Page 10 - GLNG Week 19

GLNG COMMENTARY GLNG
not go on for long, however, as European gas storage filled up and the continent soon found itself to be the new epicentre of the COVID-19 outbreak.
Catch-22
The Middle Eastern country now faces a dilemma. In an increasingly oversupplied mar- ket where demand remains depressed and is not expected to rebound quickly, Qatar must decide whether to continue pursuing market share, for example by slashing the price of its LNG, or whether to shut in some of its production.
On one hand, the country depends on the rev- enue generated by LNG sales, and this is already under pressure because of the oil collapse, which will soon start to be reflected in oil-indexed LNG contracts such as those favoured by Qatar.
If QP responds to this by lowering its LNG prices, this could also be welcomed by some of its buyers that have been pushing Qatar to rene- gotiate supply contracts. For example, India was vocal about wanting to renegotiate the terms of its LNG supply agreement with Qatar earlier this year, but the Middle Eastern country rejected the request. Thus India may jump at the opportunity to secure more favourable terms.
On the other hand, there is concern over what will happen to already low natural gas prices if Qatar cuts its LNG price. It has been suggested that in a worst-case scenario, gas prices could drop into negative territory the way West Texas Intermediate (WTI) crude did last month.
“Either Europe doesn’t want it and therefore the cargoes are stuck in Qatar, or they will have
to shut in production,” an energy associate at Harvard University’s Davis Center for Russian & Eurasian Studies, Thierry Bros, was quoted by Bloomberg as saying. “If they force cargoes into Europe, you’re going to have exactly the same as what we’ve seen in Cushing, which is negative prices.”
While lower gas prices could prove particu- larly challenging for US LNG producers that have only recently started operations, Qatar itself would also take a hit. How the country proceeds will illustrate its expectations of which route could be more profitable – and given the danger of negative pricing, shutting in production may be the more prudent course of action.
According to Bloomberg, Qatar now appears to be slowing shipments to Europe after they peaked in April. Meanwhile, 17 LNG tankers – which the news service notes is a high number for this time of year – are currently idling off the country’s coast.
Qatar may be planning to redirect cargoes to Asia as demand in China, India and elsewhere recovers. But Asian demand is not anticipated to recover quickly, and the International Gas Union (IGU) warned recently that the current over- supply could last into the middle of the decade, beyond the recovery from COVID-19.
If Qatar’s actions end up hurting prices, this could lead to renewed calls for an OPEC-style gas cartel that takes co-ordinated action. But given expectations that Qatar likely will not have any choice but to curtail some of its production, there is still plenty of optimism that the country would be more cautious than that.™
Qatar now appears to be slowing shipments to Europe after they peaked in April.
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w w w . N E W S B A S E . c o m Week 19 15•May•2020