Extract or hold fire? Qatar’s new gas find

A Qatar state-owned energy giant has discovered substantial deposits of natural gas off the north coast of the country, it was revealed in the middle of March.
Working alongside Germany’s largest natural gas producer Wintershall, Qatar Petroleum (QP) said the find, in what is called Block 4 North, amounted to some 2.5 to 2.8 trillion cubic feet (tcf).

Although widely reported, the find is not market-moving in global terms. With Qatar already boasting proven reserves of some 890 tcf, it adds only one-third of one percent to Qatar’s known reserves. By comparison, Norwegian state-owned firm Statoil said in March that it had discovered up to six tcf of gas off the coast of Tanzania.
But even the small percentage of new gas that QP found adds roughly eight months worth of exports to Qatar’s reserves, which remains significant.

If recent reports prove accurate, Doha would be well advised to sit on its new find temporarily, despite the urge to begin liquidating the asset as soon as possible.
According to upstream oil and gas event organiser the Energy Exchange, there is some uncertainty as to the pace of gas demand growth in Europe, which remains a key export market for Qatar despite its ongoing push into Asian nations, which is fundamentally due to increased use of coal in European power generation coupled with expectations of low economic growth.

However, in the future, the picture is expected to change dramatically, and Qatar will be on the right side of that shift. “By 2030, there is expected to be a 220 to 230 billion cubic metre (7.8-8.1 tcf) gas shortfall in Europe that will need to be filled,” the Energy Exchange stated.
Shale gas, the production of which has driven down gas prices in the United States, “will not be the immediate solution,” it stated. “Europe will therefore need LNG [liquefied natural gas] and if Europe cannot secure a dedicated supply, it will have to compete globally to secure LNG volumes.”

The waiting game

The good news for Doha is that it is already by far the world’s biggest exporter of LNG. And Qatar possesses a comfortable enough supply of natural gas to avoid rushing into things. The global market is expected to remain tight over the next couple of years, before new production projects in Australia and elsewhere begin to come on line. But thereafter the market is widely expected to enter a positive phase characterised by a loosening up of supply.

It will be some time before gas can be extracted from the new field, and if Qatar can wait out the duration of the above period into the tighter window when European demand picks up, additional profits could be considerable.

The potential positive impact on economic growth, and as a direct result on business in Qatar, is considerable. According to a Qatar National Bank (QNB) study into the banking sector, it was higher energy prices and increased hydrocarbon production that provided for large public spending programmes across the country last year, propelling it to the top of the asset growth table. “Among the GCC [Gulf Cooperation Council] countries, Qatar, which accounted for 15 percent of total GCC banking assets in 2012, stood at the forefront of growth,” QNB stated.

However, whether or not the waiting game is a viable option is not up to Qatar alone. Germany’s Wintershall will also play its role in the strategic planning: “Wintershall has been actively exploring in Qatar for more than 30 years and we are pleased with the results of the wells in Block 4 North,” chief
executive Rainer Seele said when the new find was announced. “We are looking forward to proving our capabilities as a reliable and technically competent operator and partner.”