WHILE Prime Minister Peter O’Neill was promoting Papua New Guinea’s resource sector in Sydney recently while attending the Mining and Petroleum Conference, Qatar Minister of State for Energy Affairs Saad al-Kaabi made an important announcement.
That is to exit the Organisation of the Petroleum Exporting Countries (Opec) in January 2019 to concentrate more on gas industry.
This was in headline or leading news in all international media including TV interviews.
Since PNG is also a gas exporter and about to start the second liquified natural gas (LNG) project, it is important to understand the effect of Qatar’s decision on international market.
Qatar is the first Gulf country to leave the bloc of oil-producing countries since formation.
There are two categories of countries in world petroleum business: Opec countries (members of Opec) and non-Opec countries.
It was formed in 1960 when non-Arabic western countries were dominating the international petroleum market for their benefit and denying fair return to oil producing countries.
Founding members were: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Qatar joined Opec in 1961, one year after it was formed.
Subsequently, nine more member countries joined the organisation.
They included Indonesia, Ecuador, Angola, Gabon, Equatorial Guinea and Congo, making 15 members.
With the exiting decision of Qatar, after 57 years being a member, the Opec membership will be reduced from 15 to 14 in Jan 2019.
Opec’s objective is to co-ordinated and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers and fair return on capital to those investing in the industry.
Oil producers operating outside the Opec are referred to as non-Opec countries and these countries are responsible for producing 60 per cent of the world’s oil production.
There are 15 largest oil producing countries outside of Opec.
Out of this, the seven largest are Russia, the US, China, Mexico, Canada, Norway, and Brazil.
In a recent meeting held in Vienna, Opec has consulted these non-Opec countries, particularly Russia, in reaching the decision to cut down world oil production by 1.2 million bpd (barrels per day) in order to boost the market.
Now non-Opec countries such as Russia have gained more clout alongside Saudi Arabia in setting oil policy.
This clearly indicates that Opec along cannot dominate the market in current context.
According to al-Kaabi, the decision to exit Opec is purely a non-political.
He did not name Saudi Arabia in his announcement but hinted that the oil business was controlled by a an organisation managed by a country.
Critics say that Qatar’s exit is said to be an outcome of a rift which began last year when Saudi Arabia led neighbouring countries such as United Arab Emirates, Bahrain and Egypt.
In June 2017, Saudi Arabia accused Qatar of supporting terrorism and destabilising the region.
Qatar – which shares its only land border with Saudi Arabia – has rejected the accusations, calling them “unjustified” and “baseless”.
They imposed a trade and travel embargo on Qatar over allegations.
Yemen and the Maldives also cut ties with Qatar.
Qatari citizens have been told they have 14 days to leave Saudi Arabia, Bahrain and the UAE, and those countries also banned their own citizens from entering Qatar.
This is the worst diplomatic crisis to hit Gulf Arab states in decades.
In terms of petroleum production, Qatar is one of Opec’s smallest oil producers.
It produces 600,000 bpd and accounts for 2 per cent of Opec’s total compared with more than 10 million barrels produced by Saudi Arabia or the three million produced by the UAE.
The biggest producers are Saudi Arabia and Iraq in the cartel.
In this context, Qatar’s exit is unlikely have a significant impact on oil market, according to commentators.
Further, Qatar clearly stated that it would not stop oil production and continuously produce and supply oil for the international market as non-Opec member like some other countries.
Since 2013, the amount of oil Qatar produced has steadily declined from about 728,000 bpd in 2013 to about 607,000 bpd in 2017.
Therefore, withdrawal from Opec is said to be a “wise decision” as suggested by analysts.
As clearly stated by the energy minister in his announcement, Qatar is one of the smallest oil producers in the Opec but the world’s biggest LNG exporter.
He wants to put effort and time and focus on its LNG production.
LNG does not come under Opec purview and involves different players.
The gas is situated at the South Pars field, right off the country’s coast – the largest gas field in the world.
Qatar, the world’s largest LNG producer and an influential player in the global LNG market with annual production of 77 million tons per year, shares the field with Iran.
Currently, Qatar provides about 30 percent of all the liquefied natural gas on the market.
According to al-Kaabi, Qatar wants to increase its gas exports from 77 million tonnes per year to 110 million tonnes by 2024 at the latest.
This expansion is an outcome of adding a fourth liquefaction train.
The fourth liquefaction train, like the three trains announced earlier as part of a project to develop additional gas from the North Field, will be of nearly 8 million tonnes per year (mtpy) capacity.
A vast majority of the country’s natural gas reserves are located in the giant offshore North Field, which covers an area almost equivalent to Qatar itself.
North Field is the world’s largest non-associated gas field.
It is the main source of Qatar’s natural gas production.
The Barzan gas project, the latest North Field project under construction, is expected to produce an additional 600 billion cubic feet of gas per year.
When the project is completed, Qatar’s LNG production capacity will scale up by almost 43 per cent from the current 77 mtpy, enabling the country to consolidate its position as the world’s largest LNG producer and exporter.
Qatar is a member of a natural gas producers’ group, the Gas Exporting Countries Forum, which has a headquarters in Doha, the country’s capital.
According to reports, Qatar is expected to generate US$40 billion (K130.51bil) in additional export revenue once it completes its natural gas expansion project in 2024.
Rising income from sales of LNG will leave the government with a budget surplus of about US$44bil (K143.56bil) in 2024, with the bulk of the extra cash going to the US$320bil (K1.05tril) Qatar Investment Authority, the country’s sovereign wealth fund.
Qatar holds the third largest natural gas reserves in the world.
Its proven natural gas reserves as of December 2012 were estimated at 885.3 Tcf (trillion cubic feet).
It accounts for around 13 per cent of the world’s total natural gas reserves.
Natural gas accounts for more than 70 per cent of Qatari government revenues, around 60 per cent of its gross domestic product (GDP), and approximately 85 per cent of its earnings from exports, according to government data.
The natural gas resources are developed by integrated mega projects in association with foreign players, including ExxonMobil, Shell and Total.
Growing market demand
World demand for LNG is in the growing trend due to two reasons: one being countries doing away from coal power and the second being the huge demand in China for rapid industrial expansion. This growing demand leads the International Energy Agency to forecast that the global natural gas market will expand 45 per cent by 2040.
That puts gas right up there with renewable energy and increased energy efficiency as one of the three main factors that will help the world meet its energy needs over the next two decades.
At the same time, these projects have the potential to generate lucrative returns for investors in the companies developing them.
This fast-paced growth will require billions of dollars of annual investment to develop new sources of natural gas as well as the associated infrastructure to get it to market.
“Increasing demand in 2017 also contributed to strong growth in global LNG trade, as LNG establishes itself as the fuel of choice in markets across the world.
“The Asia-Pacific region continued to be a core driver in global demand, with China alone adding 12.7 MT of imports in 2017 – the largest ever annual growth by a single country.
“This growth can be attributed to the strong enforcement of coal-to-gas switching policies through China, as policymakers aim to improve urban air quality across the country.
“Other countries driving global LNG growth include South Korea, Pakistan and Turkey, which together added a combined total of 11.9 MT in imports”. (World LNG Report 2018)
Qatar’s expansion of LNG will definitely increase the world supply.
At the same time, there are other countries including PNG supplying more LNG.
On the demand side as forecast by IEA (International Energy Agency), world demand for LNG will increase at a rapid rate.
Therefore, there is no reason to believe that Qatar’s decision will adversely affect the other LNG-producing countries like PNG unless there will be a serious economic crisis.
- Panditha Bandara is senior lecturer at the School of Business and Public Policy at the University of Papua New Guinea