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Insight Conversation: Saad al-Kaabi, minister of state for energy affairs, Qatar

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Insight Conversation: Saad al-Kaabi, minister of state for energy affairs, Qatar

Alongside his role as Qatar’s energy minister since 2018, Saad al-Kaabi is deputy chairman, president and CEO of Qatar Petroleum. Kaabi talked to S&P Global Platts editors in April on a wide range of topics, from Qatar Petroleum’s LNG projects, to OPEC+ cuts and the tumult in oil markets.

Saad al-Kaabi

How do you see the LNG market following the coronavirus pandemic, and is LNG affected by the flood of crude oil available in the world?

On the gas side, they are linked somewhat. Oil is a transportation-dominant fuel, whereas gas is for power and some transportation and other uses in factories and so on. So it’s a little different.

The biggest issue is the demand destruction because of the pandemic. The price war starting it off and putting it into third gear, with the pandemic coming in and putting into fourth gear, as far as the oversupply in the market and then the demand destruction.

It’s a very bad situation for the demand side. How long it takes is dependent on what happens with the pandemic. It’s never happened when the whole world is worrying about their health, whether you’re the ruler of a country or a small operator in a plant or you’re working at McDonald’s. So it’s a very difficult situation, but I don’t see a long-term issue for gas.

LNG demand shock 2020

Click for full-size infographic

You’ve got a big expansion that’s been announced that will solidify your position as No. 1 in the LNG market. Can you give us an update on the status of your North Field gas expansion and the plan to boost LNG production?

We have two projects, there is the North Field expansion, which we used to call North Field East [NFE], which is going from 77 million to 110 million mt/yr. And then the second development, which was coupled with the increase of reserves in the south, [North Field South, NFS], will take us from 110 to 126 million mt/yr.

The North Field East is what we’ve been talking about the most because it’s the most imminent. We [recently announced] we spudded the first development well. We have eight jackets for that development offshore. Four have been installed, and another four will be installed by the end of the year. We have contracted the rigs for the project.

For onshore, we have four large bids that we’ve received the technical bids for. We are just waiting for the final commercial bids, which will be submitted by the end of April.

The contract team has asked for a delay of that because of the pandemic, so we agreed with them to postpone that by a few months. We’ll be able to do them in the third quarter of this year with the final award of the contracts for onshore by the fourth quarter, which will give us a start up in 2025 of the four trains of the NFE project, which will be followed by the NFS project in 2027.

There is an option where potentially in December we could be sanctioning all of the six trains. We think that will give us a better price, and the contractors will get a solid business for the next seven years or so. So it’s a win-win.

The coronavirus is having a huge impact on oil prices, and a lot of producers are suffering. Is Qatar still committed to oil-indexed pricing for its LNG?

As an oil and gas company, the only risk we are willing to take and that we understand how to take is the oil price. We have lived through these ups and downs and we can withstand these hits. Other risks, we are not comfortable taking.

In a long way of answering this, the preference is always to be oil-linked. But it depends on the location. If you go to the UK, you have to take the market, it’s a liquid market.

If you look at how our buyers react, when the price is low, they want oil-linked. When the price is high, they want Henry Hub. We think we have a good mix of all. You need to have a satisfied customer and a satisfied seller. There will always be a debate.

OPEC+ has agreed to a coordinated cut to production. Qatar left in January 2019, but watching from the sidelines, what do you make of the latest OPEC+ decision?

My first decision when I was appointed as the minister, my first recommendation to the government two weeks into my post, was to leave OPEC. I was very concerned. The reason was we were a really small player. The big players make the decisions in OPEC. We didn’t see a place for us there because we are a gas producer. We’re really growing in gas. Oil only accounts for a small amount for us.

As an outsider, looking at OPEC+, they were already looking at an oversupply in the market. A lot of players were not at full capacity. With the agreement of October 2018 and then the decision of flooding the market, when the market was already oversupplied before the pandemic… the reason you had OPEC+ was that the market was oversupplied for the last six-seven years.

