Qatar, UAE ministers expect tight gas markets for years on investments drought

The energy ministers for Qatar and the UAE are both expecting tight natural gas markets for the next couple of years because of inadequate investment in new projects.

Another year of big changes in natural gas prices could "distort demand" and "distort" the role gas will play as a baseload for power for a number of years, UAE energy minister Suhail al-Mazrouei said Jan. 14 at the Atlantic Council's Global Energy Forum in Abu Dhabi.

Saad al-Kaabi, Qatar's minister of state for energy affairs, told the forum that he expects gas prices to remain volatile this year, but emphasized that Qatar does not want high gas prices because that would destroy demand. Kaabi said the market will be tight until at least 2025, when more supply is expected.

"The biggest worry that we would have as an oil and gas producer is demand destruction," Kaabi said.

Gas prices surged in 2022 following Russia's Feb. 24 of Ukraine, but have since retreated amid a mild winter in Europe and high gas storage levels in the region.

Platts assessed on Jan. 13 Dutch TTF front-month at Eur63.2/MWh, down 6.58% on the day, according to S&P Global Commodity Insights data.

The marker is down from last year's high of Eur319.98/MWh reached on Aug. 26, according to S&P Global data.

"When we talk about the lack of investment and the lack of interest from financial institutions to finance fossils or oil and gas projects, part of that is also the lack of understanding that it is the future for many countries when it comes to energy strategy," Mazrouei said.

Russian gas comeback

European countries, which have reduced their consumption of Russian gas after its invasion of Ukraine, will have to use Russian gas for prices to stabilize, Kaabi said

"Russian gas is going to come back to Europe, in my view," Kaabi said.

"Once the situation is sorted out, that will be a big relief from the whole gas sector and stabilize prices. High prices are not good for us. We want a happy buyer that can continuously pay."

LNG spot prices should be fair to gas producers to stimulate investments and should be higher than $8/MMBtu or $9/MMBtu "to make sense for investment," said Mazrouei.

Platts' LNG marker JKM for February was assessed on Jan. 13 at $21.772/MMBtu, up 4.37% on the day, according to S&P Global data. It last traded below $10/MMbtu in May 2021.

"I think we need to remember that spot LNG prices were depressed for a very long time before the hike and it was sold as at a price that was less than a fair price for those who have been developing it," said Mazrouei. "Now we are in a very high price environment for the spot. One of the problems is the differential in the prices between the term contract and spot market. The second problem is the lack of having clarity on where they are going."

Kaabi said prices haven't spiked significantly due to the warm winter in Europe and China's zero COVID-19 policy, but Chinese re-opening may change markets again.

"There is a huge growth and the only reason you're not seeing that huge growth or that pull, whether it's the oil or gas is really China lockdowns and winter being warm," Kaabi later told reporters on the sidelines of the forum. "But as soon as China has a full opening, and you will see that economic growth in China go back on."

Although gas prices have stabilized, they are still relatively high and the market is bracing for the introduction of an EU gas price cap in mid-February, with concerns the mechanism could have unintended consequences.

European Commission President Ursula von der Leyen declared in late December that Europe was effectively "safe" for this winter with EU stocks still at healthy levels for the time of year.

Brussels' confidence -- which comes despite the risk of more cold weather later in the winter season -- is testament to the EU's efforts to fill storage sites over the summer.

EU storage sites were filled to a peak of 95.5% of capacity by mid-November, comfortably beating the bloc's own targets.

'Destination fuel'

"I do not agree gas is a transition fuel," said Kaabi. "It is a destination fuel until we have realistic solutions. We are bringing a lot of gas into the market, but it is not enough."

The lack of new LNG export facilities in 2023 stands to constrain natural gas supply and force global gas markets to balance on demand destruction and existing stocks, according to S&P Global's 2023 energy outlook. Europe, struggling with an energy crisis, could see even tighter gas and power markets in 2023 as it faces the first full year without significant volumes of Russian pipeline gas.

Qatar, one of the world's top LNG exporters, is set to increase its volumes by 64% via the two-phase North Field expansion project, raising capacity from 77 million mt/year to 126 million mt/year through 2027.

Qatar is talking to more European and Asian buyers and expects to lock in all volumes of the expansion by the end of this year, Kaabi said.

QatarEnergy signed Nov. 29 two long-term agreements with the US' ConocoPhillips for the supply of LNG into the planned German terminal at Brunsbuttel, with the first shipment expected in 2026.

Under the new deals, Germany will be supplied with up to 2 million mt of LNG for a period of at least 15 years.

The 18.1 million mt/year Golden Pass LNG terminal in the UAE, a joint venture between QatarEnergy and ExxonMobil, has been under construction since early 2019, is also expected to start production in late 2024

"There is a potential that by the end of the year the entire Qatar expansion will be sold out," Kaabi told reporters. "US volumes, we're working on them also. There are a lot of buyers for that. And we have the flexibility with the US so we're planning to do much more arbitrage there. We can have long term or spot."