The Daily Update: Qatar & LNG Expansion

Earlier this month, Qatar Petroleum announced that it had taken the final investment decision to proceed with the North Field East (NFE) project that will boost Qatar’s LNG production capacity from 77m tons per annum (MMTPA) to 110 MMTPA. The project involves establishing a further four 8MMTPA LNG trains with production expected to start in 2025.

Qatar’s Minister of State for Energy Affairs and the President and CEO of state-owned Qatar Petroleum, Saad Al Kaabi, commented at a signing ceremony for the key EPC contract: “The execution of this EPC contract marks the commencement of the construction of the North Field East LNG Project, and is a significant landmark in Qatar Petroleum's strategic growth journey in a sustainable manner. The total cost of the NFE project will be 28.75 billion dollars, making it one of the energy industry’s largest investments in the past few years, in addition to being the largest LNG capacity addition ever, and the most competitive LNG project in the world. This project will generate substantial revenues for the state of Qatar and will have significant benefits to all sectors of the Qatari economy during the construction phase and beyond.”

Al Kaabi went on to note: “Today’s decision carries even more significance considering that it encompasses a number of concrete environmental investments in support of our strong commitment to achieve the highest environmental standards and to provide a credible solution in the low-carbon energy transition. One of the most important environmental elements of the NFE project is its CO2 capture and sequestration (CCS) system that will be integrated with our wider CCS scheme in Ras Laffan, which -once fully operational- will be the largest of its kind in terms of capacity in the LNG industry, and will be one of the largest ever developed anywhere in the world.” Al Kaabi has noted in another interview that continued gas supply remains important: “Renewables will definitely happen -- we’re doing a lot ourselves -- but you need gas to complement that”.

It remains to be seen if fewer LNG projects get the go-ahead in coming years but the need to be viable in a lower oil price world and the general pressure within the industry to focus on emission mitigation/renewables are likely constraints. The QP project is extremely competitive: Al Kaabi noted in a Bloomberg interview that the first phase of the expansion project will be viable with an oil price below USD20 per barrel.

Qatar’s natural resource endowment and accompanying LNG exports have been important drivers behind the economy’s transformation over the past 20 years and are a key factor behind its accumulation of sizeable asset buffers, a major economic and credit strength. The Qatar sovereign is rated Aa3/AA- by Moody’s/S&P.