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The long-term outlook for Qatar’s second gas boom does not fundamentally change whatever the eventual economic impact of Covid-19 be, on both the energy market and the country’s non-hydrocarbons economy, a new report has shown.
According to PwC, the current crisis may even work to Qatar’s advantage as potential competitors, particularly in the US, delay or cancel major LNG investments.
“The most important economic development in many years was the surprise announcement by Qatar Petroleum in November that new appraisals had extended estimates of both the geographic scope and volume of North Field,” PwC said in the “Qatar Economy Watch”.
The field, which was previously thought to be only offshore, has been found to extend at least 10 miles onshore and the reserves had been increased to 1,760tcf of gas and 70bn barrels of condensates (oil mixed in with the gas).
This is a “doubling” of gas reserves and more than a “tripling” in oil, compared with Qatar’s most recently published estimates. On the basis of the larger reserves, QP upsized its plans for the North Field Expansion project by 50%, to six new LNG trains, which will add 49mn tonnes/year (tpy) of capacity, about a 64% increase on the currently rated capacity of 77mn tpy.
“This is the fourth time the project has been upsized since the 12-year moratorium on new projects was lifted in 2017,” PwC noted.
However, some private firms have cancelled or delayed final investment decisions on new LNG projects as spot prices have dipped to record lows in recent months, threatening their margins and financing, the report noted.
The current crisis is likely to reduce the new supply that comes onstream in the mid-to-late 2020s but the underlying dynamics for demand growth – as gas replaces coal as a cleaner source of baseline electricity generation – remain unchanged.
The previous LNG expansion phase in 2007-2011 provided “significant opportunities” for firms across many sectors involved directly in the project implementation or indirectly providing services.
“Once in place, the boost to Qatar’s fiscal revenue provided wider spillover benefits to the non-oil economy through government spending,” PwC noted.
“Similar impacts are expected in the new expansion phase, which is of a similar magnitude. Even at current production levels, analysis from the IMF and ratings agencies give Qatar the lowest breakeven oil price in the region and the Minister of Finance has said the breakeven price should fall further to under $40 after 2022, even before the new LNG capacity comes online.
“The revenue from the LNG expansion therefore provides clear visibility for Qatar’s long-term finances that enables local firms to develop their post-Covid-19 business plans with minimal risks related to potential changes in tax or spending policy, unlike in other Gulf States where significant changes are required to balance budgets,” PwC said.
