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Exclusive: Qatar defers partnerships for expansion in natural gas with price collapse

UNITED STATES (OBSERVATORY NEWS) — Qatar has delayed the selection of Western partners for the world’s largest LNG project for several months after it surprised the industry with a major expansion plan despite a collapse in global gas prices, four sources said.

Qatar Petroleum declined to comment on the delay in the reports, which comes as the gas sector faces a major challenge due to oversupply due to the growing American production and low demand from China.

Qatar, which has the lowest cost of producing liquefied gas, has the largest gas field in the world and offers conditions that have encouraged big companies such as Exxon Mobil and Royal Dutch Shell to invest tens of billions of dollars in the past.

The major energy companies have waited ten years for a new investment opportunity in Qatar, which has frozen new development projects to ensure that the huge North Field can maintain the level of production.

Qatar lifted the ban two years ago, and Qatar Petroleum prepared a mini list of six Western companies to participate in the next stage of expansion. Qatar Petroleum did not reveal the names, but said it would announce the partners in the first quarter of 2020.

But late last year, Qatar Petroleum decided to increase LNG production by 60 percent to 126 million tons annually by 2027 instead of the original plan, which was to increase 40 percent. Qatar Petroleum has not said it will delay the partnerships, but four sources involved in the talks said the company plans to delay for some time.

“I think Qatar decided to boost the capital spending for the project before it turned to the international oil companies,” one of the sources said. I think the decision will be ready by the end of 2020.”

Three other sources familiar with the talks confirmed the decision to postpone until the middle of at least 2020 due to the increase in the volume of expansion in addition to the expectations of low gas prices, which affects all aspects of potential partnerships.

“The discussion focuses on evaluating the project, which affects capital and financing,” a source said.

Another source said, “The cost base in Qatar is very low compared to other projects, but in the current environment, every project has to compete for capital.”

Qatar, which has a sovereign fund of more than $ 320 billion, said it would build the facilities individually if necessary but would prefer having partners to distribute risk and cost as well as reach new clients.

– Gas surplus –

LNG prices collapsed to an all-time low in Asia in January as energy consumption in China fell due to the spread of the Coruna virus. Lower demand from China has undermined hopes that the world’s largest fuel consumer will absorb excess supplies to reduce coal dependence.

The United States is rapidly raising the capacity to export liquefied gas to spend a huge domestic surplus.

Gas prices in the United States have fallen so much and for a long time that many companies producing shale gas are struggling to raise money while leading companies such as Chesapeake Energy are struggling to avoid bankruptcy.

Gas producers in the United States hope that exports will drive up the value of fuel, but they are actually contributing to the glut of supplies that are driving global prices down.

Qatar Petroleum did not mention the cost of building six other LNG production units and developing offshore production facilities.

The standard LNG unit with a production capacity of eight million tons costs about ten billion dollars, which means that Qatar Petroleum needs to spend at least 60 billion dollars on expansion.

Exxon, Shell, Total and ConocoPhillips have been involved in LNG stations in Qatar since the country began its journey to become the biggest player in the sector just 20 years ago.

Some of these companies signed deals over the past years to give Qatar shares in oil and gas projects.

But the outlook for natural gas prices led major companies to lower the rate of return on the expansion phase expectations in Qatar to become less attractive than previously thought, according to three sources involved in the talks.

It is expected that a group of projects worldwide from Canada to Mozambique and Nigeria will lead to a larger surplus in supply during the current decade.

One of the three sources said, “People have started to worry about all this gas being discharged.”

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