Wood Mackenzie: Next Wave of Qatari LNG May Come from North America

Investments in new liquefaction capacity from the US may provide Qatar with greater commercial and political value than investments in new Qatari LNG capacity, according to a report by Wood Mackenzie.

Wood Mackenzie’s report titled “What next for Qatar and LNG?” notes that Qatar Petroleum International (QPI) owns the Golden Pass regasification terminal in the US Gulf Coast. QPI and its partner ExxonMobil are considering the re-development of Golden Pass as a liquefaction facility. As a result LNG from Golden Pass could be base loaded into the UK, backfilling Qatari LNG that is being re-directed east, to Asian markets.

“A Golden Pass liquefaction project could offer advantages over some other proposed US LNG projects, including lower development costs and less financing challenges” said Noel Tomnay, Head of Global Gas Research.” In addition the combination of QPI’s underutilized regasification capacity in the UK and Qatar’s excess LNG shipping capacity could provide a sunk-cost economic advantage of some US$1-1.50/mmbtu (British Thermal Units) over other proposed US LNG export projects for European supply.

“The bolstering of Europe’s, and specifically UK’s, energy security of supply through the facilitation of LNG exports from the US, combined with Qatari energy investment in North America, would strengthen Qatar’s geopolitical hand,” added Tomnay.

By contrast, development of new LNG capacity in Qatar could be value destructive. Restricting new Qatari LNG capacity helps protect the value of Qatar’s existing contracts, some of which expire within the next 10 years and will be subject to price negotiations.

ExxonMobil is a major investor in Qatar and is actively promoting a Golden Pass LNG development.  Wood Mackenzie estimates ExxonMobil’s gas and LNG position in Qatar represents 19 percent of its upstream value.

There is no guarantee that liquefaction development and LNG exports from Qatar’s existing Golden Pass facility in the US Gulf Coast will achieve the necessary export regulatory approvals. Golden Pass is down the U.S. Department of Energy’s (DOE) queue of US non-Free Trade Agreement (FTA) LNG exports project approvals.  However the project could benefit from future legislative and FTA agreements. “The Expedited LNG for American Allies Act of 2013” bill promoting US LNG exports to North Atlantic Treaty Organization (NATO) countries is to be presented to the US congress and the US and EU are negotiating an FTA agreement.

“A successful conclusion to either of these initiatives could enable Golden Pass LNG exports to the UK,” concluded Tomnay.

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Source: Wood Mackenzie, April 17, 2013; Image: Golden Pass