Qatar, in size, is only 0.5% the land/ocean mass of Saudi Arabia. Yet, despite its size, it punches well above its weight in the international arena, just like its neighbour. Most of this is down to one thing: liquefied natural gas. Qatar is the world’s leading LNG producer and exporter in the world, and that vast wealth has fuelled the dramatic transformation of its economy since 1996 when the first shipment of Qatari LNG set sail for Japan.
But uneasy lies the crown. There are usurpers to the throne. Australia, after over a decade of overstuffed budgets and overextended deadlines, is hot on Qatar’s heels. In some months of 2019, Australian LNG production and exports actually exceeded Qatar’s. And coming up both Australia and Qatar’s back rapidly is the US. The shale revolution not only transformed US oil industry; it did the same for the US natural gas industry as well. The abundance of onshore natural gas liquids has fuelled an LNG export boom in the US, with some two dozen projects in various states of completion and development. In 2019, the US accounted for more than half of new liquefaction capacity added worldwide. In the same year, the US leapfrogged Malaysia as the third largest LNG exporter in the world, and by 2025, its LNG production capacity could reach almost 15 bcf/d – eclipsing both Qatar and Australia.
The competition may be heating up, but that will not diminish Qatar’s importance. With its recent moves to tap into the vast natural gas resources in its offshore North Field and securing infrastructure though new deals for LNG ships, Qatar is prepared to defend its market share, which props up its riches. It is, after all, the Saudi Arabia of the gas world.
However, the similarities end there. While Saudi Arabia is the largest swing oil producer and the de facto leader of the OPEC and OPEC+ oil clubs, no such co-operation platform exists for natural gas/LNG. There have been attempts in the past to create one, but they have all failed. Which means that while market control and supply deals will always be an option in the oil world, the natural gas/LNG world is a cut throat business. Producers compete by offering long-term contracts for 10 or more years, locking buyers into a fixed sales cycle. Qatar was a great benefactor of this, sealing ultra-long deals with key buyers in Japan and South Korea over the 90s and 2000s, tying the price of LNG to crude oil…. a mechanism that sent its revenues into the stratosphere when crude prices breached the US$100/b level in 2011.
That advantage is disappearing from Qatar, as the riches its reaped attracted a whole new generation of LNG producers – from Mozambique to Mexico. These additional supplies shifted the LNG world from a seller’s market to a buyer’s one. When Shell completed its Prelude project (though it was massively delayed) and Inpex finished its Ichthys site, Australia became a true rival to Qatar, with the US waiting in the wings. The abundance of new suppliers has had loyal old clients pressing for more flexibility in LNG contracts, with Japan leading the fray by demanding renegotiation of contractual terms as the world’s largest buyer. The entrance of US LNG exporters has also changed the nature of the game, shifting LNG buying from ultra-long contracts to shorter-term ones in the 2-5 year range, as well as offering a more liquid spot market.
That would be have been fine, as global LNG demand was growing rapidly, fuelled by China and India. A rising tide lifts all. But then the Covid-19 pandemic occurred. And just as it has done for oil, the pandemic shifted the LNG market from oversupply to supply glut. With very little visibility on the timeframe for improvement, global natural gas/LNG prices have more than halved. Qatar is especially vulnerable to this development, since many of its ultra-long contracts are near expiry. If this was OPEC, it could convince its fellow exporters to curb output to support prices. But there is no OGEC. And Qatar, the vulnerable LNG king, has only two options: voluntarily curb its output to prevent the glut from getting greate or initiate a battle for market share by lowering prices. Sound familiar? That’s exactly what Saudi Arabia and Russia did in March, destroying confidence in the crude market and briefly sending WTI prices into negative territory. There is a legitimate worry that this could happen in LNG as well.
Caught between and rock and a hard place, Qatar’s next move will determine the immediate future of LNG. It already has some of the world’s cheapest LNG production, but even it will not be immune from low prices if it decides to push for market share. Sure, initiating a price war could wipe up the US’ developing LNG export industry, but just as we saw with shale oil in 2014 and even today, the US shale patch will always bounce back through flexible entrepreneurship. It will likely have to throttle output. But that risks rivals overtaking it sooner than expected, and its vast North Field Expansion project is already underway, increasing its LNG capacity by 45% by 2025. At stake is not just Qatar’s grip on the throne, but the entire global LNG complex. Hot gas brings hot rewards, but is intensely flammable as well.
