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Qatar awards North Field LNG expansion to Chiyoda, Technip

Highlights

Project to cost $28.7 billion

Qatar exploring further expansions beyond 126 million mt/year

"Great interest" from IOCs to join

Dubai — Qatar Petroleum awarded the main engineering and construction contract for phase 1 of the planned LNG expansion of its giant North Field to a joint venture of Japan's Chiyoda Corp. and Technip, the company's CEO and Qatar energy minister Saad al-Kaabi said Feb. 8.

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The expansion project will cost $28.75 billion, making it one of the largest energy projects anywhere, and boost Qatar's LNG production to 110 mt/year from 77 million mt/year, effective Q4 2025, Kaabi told an online press conference. The expansion is for four trains, he said.

Qatar is now considering boosting capacity beyond the 126 million mt/year already announced, Kaabi said. "There is great interest" from international oil companies to also participate and Qatar will be sending documents next week for their interest, he said.

The global LNG market is heading into a tighter supply-demand balance later this year through 2024 after being in oversupply since late 2018, according to S&P Global Platts Analytics.

There are limited new projects that will come online over the period, allowing for demand to catch up with the record build in liquefaction capacity in 2018 and 2019. In a sign of how vulnerable the market is to supply shocks and extreme winter demand, the JKM spot Asian LNG price rallied from an all-time low of $1.825/MMBtu at the end of April to an all-time high of $32.50/MMBtu in January, the result of a perfect storm of high demand, shipping constraints and supply-side issues.

"Qatar Petroleum is in a position to fill any supply-side gap in the coming two decades," Samer Mosis, EMEA LNG team lead at Platts Analytics, said.

Qatar enjoys some of the lowest product costs in the world, with estimated long-run breakeven cost of new expansions at under $5/MMBtu landed into Asia, he said.

Platts Analytics sees JKM averaging just below $7/MMBtu in the 2030s, well below the average price of $9/MMBtu QP has realized for its sales into Northeast Asia since 2016, he said. "Consequently, Qatar must now prepare itself for sales prices below what it is used to achieving, potentially highlighting the need for such a large capacity buildout."

QP faces over 50 million mt/year of uncontracted supply in the next six years, 31.2 million mt/year of new uncontracted capacity (not counting the 11 million mt/year of equity production from Golden Pass) and 23 million mt/year of expiring contracts, 60% of which are with Qatar's traditional Asian customer base, Mosis said.

"With the global LNG market seeing just 15 million mt/year of new end-user backed contracts signed in all of 2019, the task Qatar faces is significant even for LNG's most powerful player," he said.