Oil majors bid on QP's North Field expansion, in vote of confidence for Qatar's LNG future

Six western oil companies are bidding to partner on Qatar Petroleum's North Field LNG expansion, according to two sources involved, showing healthy interest in the Gulf state's gas ambitions despite environmentalist pressure on fossil fuels and a potentially overbuilt market in the years to come.

Shell, Eni, Total Energies, ConocoPhillips, ExxonMobil and Chevron have formally submitted applications, the sources told S&P Global Platts on condition of anonymity, with stakes totaling up to 30% of the project in play.

QP is planning to increase its LNG production by almost two-thirds via the two-phase North Field expansion project, taking its capacity from 77 million mt/year to 126 million mt/year through 2027.

When complete, the project will enable Qatar to significantly strengthen its position in global LNG, where the country is one of the top exporters of the fuel, though other facilities coming online around the same time could contribute to an oversupply in some markets and put prices under pressure.

S&P Global Platts Analytics expects global gas production to reach 417.6 Bcf/d in 2025 and 451.9 Bcf/d in 2030, from 385.7 Bcf/d in 2021.

QP said in March it would announce the international partners for the first phase of the project by September.

"With the middle of the decade already expected to be a crowded marketplace for spot LNG supply, potential project partners will need to seriously assess how much incremental supply-length they are willing to put into the portfolio," said Samer Mosis, a senior analyst with Platts Analytics who focuses on EMEA LNG markets.

The North Field, which Qatar shares with Iran, is the world's largest offshore gas field, and much of the LNG produced from the project is expected to be purchased by Asian customers.

QP in recent months has signed several long-term agreements to supply customers from the North Field expansion, but the bulk of the forecast production from the project is as yet uncontracted.

The field is among the most cost-efficient reserves in the world to develop and should give QP a leg up on rivals from the US shale patch -- a profitability factor that the oil majors looking to invest in the project are likely attracted to, Mosis said.

Phase 1 of the expansion will cost $28.75 billion, making it one of the largest energy projects anywhere, and boost Qatar's LNG production to 110 mt/year by Q4 2025.

Platts Analytics expects Qatari LNG production to rise from about 10.5 Bcf/d in 2020 to more than 14.5 Bcf/d in 2027.

Future energy demand

But many international oil companies are coming under increasing pressure from environmental activists and, in some cases, shareholders, who have pushed for more sustainable long-term plans, including lowering their investments in fossil fuels.

Natural gas has often been touted as a bridge fuel for power generation, with lower carbon emissions than coal, but some environmental groups say energy companies should shun fossil fuels altogether and focus instead on renewables.

Several western countries are also aiming to decarbonize their economies, which could cause gas consumption to fall in the coming decades.

The North Field project aims to minimize environmental impact, by employing a high-efficiency design to reduce gas and effluents emissions, QP has said.

Neil Quilliam, managing director of consultancy Azure Strategy, said the bidding interest in the project shows that the oil majors still believe in the potential of LNG as energy demand continues to grow.

"In many ways, the project offers the majors a place to shelter, whilst they work out their long-term futures and it will provide guaranteed returns during this era of uncertainty for IOCs," Quilliam said.

All the contenders have been thought to be in the running for several years -- since the project was announced in 2017 -- so their bids do not come as a surprise, the sources told Platts. QP did not respond to a request for comment.

ExxonMobil's position on the project seemed to be solidified in March, when Saad al-Kaabi, QP's CEO and chairman, stated that the company would "definitely" be included among the winning partners. ExxonMobil already has long-standing projects in Qatar and is a joint investor with QP on the GoldenPass LNG facility being built in Texas.

A source from Eni confirmed to S&P Global Platts that that Italian major had submitted a bid.

Chevron and TotalEnergies declined to comment.

Shell told Platts that it is has a "strong history in Qatar" but it declined to comment on this specific deal.

ConocoPhillips could not be immediately reached.

Reuters reported June 14 that the six majors had submitted their bids on May 24.

Qatar's hydrocarbons production is 22 Bcf/d of natural gas and about 600,000 b/d of crude oil in addition to a further 600,000 b/d of condensates, Kaabi said in 2020.