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Qatar plans to consider 'innovative marketing policies' in LNG: MDPS.

In 2015, the value of LNG exports alone exceeded all other hydrocarbon products, accounting for an estimated 46% of total merchandise exports, according to the Ministry of Development Planning and Statistics report

Pratap John

In the context of "surplus" shipping capacity and a "looming glut" in global liquefied natural gas supplies, Qatar intends to consider and follow innovative marketing policies to protect its market share, while continuing to favour long-term supply agreements for its LNG exports, says the Ministry of Development Planning and Statistics (MDPS).

"Gas prices are more important to Qatar than oil prices, given that the value of gas exports exceed those of crude oil," MDPS said in its latest "Qatar Economic Outlook 2016-18".

In fact in 2015, the value of LNG exports alone exceeded all other hydrocarbon products, accounting for an estimated 46% of total merchandise exports, the report said.

Around a quarter of Qatari LNG is sold at spot prices, the rest under long-term oil-indexed contracts (with a lag).

As a share of LNG exports, nearly two thirds went to Asia in 2015, where higher prices prevailed, MDPS said.

Global LNG prices have fallen sharply over the past six months owing to overcapacity in the industry.

Qatar has kept its production capacity since 2011, but new exports from Australia and the US have started to come online.

With the majority of those from Australia going to Asia, coupled with Japan resuming operations of some nuclear plants, prices in Japan have dropped the most, but are still the highest regionally.

Japan Customs-cleared indexed prices fell by 40.1% between November 2015 and May 2016.

US Henry Hub--linked prices have inched down by only 8.5% over the period. Lower prices are typically seen in the US, where most gas is sold spot, and are highest in Japan, where gas is sold under long-term contracts indexed to Japan Customs-cleared crude prices.

According to the MDPS report, the band separating US and Japanese natural gas prices has narrowed a lot over the past few months, reaching $5.9 in April 2016.

With LNG spot prices fetching less and a projected oversupply of LNG, the IMF's April 2016 World Economic Outlook (WEO) revised down its forecast for average natural gas prices in 2016--a weighted average of Japanese, US and European prices--by 10.8% relative to the WEO forecast in October 2015. It sees prices in 2017 and 2018 staying largely flat.

Natural gas continues to be sold at prices below the energy equivalent parity with oil, which is about six.

In the first four months of 2016, the oil--gas price discount wavered, and the oil to natural gas price ratio averaged 18.9, similar to the ratio a year earlier.

It registered its lowest recent rate in six years in January 2016, but shot up as oil prices recovered.

The report said lower natural gas prices are expected to stretch throughout the forecast period, as a result of numerous LNG projects set to come online worldwide.

With LNG markets oversupplied until the end of this decade, spot prices are not likely to pick up much, if at all. Energy companies have historically signed 25-year gas supply contracts with buyers, which have acted as a guarantee to finance capital injections in excess of the $10bn needed to support the construction of new LNG facilities.

Recent price shifts, however, have given impetus to buyers, who are increasingly looking to either renegotiate long-term deals or simply buy on the spot market, MDPS said.

The spot LNG price in May--$4.24 per mn BTU in Asia--was 42% lower than a year ago.

In contrast, LNG prices under long-term contracts indexed to oil prices are expected to recover and exceed spot prices.

Qatari LNG export contracts with key East Asian clients have not been renegotiated in recent months, and therefore attained prices in the forecast period are likely to be higher than elsewhere, the report showed.

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Publication:Gulf Times (Doha, Qatar)
Geographic Code:7QATA
Date:Jun 19, 2016
Words:664
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