Statistics: World’s Largest LNG Producers (2019)
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The constant domestic fighting in Libya – a civil war, to call a spade a spade, has taken a toll on the once-prolific oil production in the North African country. After nearly a decade of turmoil, it appears now that the violent clash between the UN-recognised government in Tripoli and the upstart insurgent Libyan National Army (LNA) forces could be ameliorating into something less destructive with the announcement of a pact between the two sides that would to some normalisation of oil production and exports.
A quick recap. Since the 2011 uprising that ended the rule of dictator Muammar Gaddafi, Libya has been in a state of perpetual turmoil. Led by General Khalifa Haftar and the remnants of loyalists that fought under Gaddafi’s full-green flag, the Libyan National Army stands in direct opposition to the UN-backed Government of National Accord (GNA) that was formed in 2015. Caught between the two sides are the Libyan people and Libya’s oilfields. Access to key oilfields and key port facilities has changed hands constantly over the past few years, resulting in a start-stop rhythm that has sapped productivity and, more than once, forced Libya’s National Oil Corporation (NOC) to issue force majeure on its exports. Libya’s largest producing field, El Sharara, has had to stop production because of Haftar’s militia aggression no fewer than four times in the past four years. At one point, all seven of Libya’s oil ports – including Zawiyah (350 kb/d), Es Sider (360 kb/d) and Ras Lanuf (230 kb/d) were blockaded as pipelines ran dry. For a country that used to produce an average of 1.2 mmb/d of crude oil, currently output stands at only 80,000 b/d and exports considerably less. Gaddafi might have been an abhorrent strongman, but political stability can have its pros.
This mutually-destructive impasse, economically, at least might be lifted, at least partially, if the GNA and LNA follow through with their agreement to let Libyan oil flow again. The deal, brokered in Moscow between the warlord Haftar and Vice President of the Libyan Presidential Council Ahmed Maiteeq calls for the ‘unrestrained’ resumption of crude oil production that has been at a near standstill since January 2020. The caveat because there always is one, is that Haftar demanded that oil revenues be ‘distributed fairly’ in order to lift the blockade he has initiated across most of the country’s upstream infrastructure.
Shortly after the announcement of the deal, the NOC announced that it would kick off restarting oil production and exports, lifting an 8-month force majeure situation, but only at ‘secure terminals and facilities’. ‘Secure’ in this cases means facilities and fields where NOC has full control, but will exclude areas and assets that the LNA rebels still have control. That’s a significant limitation, since the LNA, which includes support from local tribal groups and Russian mercenaries still controls key oilfields and terminals. But it is also a softening from the NOC, which had previously stated that it would only return to operations when all rebels had left all facilities, citing safety of its staff.
If the deal moves forward, it would certainly be an improvement to the major economic crisis faced by Libya, where cash flow has dried up and basic utilities face severe cutbacks. But it is still an ‘if’. Many within the GNA sphere are critical of the deal struck by Maiteeq, claiming that it did not involve the consultation or input of his allies. The current GNA leader, Prime Minister Fayyaz al Sarraj is also stepping down at the end of October, ushering in another political sea change that could affect the deal. Haftar is a mercurial beast, so predictions are difficult, but what is certain is that depriving a country of its chief moneymaker is a recipe for disaster on all sides. Which is why the deal will probably go ahead.
Which is bad news for the OPEC+ club. Because of its precarious situation, Libya has been exempt for the current OPEC+ supply deal. Even the best case scenarios within OPEC+ had factored out Libya, given the severe uncertainty of the situation there. But if the deal goes through and holds, it could potentially add a significant amount of restored crude supply to global markets at a time when OPEC+ itself is struggling to manage the quotas within its own, from recalcitrant members like Iraq to surprising flouters like the UAE.
Mathematically at least, the ceiling for restored Libyan production is likely in the 300-400,000 b/d range, given that Haftar is still in control of the main fields and ports. That does not seem like much, but it will give cause for dissent within OPEC on the exemption of Libya from the supply deal. Libya will resist being roped into the supply deal, and it has justification to do so. But freeing those Libyan volumes into a world market that is already suffering from oversupply and weak prices will be undermining in nature. The equation has changed, and the Libyan situation can no longer be taken for granted.
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According to 2018 data from the U.S. Energy Information Administration (EIA) for newly constructed utility-scale electric generators in the United States, annual capacity-weighted average construction costs for solar photovoltaic systems and onshore wind turbines have continued to decrease. Natural gas generator costs also decreased slightly in 2018.
