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LNG World Shipping

Gulf prepares for major increase in LNG exports

Wed 16 Jan 2019 by Mike Corkhill

Gulf prepares for major increase in LNG exports
After shuttling between Abu Dhabi and Tokyo Bay for over 22 years, Mubaraz will soon be sailing on different routes

While a groundbreaking new Qatar expansion phase is set to grab the headlines, more modest developments in Abu Dhabi and Oman will also boost the Middle East as an LNG export region

The Middle East produced 91.3M tonnes of LNG in 2017, or 31.5% of the global total of 289.8M tonnes. Qatar, with 77.5M tonnes, was by far the biggest contributor to the region’s output, while Oman exported 8.2M tonnes and the United Arab Emirate of Abu Dhabi 5.6M tonnes.

Qatar has been the world’s leading LNG exporter for over 12 years, having overtaken Indonesia in 2006. Ever since the 14th and final liquefaction train at the vast Ras Laffan industrial complex came onstream in February 2011, Qatar has been producing LNG at or slightly above the facility’s nameplate capacity of 77 million tonnes per annum (mta) and filling, on average, three LNG carriers per day.

This sustained level of Qatari output has ensured the Middle East’s status as the world’s leading LNG-producing region for most of the past decade. However, the commissioning of seven new LNG export projects in Australia in recent years pushed Asia into the top spot among LNG-producing regions in 2017, while Australia itself is set to pass Qatar to become the premier LNG export nation in 2019.

Qatar Super Train quartet

It remains to be seen how the construction of four new Super Trains will impact the LNG carrier loading arrangements at Ras Laffan

However, the time in the limelight for Australia, which now has an aggregate nameplate capacity of 85M tonnes, is set to be limited. Qatar is poised to launch an ambitious project that calls for the construction of four additional ‘Super Trains’ at Ras Laffan, of 7.8 mta capacity each. Six of the 14 existing trains at Ras Laffan are of this size.

The four new liquefaction units will boost Ras Laffan’s nameplate capacity to around the 110 mta mark by the time the planned construction work is complete in 2024. The 40% increase in LNG production volumes will push Qatar back to the top spot in the LNG exporters league table and increase the number of annual LNG carrier loadings at Ras Laffan from around the 1,000 mark to over 1,400.

Qatar introduced a self-imposed moratorium on any further development of its immense offshore North Field gas deposit in 2005, to give it time to assess the potential future life of the field in the aftermath of constructing the initial 14 Ras Laffan liquefaction trains.

"Qatar is poised to launch an ambitious project that calls for the construction of four additional ‘Super Trains’ at Ras Laffan"

Appraisal work in recent years has increased the country’s proven gas reserves to around the 880 trillion cubic feet (tcf) level, or 13% of the global total, and indicates that the North Field is more than capable of not only supporting output from four new LNG Super Trains, but also meeting rising domestic demand over an extended period. The moratorium was lifted in 2017 and Qatar expects to make a final investment decision (FID) on the construction of the four new Ras Laffan liquefaction units before the end of 2019.

In late 2018 Qatar decided to become the first Middle East member country to leave the Organization of Petroleum Exporting Countries (OPEC) cartel, as of 1 January 2019. Although it was a member of the oil exporter group for 57 years, Qatar produces only 600,000 barrels/day of oil, or 2% of OPEC’s output, and is now focusing primarily on further developing its LNG and gas supplier credentials.

Qatar supplied LNG to around 90 terminals in 24 countries worldwide in 2017. Traditionally, these volumes were marketed by RasGas and Qatargas, the two Qatar Petroleum (QP) subsidiaries which, between them, operated the 14 liquefaction trains at Ras Laffan.

Export flexibility

At the start of 2018, QP merged the two ventures into a single entity under the Qatargas name. The new Qatargas marketing system enables the Ras Laffan output to flow more freely between the Atlantic and Pacific Basins, providing QP with an edge against growing LNG supply competition from, not least, Australia and the US.

Qatar has worked in other ways to make its LNG export strategy more flexible in recent years. The LNG purchase prices in several established long-term sales and purchase agreements (SPAs) have been renegotiated downwards and cargo destination clauses have been amended to make them less terminal-specific. Around 60% of the contracts in the country’s current LNG sales portfolio have flexible destinations.

The flexible arrangements enable QP to react to changes in the global market. In the first half of 2018 some 71% of the cargoes loaded at Ras Laffan were shipped to Asia, reflecting the strength of demand in the region. A few years earlier, European customers were taking 50% of the country’s output.

Qatargas was party to the largest SPA to be concluded in 2018, a September deal with PetroChina under which it is providing 3.4 mta of LNG for 22 years, with immediate effect and until 2040. The SPA, which allows flexibility in the delivery of LNG to various terminals across China, also provides the Asian nation with an important new and competitive source of supply at a time when it is engaged in a trade war with the US and is currently imposing a 10% tariff on US LNG imports.

Middle East LNG Exporters

Terminal/country              Start of Terminal       Capacity (mta)            Output in

                                            Operations                                                       2017 (mta)

Ras Laffan/Qatar                1996                                     77                              77.5

Qalhat/Oman                      2000                                    10.4                            8.2

Das Island/Abu Dhabi        1981                                     5.8                              5.6

Balhaf/Yemen                     2009                                     6.7                              *

* Note: Yemen LNG halted operations in April 2015 due to civil war in the country          

Around two-thirds of Qatari LNG export cargoes are loaded on ships operated by Qatar Gas Transport Co Ltd, or Nakilat. The Nakilat LNG carrier fleet of 66 fully and part-owned vessels is comprised of 31 Q-Flex ships of 216,000 m3, 14 Q-Max ships of 266,000 m3, 22 conventional-size carriers and a floating storage and regasification unit (FSRU).

