Russia-Qatar Gas Price War Imminent

Russia-Qatar Gas Price War ImminentRussia-Qatar Gas Price War Imminent

Following the drop in global gas prices, Qatar and Russia are on the verge of a "price war" that could translate into aggressive discounts and huge price cuts, an energy market analyst said.

“With a production capacity of 77 million tons of liquefied natural gas, Qatar is showing more flexibility in its new gas contracts to maintain its market share,” Ahmad Jazayeri was quoted as saying by Mehr News Agency.

During the last few years, natural gas prices have suffered a 44% decline, falling from 45 cents per cubic meters to 25 cents, according to the Energy Ministry's Office for Developing Export of Technical and Engineering Services.

"In addition to signing a long-term contract based on a halved gas price with the biggest Indian LNG importer Petronet, new pricing formulas are on the agenda for Qatar," Jazayeri noted, adding that it has even canceled Petronet’s debt, which amounted to $1.8 billion, for a take-or-pay clause in their contract.

“At a time when Qatar is playing out an underselling scenario by further developing its North Dome Gas-Condensate Field [which is attached to Iran’s South Pars Gas Field], the world’s biggest gas exporter Russia is pursuing a similar policy.”

As Iran’s rival in gas extraction from the shared South Pars/North Dome gas field, Qatar’s second strategy is diversifying its gas export markets.

“Qatar has recently signed a gas contract with Pakistan and targets new markets such as South America, the Middle East and the Caribbean Sea’s countries,” he said.

  Other Global Players

Jazayeri referred to the presence of US as a newcomer in the global gas market and said an equivalent of 1 million British thermal units of gas is being sold at $4-4.3 in Europe, while the end price for an equivalent in US export is estimated at $5.6.

“If the current conditions persist, the US cannot be a serious rival for other gas suppliers,” Jazayeri said.  

On the supply and demand situation in the global gas market, the analyst said a 70% decline in oil prices has affected gas prices, lowering it to about a half of its price a few years ago.

Jazayeri said gas prices have decreased from 30cents to $3 in different markets compared with those of last year.

With further decline in oil prices and oil producers’ failure in reaching a conclusion for lowering the production, gas prices are also predicted not to meet a significant rise in 2016, according to Jazayeri.

"Because of the gas price drop, some of the LNG plans across the world have been canceled," he said, adding that based on confirmed reports, four new LNG production plans in Australia, with a capacity of 30 million tons per year and a $39 billion in investment, have been suspended.

This is while Australia has more than $180 billion of LNG export projects coming on stream, with developers planning to add about 53 million tons per annum of LNG production by 2017, an increase that would make the country the world's top LNG exporter, Reuters reported.

In total, 68 LNG production projects with an investment of $380 billion have been stopped around the world.

"Sitting on 34 trillion cubic meters of gas reserves and a daily gas production plan of a billion cubic meters, Iran can become a global gas trader in the near future," Jazayeri said.

“Along with gas export, Iran can supply more gas to petrochemical complexes and power plants inside the country."

Underscoring that production of varied commodities lowers the risk of production and export of oil and gas products under the current conditions of the gas markets, Jazayeri said the diversification of Iran’s energy export basket by producing and selling a wide range of petrochemicals, electricity and oil byproducts, especially diesel, is one of the new policies of the country’s energy sector.