With global gas demand shrinking rapidly and storage running chronically low, Qatar, as the world’s biggest exporter of liquefied natural gas (LNG), faces a choice with no good options, Bloomberg said in an article Tuesday.
The country has the option of either curbing output or firing the opening salvo in a battle for market share, which has the potential to turn gas prices negative, Bloomberg reported. The coronavirus pandemic has seriously curtailed demand for commodities, such as oil and gas, causing a market glut and plunging prices.
While cutting output may be one option, the result would have a significant negative impact on government finances, which rely on LNG revenues, the article read.
“An output cut might also enable Australia to strike a blow to Qatar’s national pride by snatching its crown as the world’s top exporter,” Bloomberg said.
The other option Qatar has is cutting prices to secure sales. However, this move may result in a market free-for-all that leaves prices below zero and all LNG producers suffering, the article continued.
“Qatar stands to lose no matter which choice it makes,” Bloomberg added.
The country began to shift its LNG exports away from Asia and toward Europe earlier this year as the coronavirus began to curtail demand, but the worldwide nature of the pandemic now leaves the small Gulf state with too much gas and nowhere to sell, data from Bloomberg revealed.
“Either Europe doesn’t want it and therefore the cargoes are stuck in Qatar, or they will have to shut in production,” Thierry Bros, an energy associate at Harvard University’s Davis Center for Russian & Eurasian Studies told Bloomberg.
“If they force cargoes into Europe, you’re going to have exactly the same as what we’ve seen in Cushing, which is negative prices,” he added.
Cushing, Oklahoma, is an oil hub where WTI-benchmarked crude is distributed. Prices for WTI briefly turned negative last month, as fears rose that the hub’s storage capacity would be insufficient to hold unneeded oil.
Gas prices have fallen this year by more than half, leaving operators struggling. Negative pricing in particular would push many to the brink, with US operators that have only recently started production particularly under threat. Other major exporters, including Norway and Russia, have already reduced their gas exports to Europe as the pandemic plunges demand.
Qatar has also slowed its shipments to Europe, with import schedules suggesting that deliveries will not climb in May, Bloomberg reported. There are currently 17 tankers filled with LNG sitting off the coast of Qatar as the country struggles to find buyers for its gas.
“The next step would be for Qatar to reduce its production,” Bros added. “It won’t have any other choice.”
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