If Nakilat’s aim is to maintain a fleet capable of lifting a similar share of the output of the four planned Super Trains, an additional 40 LNG carriers will be required. The industry will be watching closely to see what size ships are specified. While the Q-Flex and Q-Max ships offer benefits in terms of economies of scale, they are too big to transit the expanded Panama locks.

If ships of the Q-Flex and Q-Max size are specified, it is certain they will be provided with dual-fuel propulsion systems, unlike the existing oil-fueled Q-Flexes and Q-Maxes. Nakilat has already converted one of its Q-Max ships to enable it to run on gas and is reportedly considering similar transformations for its other 44 large ships, to facilitate compliance with the January 2020 global sulphur cap of 0.5%.

Abu Dhabi gas rebirth

April 2019 marks a watershed date for Abu Dhabi LNG. The United Arab Emirate has been shipping LNG from its 5.8 mta, three-train Das Island export terminal since 1981, longer than any of the region’s other LNG suppliers. Over the years the sole long-term SPA customer of the Abu Dhabi National Oil Company (Adnoc) has been Tokyo Electric Power Company (Tepco).

"The entire Abu Dhabi gas industry is in a state of flux"

In recent years, Tepco and Chubu Electric in Japan have amalgamated their LNG marketing operations under the Jera banner. In March 2019, Jera’s current 4.7 mta, 25-year sales deal with Adnoc expires and, in line with the drive by Japanese LNG importers to diversify their supply base and conclude more flexible terms, the new deal finalised by the two parties bears no relationship to the legacy contract.

From April 2019 Jera will purchase eight cargoes annually from Adnoc for a period of three years on an open destination basis. The volume, which is equal to about 0.5 mta, is approximately 90% down on the previous arrangement, and then only for a limited duration.

Adnoc LNG, an affiliate of Adnoc in which Mitsui, BP and Total hold minority stakes, is stepping up its marketing efforts to line up a range of new LNG customers to fill the vacuum created by Jera’s reduced requirements. To date the company has succeeded in signing seven short- and medium-term sales agreements, including the new Jera arrangement, aggregating 4.2 mta.

At the same time, the entire Abu Dhabi gas industry is in a state of flux. Although in possession of substantial reserves, the emirate has a natural gas demand that is currently in excess of production capabilities, and growing at a rate of 10% per annum.

Abu Dhabi became a net gas importer in 2008, primarily as a result of the Dolphin pipeline deliveries, from Ras Laffan in Qatar to the Taweelah receiving facilities in the UAE, which commenced in 2007. The Dolphin line currently meets 30% of Abu Dhabi’s gas needs and supplies have continued uninterrupted despite the strained diplomatic and economic relations that have persisted between Abu Dhabi and Doha over the last 18 months. The Qatar/Abu Dhabi Dolphin supply contract does not expire until 2032.

In November 2018 Abu Dhabi’s Supreme Petroleum Council (SPC) approved a five-year, US$132Bn Adnoc-backed investment plan aimed at increasing oil and gas output and making the emirate once again self-sufficient in gas production. To facilitate this goal, Abu Dhabi has launched its first-ever upstream licensing round and is welcoming international players in field development initiatives. Recent new gas field discoveries have added 15 tcf to the emirate’s 210 tcf of proven reserves.

Although much of the developing gas output will be utilised locally, including in petrochemical manufacture, power generation and oil field reinjection, LNG exports will continue to have a key role to play for Abu Dhabi. The intention is to spend the next few years refurbishing the Das Island liquefaction trains and to continue developing its portfolio of new LNG customers. These drives, in turn, will enable the terminal to export LNG at its full 5.8 mta nameplate capacity by 2024 and thereafter to maintain this output level until at least 2040.

Meanwhile, the emirate’s National Gas Shipping Company is seeking charter opportunities for its fleet of eight 137,000 m3 LNG carriers. These are the vessels that have been utilised over the past two decades in shuttling Jera cargoes from Das Island to Japan on behalf of Adnoc LNG.

One notable LNG cargo that Adnoc will soon be delivering is the inaugural shipment for the Bahrain LNG project, having been appointed as the chosen supplier. Near-neighbour Bahrain, which is poised to become the Gulf’s newest LNG importer in the coming months, is making use of a floating storage unit and an adjacent jetty-mounted regasification unit as its receiving terminal arrangement.

Oman gets Khazzan boost

Oman has built its own specialist repair yard for servicing the domestic LNG carrier fleet

Oman is the Middle East’s second largest LNG exporter. The 8.2M tonnes shipped to overseas customers in 2017 meant that the three Oman LNG trains at the Qalhat terminal near Sur were operating at around 80% capacity on average.

Oman consumes about 70% of the gas it produces and domestic use more than doubled between 2007 and 2017, reducing the amount of gas available for export as LNG. However, production from the large new onshore Khazzan field came onstream in September 2017 and immediately began to buoy the Qalhat terminal’s LNG output.

Although the figures for 2018 are not yet in, LNG loadings for the first nine months of last year were running 15% ahead of those for the equivalent period in 2017. If this pace was maintained, Oman LNG exports in 2018 will have topped 9.5M tonnes.

Oman LNG is currently weighing up a 1.5 mta debottlenecking project for the Qalhat facility’s three trains, an initiative that would boost the terminal’s nameplate capacity from10.4 to 11.9 mta. The first 0.5 mta of the expansion project could be available by early 2020.

Oman has a core fleet of eight LNG carriers engaged in lifting a substantial part of the Qalhat output. Oman Shipping Company holds a controlling stake in seven of the vessels and a 40% share in the eighth. Mitsui OSK Lines part-owns all but two of the ships.

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