LNG in the global energy market, explained

Energy markets are witnessing exciting, almost transformational times. At a Brookings Doha Center event on April 21, experts discussed the ongoing transformations in the liquefied natural gas (LNG) market. As Sultan Barakat, senior fellow and director of research at Brookings Doha, noted at the outset, the increasing availability and decreasing price of LNG is key to that transformation: it has allowed countries to diversify energy sources, meet demand spikes, and transition from outdated fuel sources to modern renewables. LNG is an important transition fuel that will facilitate a shift towards cleaner energy, but there is still some hesitancy on the consumption of natural gas (China, for one, is considering a return to coal).

Brave new world

Amos J. Hochstein, special envoy and coordinator for international energy affairs at the U.S. Department of State, also stressed that these are revolutionary times in energy markets: there are new unconventional and offshore explorations, a rise in renewable energies, technological advancements and new efficiency levels, and a renewed political commitment to climate change. 

Only a few decades ago, as Hochstein described, gas could only be transported via restricting pipelines set up between a consumer and producer, which he likened to a “catholic marriage.” In an effort pioneered by Qatar, this old transport system was later supplemented with LNG, increasing flexibility. Still, unlike oil, LNG required the consumer to re-gasify it, requiring multibillion dollar investments in infrastructure just to use natural gas after it was purchased. Then another innovation emerged: the floating storage and regasification unit that rendered LNG more accessible, faster, and cheaper. 

With these transformations, new producers have entered the LNG market: Australia and the United States will rival Qatar’s production levels by the end of the decade, and other producers such as Mozambique, Tanzania, Egypt, Israel, and Cyprus will soon follow. When President Obama was sworn into office, the United States was the largest importer of LNG in the world. Remarkably, the United States exported its first LNG cargo a few weeks ago. In fact, U.S. import regasification terminals are now being converted to export-oriented liquefaction ones. 

Linked to these developments, Hochstein argued, gas prices are becoming less tied to oil. Given the surge in production, it is likely that gas prices will remain low even if oil prices rebound, thus further driving demand. Hochstein encouraged governments and companies to use gas as a transition fuel, calling for government policy proactively encourages and regulates such a transition in order to meet climate change goals.

Given the surge in production, it is likely that gas prices will remain low even if oil prices rebound.

Enter: Qatar

How are these developments likely to affect Qatar? As H.E. Abdullah bin Hamad al-Attiyah—chairman of Abdullah bin Hamad al-Attiyah International Foundation for Energy & Sustainable Development—said, LNG production was nonexistent when he was appointed minister of energy in 1992. Conventional wisdom at the time considered gas a failed enterprise. Yet, when Qatar finally invested in LNG, it saw incredible success, with Qatar now exporting to Asia, Europe, and throughout the Middle East. 

Although Qatar started investing in gas when its price was low, the price soon recovered and the investment proved to be lucrative. Today, Qatar plans to continue investing in the maintenance and development of its LNG capacities despite the low prices, expecting markets to boom again. Current prices are actually an opportunity, he said, to increase efficiency and make production more cost-effective, which will increase profit margins once prices rebound. With Qatar having already developed its infrastructure and facilities, its production costs are lower than for incoming competitors, giving it a market advantage. Qatar is also one of the few countries that manage the full production chain: upstream, downstream, and transportation, which allows it to be highly flexible and reliable. On the consumption side, al-Attiyah added, the low rates will encourage consumers to develop the infrastructure necessary to consume more gas, increasing demand for the commodity in the long run.