By Haley Zaremba
-- In 2021, Qatar made a major commitment to its liquified natural gas industry, expanding its production by more than 50% in order to ensure its dominance in the sector. -- Following Russia’s invasion of Ukraine, natural gas prices soared and the U.S. and Australia began to aggressively pursue more LNG projects. -- While supply for LNG is set to soar, the quantity of new projects in the pipeline means that finding a buyer for a long-term deal is increasingly difficult. Back in February of 2021, Qatar laid out a plan to ensure its dominance in liquefied natural gas exports for at least two decades. Already the world’s top exporter of LNG, Qatar shocked the world with an announcement that it would expand its production by more than 50% to 126 million tons a year through 2027. In doing so, Qatar essentially ensured that no other nation could hope to match its output, thereby establishing dominance in the sector for the foreseeable future. Now, Qatari leaders very well may be regretting that move.
It goes without saying that a lot has changed since 2021. The pandemic dragged on longer than almost anyone could have predicted, causing massive ripple effects through virtually every economic sector on the planet. And then, when economic outlooks were already as foggy as they had ever been, and energy sectors were experiencing extreme volatility while trying to match unpredictable levels of supply and demand in an unprecedented context, Russia – the second biggestoil and natural gas liquids exporter in the world after Saudi Arabia – invaded Ukraine. The result was chaos. Threats of energy sanctions turned into an all-out energy war, Europe’s energy sector plunged into crisis, and geopolitics were forever changed.
Now, Qatar is stuck with vast amounts of LNG and a changing market that might not want its wares. The issue isn’t low demand – far from it. The problem is that no one wants to sign a long-term deal locking in LNG prices when the market is so volatile, and so many other big energy producers are making their own ambitious energy plans. “The world needs LNG now, but not so much from the middle of the decade when the start of the projects is likely to coincide with those in the US and several other places,” Bloomberg recently reported. And Doha insists on particularly strict contract terms with long timelines, which are currently scaring off would-be buyers.
And Qatar is not alone with its massive LNG projects and an uncertain future for prospective buyers. The reality is that it’s a buyer’s market for LNG right now. On top of Qatar’s massive LNG output, massive multi-billion dollar projects are underway to boost production in Australia, and the United States is well on its way to regaining its position as the world’s top LNG exporter, overtaking Australia and Qatar. Once all of these major projects come online around the same time over the next decade, the market will be flooded with cheap and plentiful natural gas, and these big three – the U.S., Australia, and Qatar – will likely have to keep their prices relatively low to stay competitive with each other.
All of these LNG super-producers are ramping up production with the expectation that Asian markets’ thirst for natural gas will be virtually unquenchable in the coming decades. As major economies including China and India continue to expand and struggle to maintain energy security in the face of rising demand, they face what is known as the energy trilemma: how to ensure a secure and reliable supply of energy while also keeping energy prices affordable and minimizing negative environmental externalities.
It is expected that natural gas will be key to balancing the trilemma on a global scale. While it’s a non-renewable fossil fuel, natural gas is considerably lower in carbon emissions than oil and coal. It’s also relatively cheap, plentiful, and has significant existing infrastructure to support its growth in the global energy mix. Liquefied natural gas, the most transportable form of the fuel, is therefore considered to be a critical stepping stone between dirtier fossil fuels and zero-emissions energies on the global path to decarbonization. According to the International Energy Agency, “given the time it takes to build up new renewables and to implement energy efficiency improvements, [natural gas] represents a potential quick win for emissions reductions.”
However, with so many countries jumping on the LNG production bandwagon, there is serious concern about whether the demand for gas during the global energy transition will really keep up with the increase in supply. There are also concerns from environmentalists who contend that we don’t have time to include a “stepping stone” phase between coal burning and renewable energy infrastructure, arguing that developing nations must leapfrog this phase instead. But the current projects underway in Qatar, Australia, and the U.S. all but ensure that natural gas will dominate many national energy mixes over the next two decades, as it’s almost certainly going to be affordable, plentiful, and close enough to sustainable to get the green light from policy leaders.