I think OPEC by flooding the market, in an oversupplied market, was what spoiled the market, and then you had the pandemic on top of that. It was like the Americans say, a double whammy, and it will take the market a long time to recover.

Will Qatar be restricting its crude output accordingly and if so what level of cuts can we expect?

We are not part of OPEC+, so we are not part of that discussion.

Do you see Qatar ever rejoining OPEC?

Joining or leaving OPEC is a government decision. So saying never is not my place. I would not recommend going back into OPEC because we are a gas country and we want to focus on that.

Have your demand projections for LNG changed at all? There is this race to increase capacity. Russia is chasing you, Shell had an FID in Australia recently, and you have to expect the US will continue. How are you looking at the demand front beyond 2021?

The entire analysis that people have about how the market will look, they see the market will require additional volumes by 2028. We really don’t want to compete with anybody. We go about our business and we have a plan. We think we can compete with anybody around the world on LNG, from a cost-basis point of view. We try to make sure we get our operating costs as low as possible.

hat others do, believe me, we think the more gas players they are, we think the better to promote gas, and we think promoting gas for the future is a good thing If you look at what happened this year, a lot of people have [delayed] LNG projects. That gives us maybe an advantage in the long-term. Short-term events do not impact our capital expenditure or how we feel about gas. We think there is a very solid market in the future and we will be there to supply it.

So you are not delaying any projects due to the coronavirus?

If I’m drilling wells and buying ships, I’m not backing down.

Can you expand on the shipping purchase?

We anticipate holding north of 60, 70 to 80 ships, maybe more. We’re actually going to book capacity for about 120 ships. The reason being, we’re still not far enough in our marketing side. It depends on destination, that will give us the exact number I will need.

But 60-80 will be a minimum, I think. We have also older ships from the other projects that we will be replacing, which will also come into the count.

How much will this cost?

The cost of ships, I can’t give you an exact number … but it’s definitely billions of dollars. One number you might be interested in is, we may be taking up 60% of the entire ship building capacity of the world, for LNG.

The market at the moment is very stressed, which we can see in the spot price for JKM. How are you dealing with some of the force majeures that have been declared by buyers?

We had some buyers declare force majeure. Basically what we told our buyers is, we have a partnership. We don’t worry about short-term events. Let’s not talk about the legal side of this. Let’s see how we can cater to you. We came out and said we will support our buyers, and I publicly made an announcement of that. They’re happy, we’re happy. We had to divert some cargoes 6-7 days. We had to delay some cargoes 6-7 days.

If you have a partner, you don’t need them in good times, you need them in bad times. We are a reliable supplier for our buyers. We did that with Japan when Fukushima happened. The culture that we have in Qatar is we support our friends and partners in time of need. It’s not about trying to take advantage.

There is a time for legal and contractual things. But some things like humanitarian issues or things beyond people’s control, we try to work things out.

Do you see as a consequence of this, there’s a bigger push for the spot market for LNG? That off-takers will look for more flexibility going forward? Qatar has been very strong in long-term contracts with established off-takers. Where do you stand on that still emerging spot market?

People have been talking about the spot market and saying all the long-term deals are done. And you look at the last three years, and we’ve signed with several buyers. Long-term deals, if you’re going to have an environment where gas is going to be a predominant fuel for your power, you can have 60-70% of your supply in term, and maybe trade the rest in spot.

One of the things that created the spot market going higher is a lot of the projects that have come online, especially in the US, with the shale revolution and the terminals that were put up. A lot of these terminals, people are pulling out of them because of what is going on with the capital markets, and you’ve seen some majors pull out. A lot of the projects in the US are stopping now.

I don’t think with a demand increase, you’re going to see a lot of the smaller speculative players get into the market. It’s a very expensive business with a lot of capital expenditure up front and shipping is expensive.

There will be room for spot, but still long-term contracts will be predominant.