From 2013 to 2018, costs for solar fell 50%, costs for wind fell 27%, and costs for natural gas fell 13%. Together, these three generation technologies accounted for more than 98% of total capacity added to the electricity grid in the United States in 2018. Investment in U.S. electric-generating capacity in 2018 increased by 9.3% from 2017, driven by natural gas capacity additions.
The average construction cost for solar photovoltaic generators is higher than wind and natural gas generators on a dollar-per-kilowatt basis, although the gap is narrowing as the cost of solar falls rapidly. From 2017 to 2018, the average construction cost of solar in the United States fell 21% to $1,848 per kilowatt (kW). The decrease was driven by falling costs for crystalline silicon fixed-tilt panels, which were at their lowest average construction cost of $1,767 per kW in 2018.
Crystalline silicon fixed-tilt panels—which accounted for more than one-third of the solar capacity added in the United States in 2018, at 1.7 gigawatts (GW)—had the second-highest share of solar capacity additions by technology. Crystalline silicon axis-based tracking panels had the highest share, with 2.0 GW (41% of total solar capacity additions) of added generating capacity at an average cost of $1,834 per kW.
Total U.S. wind capacity additions increased 18% from 2017 to 2018 as the average construction cost for wind turbines dropped 16% to $1,382 per kW. All wind farm size classes had lower average construction costs in 2018. The largest decreases were at wind farms with 1 megawatt (MW) to 25 MW of capacity; construction costs at these farms decreased by 22.6% to $1,790 per kW.
Compared with other generation technologies, natural gas technologies received the highest U.S. investment in 2018, accounting for 46% of total capacity additions for all energy sources. Growth in natural gas electric-generating capacity was led by significant additions in new capacity from combined-cycle facilities, which almost doubled the previous year’s additions for that technology. Combined-cycle technology construction costs dropped by 4% in 2018 to $858 per kW.
Fossil fuels, or energy sources formed in the Earth’s crust from decayed organic material, including petroleum, natural gas, and coal, continue to account for the largest share of energy production and consumption in the United States. In 2019, 80% of domestic energy production was from fossil fuels, and 80% of domestic energy consumption originated from fossil fuels.
The U.S. Energy Information Administration (EIA) publishes the U.S. total energy flow diagram to visualize U.S. energy from primary energy supply (production and imports) to disposition (consumption, exports, and net stock additions). In this diagram, losses that take place when primary energy sources are converted into electricity are allocated proportionally to the end-use sectors. The result is a visualization that associates the primary energy consumed to generate electricity with the end-use sectors of the retail electricity sales customers, even though the amount of electric energy end users directly consumed was significantly less.
Source: U.S. Energy Information Administration, Monthly Energy Review
The share of U.S. total energy production from fossil fuels peaked in 1966 at 93%. Total fossil fuel production has continued to rise, but production has also risen for non-fossil fuel sources such as nuclear power and renewables. As a result, fossil fuels have accounted for about 80% of U.S. energy production in the past decade.
Since 2008, U.S. production of crude oil, dry natural gas, and natural gas plant liquids (NGPL) has increased by 15 quadrillion British thermal units (quads), 14 quads, and 4 quads, respectively. These increases have more than offset decreasing coal production, which has fallen 10 quads since its peak in 2008.
Source: U.S. Energy Information Administration, Monthly Energy Review
In 2019, U.S. energy production exceeded energy consumption for the first time since 1957, and U.S. energy exports exceeded energy imports for the first time since 1952. U.S. energy net imports as a share of consumption peaked in 2005 at 30%. Although energy net imports fell below zero in 2019, many regions of the United States still import significant amounts of energy.
Most U.S. energy trade is from petroleum (crude oil and petroleum products), which accounted for 69% of energy exports and 86% of energy imports in 2019. Much of the imported crude oil is processed by U.S. refineries and is then exported as petroleum products. Petroleum products accounted for 42% of total U.S. energy exports in 2019.
Source: U.S. Energy Information Administration, Monthly Energy Review
The share of U.S. total energy consumption that originated from fossil fuels has fallen from its peak of 94% in 1966 to 80% in 2019. The total amount of fossil fuels consumed in the United States has also fallen from its peak of 86 quads in 2007. Since then, coal consumption has decreased by 11 quads. In 2019, renewable energy consumption in the United States surpassed coal consumption for the first time. The decrease in coal consumption, along with a 3-quad decrease in petroleum consumption, more than offset an 8-quad increase in natural gas consumption.
EIA previously published articles explaining the energy flows of petroleum, natural gas, coal, and electricity. More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.
Principal contributor: Bill Sanchez