Conoco sees gas volatility lasting years as it invests in Qatar

Pumpjack Source: ConocoPhilips

ConocoPhillips said volatility in global gas markets may last years, as it joined other Western energy companies investing in a $29 billion project to boost Qatar’s exports of the fuel.

The Houston-based firm will take a 3.1 per cent stake in the North Field East project. Chief executive officer Ryan Lance announced the deal alongside Qatar’s energy minister, Saad Al-Kaabi, in Doha on Monday.

TotalEnergies SE of France and Italy’s Eni SpA have bought respective stakes of 3.1 per cent and 6.3 per cent. Shell plc and Exxon Mobil Corp. are among the other companies to make bids. State-controlled Qatar Energy, of which al-Kaabi is CEO, is scheduled to announce another deal on Tuesday.

The expansion will increase Qatar’s liquefied natural gas capacity to 110 million tons annually from 77 million, just as demand surges across the world. European buyers have rushed to secure non-Russian supplies since Moscow’s invasion of Ukraine. Gazprom PJSC last week reduced pipeline gas flows, underscoring the continent’s vulnerability and raising the specter of fuel rationing. Prices in Europe surged 43 per cent last week.

“None of us knows how long this is going to last,” Lance said, referring to the large price swings in the gas market. “We have to be prepared for it lasting months and even years.”

Al-Kaabi said that high gas prices were reducing demand and causing some consumers to switch to the dirtier fossil fuel of coal, which he described as “really disturbing.”

“As producers, we like healthy prices,” al-Kaabi said. “But prices that are too high are destructive to demand. You don’t want a broke customer. It’s causing economic slowdown around the world. The energy bills are becoming so large.”

Qatar Energy expects North Field East to start operating in early 2026, meaning European buyers will need to look for alternative supplies in the meantime.

Once the extra gas is flowing, Qatar expects to send more shipments to Europe. Around 80 per cent of Qatari LNG currently heads to Asia but the proportion being shipped to Europe will rise to 40 per cent to 50 per cent, according to al-Kaabi.

“Our ability to feed European markets is rather limited, but we’ll do what we can to the best of our ability until the extra production becomes available,” he said.

Qatar is planning a second expansion phase, called North Field South. That will raise the country’s LNG production to 126 million tons a year. Many of the partners for that project will be the same as those on North Field East, al-Kaabi said.

Higher output will help the Persian Gulf nation retain its position as one of the world’s biggest suppliers. Qatar will be the second-largest LNG exporter in 2028 behind the US, according to BloombergNEF.

© 2022 Bloomberg L.P.

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