Would Qatar look at establishing an LNG trading unit?

We work on things, and then we announce results. Some players have said “We’re going to establish this…”, and ultimately they don’t deliver or deliver it late. We are developing a trading arm for Qatar Petroleum. We are going to announce the first trade as our introduction to the world that we have started trading. And that is going to be quite soon.

We have been working on it for about a year and a half. We have the manpower, the traders, the platforms, and we are ready to go soon. We will start with our strength, which is LNG. We will be looking at LNG in the beginning. And we will be looking at third-party LNG, not only ours. It will be located in Qatar and be part of Qatar Petroleum.

Do you have a plan to expand in other low-carbon energy areas such as hydrogen?

We are monitoring that area very closely. The issue is to make the separation and have the storage, it is very expensive and there is a lot of technology involved that hasn’t evolved yet to the level where you can commercialize it and actually do it on a larger scale.

Anything on the environmental side, as far as fuels, we can get into. Qatar will be in a good position to look at hydrogen because of our gas resources. But it’s a very tricky area. It’ll take time to mature. We’re watching it closely. Once it becomes mature to where there’s a good chance for us to commercialize this area, we will be interested in looking at it.

Also, on the environmental side, we have a lot of solar. We already have signed the EPC contracts for 800 MW, one of the largest solar plants in the Middle East. [That] will start production early next year, and full production the following [year].

In Qatar Petroleum itself we are building another 800 MW [solar] power to substitute some of the gas power plants to reduce our carbon footprint and have captive power for our own oil and gas facilities to run that instead of gas with solar. Although we have an abundance of gas and we are a gas-rich country, we’re also doing what’s responsible in that regard.

We have the largest CO2 injection in the world that we announced last year. 2.5 million mt/yr being injected. The NFE and NFS projects are all going to have carbon capture and sequestration in these projects. [We are]pending hundreds of millions of dollars to sequester CO2.

What about gas-to-liquids? Are you still interested in this space to expand it in the future?

It’s something we’ve done as part of our diversification in the past. It’s going very well, it’s a very good business. But in a low price environment, it doesn’t do very well obviously. Right now, we’re focusing on gas. So taking gas and converting it to liquids does not fit with our environmental priorities.

[Currently Qatar Petroleum is producing] 22 Bcf/d gas, 600,000 b/d crude, 600,000-700,000 b/d of condensate. We’ll be close to 1 million b/d [of condensate] when all that expansion production is online.

How does your gas expansion play into your petrochemical plans?

We have already announced that we are going to build the biggest ethane cracker in the world. We are working on the engineering of it. It’s about 2 million capacity. That is being built because we are for the first time extracting ethane from the stream before making LNG.

LPG is going to be a big expansion for us. We are going to increase a few million tons of LPG associated with that production. On the chemicals side, we are going to expand, look into helium. We are one of the biggest exporters of helium in the world, and we are going to expand that. [All these projects are] going to be based on commercial viability and economics.

On the oil side, you’ve had a lot of success bringing in partners to expand production. Do you plan for any new licensing rounds or any expansion of production within your existing assets?

For oil, we have been upgrading QP’s capabilities since I became CEO, and we have taken a decision that all oil developments will be developed by QP alone. So we don’t need support in that regard. We are more than capable.

On the gas side, we’ll ask partners to come in, like the North Field expansion. Because of the size of the project and the requirements for production, you need the technical expertise and support.

We’ve worked very well as partners with the IOCs. They know [as regards] ethics, transparency, anti-corruption, we’re probably one of the best in the world if you talk to these IOCs. They like working with us, and we like to have these IOCs come in for exchange of knowledge, development of people, and bringing the marketing capabilities.

We don’t want to completely abandon that path, so on gas, we’ve taken a decision to continue on that track. We can do it alone, but we like the partnership. So when they come in, they have to demonstrate what value they can add for us. The competition for them is for them to show there is marketing, there are projects outside, different things they can bring in.