ʹAttiyah: Qatar May Divert 12‐20Mn Tons/Year of LNG From The US Market The following is an interview with Qatari Deputy Prime Minister and Minister of Energy and Industry ʹAbd Allah al‐ ʹAttiyah, conducted in Doha with MEES Consultant Walid Khadduri, on the impact of lower natural gas prices on Qatari gas sales and contracts.
Q: How has the decline in gas prices impacted the Qatari industry?
A: Prices have declined, because of the technological developments in the shale gas industry, which have lowered natural gas prices, especially in the liquid US markets.
However, most of our gas exports are to Asian markets, and they are either priced in accordance with crude oil prices, or are at parity with crude prices, or are related to crude oil price formulas. So the prices to Asia rise or decline with the changes in crude oil prices. On the other hand, the contracts to the US are in accordance with Henry Hub prices. But, technically, all Qatari gas is sold out. We have conditions in the contracts with the US off‐takers, which state that if we are able to have better prices, related to oil, in other markets, then we can divert our exports. We have this crude oil formula related clause in our contracts, particularly in the US market and some of the European markets, which enable us to divert our exports.
Q: You have this diversion clause, even though these are long term agreements?
A: Yes. We have this clause, especially in the US contracts. Of course, in some of the European agreements, for example those with Italy, these are long term contracts and they are already tied to crude oil prices. Our new contract with Poland is also oil‐related. Now, we have already started to divert supplies from the US market. We have agreed with China to export 5mn tons/year and with Poland for 1mn t/y. We are also negotiating to export an additional 7mn t/y to China, and to India an additional 4mn t/y. There are negotiations with other Asian markets for an additional 3‐4mn t/y. We may divert 12‐20mn t/y from the US market. This means our gas exports to the US would remain in the range of 6mn t/y.
Q: Does this mean the decline in US natural gas prices is not impacting your overall gas revenue?
A: No, it has not. We are integrated gas producers. We produce LNG, petrochemicals, LPG, ethane, helium, and soon we will be producing more GTL. So, although the decline has not generally impacted our revenue, we try to get a just price gas for our exports.
Q: What is a just gas price?
A: We consider a just gas price one that is related to the price of crude oil. Such a price would stabilize the gas market. Gas is a clean energy, and one much in demand because of its many preferred qualities. It has several comparative advantages. Hence, we want gas prices to be equated to those of crude oil. We are not asking for a premium. What we are calling for is that gas be treated in a similar way to oil.
Q: What was the discussion about in Oran, Algeria, during the recent ministerial meeting of the Gas Exporting Countries Forum (GECF)?
A: GECF is an organization still evolving, and is concerned with discussions and the exchange of views.
GECF, like OPEC, is a consultative body, until you have an agreement. Then that agreement is binding to the member countries.
Q: There was dissatisfaction among some GECF member countries regarding the gas price?
A: Yes. When we talk about a just price, we aim to safeguard the gas market. If gas prices deteriorate sharply, then you cannot meet the cost of producing it. It will be difficult to produce it at an economic price.
It is this fear, which should concern consuming countries also, since they recognize the comparative advantages of gas as a fuel to the environment; hence, there should be price formulas to replace gas. There should be more fairness in pricing gas, not a premium. A price that will cover its production cost. If gas has environmental advantages and is clean, its price should reflect these advantages, in comparison to related petroleum products.
Q: Why this concern now? Is it because of the technological breakthroughs in shale gas technology?
A: Yes, obviously. The US produces much shale gas. But its production is expensive. It has an impact on the natural surroundings around it. What is the impact of this sustained production on the surface and topography of the land? However, despite shale gas, the markets are still much in need of conventional gas.
Conventional gas is a sustainable supply. If gas prices continue deteriorating, it will impact the economics of producing shale gas. If these lower natural gas prices continue, they may have to shut down much of the shale gas production. We must not have gas‐to‐gas competition. Then, either one of them will be the loser, or both of them will lose. In essence, it is not practical to have competition between shale and conventional gas.
The end result of such a competition is that either one of them would be the loser, or both of them would lose. As a large gas producer, we have to adapt to changes, and we have to diversify our products and TOP STORIES MEES 53:21 24 May 2010 ©Middle East Petroleum and Economic Publications (Cyprus) Ltd 3 Reproducing MEES Is Strictly Prohibited www.mees.com markets. GTL will be producing oil products. We also produce petrochemicals, as well as serve the aluminum industry. All of this, along with expanding our LNG export capacity and exporting natural gas by pipeline to regional markets (the Dolphin project). We have not, and do not intend to have, a passive policy.
We aim to diversify our markets, enter new ones; and, most importantly, be ready to encounter new changes and developments. You know, even if you treat gas in parity with oil prices, it is cheaper than using naphtha or diesel. This is not to mention that gas is cleaner. So gas is less expensive and cleaner than the alternatives.
Hence, I am not worried about the gas industry because the gas industry is evolving and expanding; many new markets are emerging – not only in Asia, but also in the Middle East. Basically, there is much demand for gas, and many new markets are opening up.
Q: Is the gas industry passing through similar cycles of the oil industry? Boom or bust?
A: Not really. The demand is still large for gas, and expanding fast. Qatar, for example, is technically sold out, except for the diversions.
Q: What do you mean by ‘technically sold out’?
A: The off‐taker in the US, according to the long‐term take or pay contracts, must take the whole agreed upon volume, in accordance to the Henry Hub price. But there are conditions, so that I have the right to divert if I reach agreement with any country, if I can sell the gas on the basis of parity with crude oil.
Q: Does this apply to all Qatari gas exports, including that sold by Qatargas and RasGas?
A: Yes.
Q: What are your plans for oil and gas production capacity expansion?
A: We plan to produce 77mn t/y of LNG by the end of the year. We have two trains under construction. The first will be commissioned soon, in June. The other one in September 2010. As for oil, we are planning to reach a capacity of 1mn b/d early next year.
