The National: Qatar’s LNG dominance has limited staying power

The small peninsula of Qatar has dominated the narrow world of gas like a colossus. Since the global financial crisis, its control of a third of the global liquefied natural gas business (LNG) has allowed it to influence prices, ride out market shocks and profit immensely. But now Doha faces new challenges, to which its strategy offers no easy solution.

Qatar, which spent the millennium’s first decade building up the world’s largest LNG export business, could have been buffeted by two shocks – the disappearance of the US market because of its shale boom, and the Great Recession. But its dominance in LNG is far more than the oil industry in Saudi Arabia, which holds just 10 per cent of the market.

It was able to shift supplies to Asia to countries such as Japan and South Korea, which are entirely dependent on LNG for gas, while sending surplus volumes to Europe at lower prices to compete with Russia. The 2011 accident at Fukushima caused Japan to shut down its nuclear power plants, further boosting LNG demand and driving prices to US$20 per million British thermal units, compared to just $3 to $4 in the United States.

But now the LNG market is shifting. Asian LNG prices fell to below $11 in July, their lowest point since before Fukushima, and UK gas was below $7. They should pick up again when winter returns, and the market seems oddly relaxed over the threat to Russian gas supplies through Ukraine, which could lead Europe to scramble for LNG later this year.

But as Japan gradually restarts its nuclear reactors, the supply-demand balance also looks to be easing. New buyers are pushing to break the traditional linkage of LNG prices to oil, and to base them on US and European markers instead. MORE