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Qatar LNG Exports Outlook

Poised to sustain position as number one LNG exporter, lowest-cost producer

Qatar is the world’s largest LNG exporter, with 82 MMt in exports in 2017, placing it ahead of Australia, Malaysia and Nigeria. The United States will emerge as a competitor in terms of market share to Qatar in the coming years, having become a net exporter in 2016.

Qatar’s LNG production comes from seven LNG projects, each majority-owned by Qatar Petroleum (QP), a state-owned firm whose net liquefaction capacity exceeds that of any other company. To streamline its operations and LNG marketing, QP merged its Qatargas and RasGas joint ventures into a single entity under the Qatargas name at the start of 2018. Through these joint ventures, QP has long-term fixed destination deals with many of the world’s major LNG buyers. The single entity’s new marketing system will allow volumes to flow more freely between the Pacific and Atlantic basins, offering QP an edge against growing supply competition.

Qatar shows no signs of relinquishing its position in the global market. In 2017, QP lifted its moratorium on new gas production from the North Field that feeds its liquefaction plants and has since announced plans to build three new LNG megatrains. With these moves, QP is making a concerted effort to increase its LNG capacity so that Qatar can remain the global leader in LNG exports despite rapid export capacity expansion in Australia and the United States.

Thanks to its low upstream costs supported by associated liquids revenue, Qatar has earned a reputation as the lowest-cost producer of LNG. Maintaining this status would not only enable Qatar to continue its LNG expansion, it would also allow it to displace potential rivals. QP is well-placed to crowd out other potential new liquefaction capacity around the world—even in the US—due to Qatar’s superior economics. This could force competitors seeking to bring new projects online during the planned Qatargas expansion to delay startup, given their likely inability to compete with Qatar’s attractive LNG exports price when seeking buyers.

Which countries import LNG from Qatar?

Qatar primarily exports LNG to its traditional markets in Europe and Asia, but has increasingly sent volumes to new markets since 2015. While its main export markets include South Korea, India, Japan and China in Asia, and Italy, UK and Spain in Europe, Qatar has moved to secure market share in emerging importers like Thailand, Pakistan, Poland, Kuwait and Bangladesh. This strategy has two benefits: first, Qatar’s contracts with established customers in east Asia will expire in the early 2020s and questions remain over their renewal; and second, the new importers help balance seasonal export dynamics for Qatar, with Japan and Korea absorbing exports during cold weather months and Middle Eastern countries doing the same during hot weather months.

During the past few years, Qatar’s share of exports to Asia has risen while shipments to Europe have fallen. In 2018, Qatar delivered 71% of its exports to Asia as a whole through July, with total loaded volumes of 34 MMt in line with record highs set in 2013 during the aftermath of the Fukushima disaster. Although emerging importers like Pakistan have become increasingly important to Qatar, volumes to Qatar’s older Asian customers—Japan, Korea, Taiwan, India, and China—were also up through the first seven months of 2018 behind strong demand from South Korea and China in the early part of the year. Europe’s share of Qatari volumes, meanwhile, has fallen to its lowest levels in a decade due to QP’s active approach to new importers as well as price premiums in Asia.

Such fluctuations are part and parcel, however, of Qatar’s LNG flexible export strategy. With around 60% of its current contract portfolio having flexible destinations, Qatar has been able to adapt quickly to market shifts. Before the Fukushima disaster, Qatar sent close to half of its volumes to Europe; after, Qatar pivoted quickly, sending two-thirds of its exports to Asia in response. Once Asian demand stabilized, Qatar diverted volumes to South Asia and the Middle East, particularly Egypt, which rapidly became a significant market. A tighter market and a cold winter prompted a return to high Asian spot prices in late 2016, prompting Qatar to refocus on Asia.

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