world’s largest non-associated natural gas fields, and the first phase of the expansion project is poised to increase Qatar’s liquefaction capacity from 77m tonnes per annum (tpa) to 110m tpa. A second phase, North Field South, aims to raise capacity to 126m tpa by 2027. This will enable Qatar to double its current LNG exports by 2025 and increase its production capacity by 67% when the site is completed in 2027.
Business Case
The fact that Qatar has the world’s lowest lifting expenses – defined as the costs to operate and maintain wells, related equipment and facilities after hydrocarbons have been developed for production – reinforces the case that the investment needed for the expansion will pay dividends. The project will require an estimated $50bn.
Qatar Energy (QE) – formerly called Qatar Petroleum before the company changed its name in October 2021 in light of its effort to pursue more sustainable sources of energy – is the national energy company behind the expansion project. The integrated oil and gas firm has operations spanning the hydrocarbons value chain. This allows for control of costs and synergies – for example, by providing inputs for its large-scale gas-to-liquids plants at Ras Laffan Industrial City. Moreover, in 2025 an ethane cracker with a capacity to produce 1.8m tpa – the largest in the Middle East – and two downstream polyethylene plants come on-line.
The company has worked to develop its global reach in recent years, an effort that is expected to place QE in an advantageous position for exports once more countries shift to LNG. In early 2022 Qatargas, the QE unit overseeing the expansion project, signed a deal to acquire 10 steam turbine LNG carriers, and has secured berths for 100 new vessels at Chinese and South Korean shipyards, further strengthening its logistics network.
It is expected that the North Field expansion project will deliver LNG at breakeven prices of around $4.00-4.50 per million British thermal units (Btu), which is the lowest of projects in the pipeline as of November 2021. By comparison, the average price of LNG delivered to North Asia in 2021 reached $15.98 per million Btu, up from $6.30 in November 2020, reflecting increases in oil and spot gas prices.
Global Competition
Qatar, along with Australia and the US, is one of the top exporters of LNG. Qatar and Australia both delivered around 106bn cu metres of LNG in 2020, but exports from the US exceeded Qatar’s for the first time in December 2021, on the back of rising demand in Europe. The expansion project should help support Qatar’s position as the world’s top supplier, despite the rollout of additional capacity in both Australia and the US.
Even before Russia’s invasion of Ukraine in February 2022, the project was deemed necessary to match Australia’s efforts to expand gas production in the coming years. In March of that year the Australian government announced plans to allocate $50.3m to seven projects under its Future Gas Infrastructure Investment Framework, as well as a carbon capture and storage facility. Through this and other related initiatives, the government of Australia is working to secure domestic energy supply and match rising demand for LNG in Asia.
With this trend in mind, Qatar signed several contracts with customers in Asia, ensuring that Qatar will continue to be a significant player in the continent’s transition from coal power to natural gas plants. For example, in September 2021 QE agreed to supply China’s CNOOC with 3.5m tpa of LNG from Ras Laffan between 2022 and 2036.
Gas Diversification
Europe is looking to Qatar as a possible source of additional LNG volume as it works to diversify its sources of energy away from Russian gas, which accounts for more than 40% of the region’s supply. In 2020 the EU imported around 5% of its natural gas imports from Qatar. However, a sharp increase in exports to the EU in the immediate aftermath of the invasion is unlikely, as the majority of the 170bn cu metres of natural gas produced a year is tied up in long-term contracts with clients in Asia. In February 2022 Saad Sherida Al Kaabi, CEO of QE, told international media that because of these agreements, the country would only be able to increase the volume of natural gas exports to Europe by around 10-15% a year.
Germany, which imported over half of its natural gas from Russia in 2020, is particularly concerned about its vulnerability to a potential shutdown of overland pipelines. The country, along with others, has looked to Qatar as a future source of energy as the EU works to wean itself off of imports from Russia. Indeed, in March 2022 Germany announced it had signed a long-term contract with Qatar for LNG. France, Belgium and Italy were also reportedly in talks to buy natural gas on a long-term basis from the Gulf nation, as of March 2022.
Sustainable Shift
Even if tension in Europe recedes and spot gas prices drop, industrialising countries will require greater supplies of natural gas as an intermediate energy source on the road towards renewable and nuclear alternatives. With this in mind, QE is positioning the North Field expansion within the context of its Sustainability Strategy, launched in January 2021. The framework aims to adapt to a changing energy landscape and ensure the company’s business model is in line with the global energy transition.
Key goals of the Sustainability Strategy include reducing the emissions intensity of its LNG facilities by 25% and that of its upstream facilities by at least 15% before 2030, relative to 2013 levels. Carbon capture and storage technology underpins this goal, and the North Field is set to incorporate a major such facility as Qatar seeks to grow its CO capture capacity from 2m tpa to 9m tpa by 2030. The Sustainability Strategy builds on earlier efforts to incorporate more sustainable practices into business operations. In April 2019 Qatargas signed an agreement with German chemical producer BASF to provide gas removal and treatment technologies for the North Field expansion.
More recently, in March 2021 Qatar joined a global initiative led by the World Bank and the Global Gas Flaring Reduction Partnership to end routine gas flaring by 2030. In November of that year QE announced plans to map all greenhouse gas emissions from Qatar’s LNG production and transport networks. In particular, the company pledged to prevent leaks of methane throughout the LNG value chain, from well to delivery. “The development of low-carbon technologies and fuels is one of the areas where Qatar is positioning itself to be a leader,” Saleh bin Mohamed Al Nabit, president of the Planning and Statistics Authority, told OBG. “This can be seen with the rebranding of QE, along with new research and developments implemented in collaboration with international partners.”
In another step towards sustainability, QE signed an agreement with Shell in October 2021 to collaborate on blue and green hydrogen projects in the UK. Blue hydrogen is produced using natural gas, and the resulting carbon is captured and stored, while green hydrogen is generated using renewable energy. The latter could potentially come from the 4 GW of additional capacity that Qatar intends to add to its portfolio by 2030, beginning with a new 350-MW solar plant. QE hopes that the agreement will help foster innovation and investment in low-carbon fuels and technologies, which the company has identified as a key priority moving forwards. Efforts to encourage the adoption of the new carbon technologies is expected to focus on sectors such as industry and transport – areas in which hydrogen could serve as a bridge to a low-carbon future in markets across the world.
Also in October 2021, QE signed a supplementary agreement to improve cooperation on the development of hydrogen with South Korean public-private group Hydrogen Convergence Alliance, also known as H2Korea. The deal outlined plans to collaborate to facilitate growth, developing technology and boosting the hydrogen energy supply.
Another key aspect of the shift is a new solar plant, located in Al Kharsaah. The facility will have a capacity of 800 MW and its first phase is expected to be completed in the first half of 2022. It will account for 7.5% of the total power capacity and is capable of producing 10% of Qatar’s peak energy demand.
