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Qatar mounts show of strength

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Reuters are reporting that Qatar announced plans for a steep rise in LNG production capacity on 4 July that suggested it was ready for a protracted dispute with Gulf neighbours, however Doha said it was doing all it could to reach agreement.

Saudi Arabia, the United Arab Emirates, Egypt and Bahrain were due to meet on 4 June to decide whether to continue sanctions they imposed on Qatar.

The three Gulf states and Egypt have severed diplomatic and transport ties with Doha in a dispute that has raised concern across the Middle East and beyond. Western states fear a lengthy dispute could upset supply chains in a region vital for energy supplies.

Qatar mounted what appeared to be a show of strength on 4 July, when the state-owned Qatar Petroleum announced plans to raise LNG capacity by 30%. Its immediate effect will be to worsen a glut on the LNG market where Australia, the US and Russia vie.

Qatar Petroleum chief executive Saad al-Kaabi said the company would increase gas production from its giant North Field, which it shares with Iran, by 20% after new gas development.

In April, Qatar lifted a self-imposed ban on development of the North Field and announced a new project to develop its southern section, increasing output in five to seven years.

That new project will raise Qatar's total LNG production capacity by 30% to 100 million t from 77 million tpy in five to seven years.

With such low production costs and LNG facilities closer to buyers in Europe and Asia, the Qatari move means US producers could struggle to sell their LNG competitively and projects still needing finance could struggle to find investors. So far only Cheniere exports US LNG, but there are project proposals with a total capacity of some 150 million tpy.

The LNG glut has already driven down prices. Asian spot LNG prices LNG-AS have fallen more than 40% this year to US$5.50 per mmBtu and by 70% from peaks in 2014.

So far, the majority of LNG is supplied via long-term contracts between producers and users which allow little flexibility and in many cases also prevent importers from reselling cargoes. With supplies far outpacing demand, analysts expect more and more LNG to be freely traded.

Many producers have already started to offer contracts without resale or destination restrictions.

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