Weak gas demand and scarce storage space amid the coronavirus pandemic provide Qatar with uneasy choices. The world’s top LNG exporter may soon have to choose between curbing production and lowering prices, which can spark a market share war and in turn, pushes prices to below zero, like what happened to oil. Qatar is set to lose no matter which option it chooses, analysts said.
In February, the coronavirus pandemic in Asia forced Qatar to divert its LNG cargoes away from the region to northwestern Europe. However, it cannot make the same move now as the virus plagued Europe’s major economies, leaving Qatar struggling for places to store the unsold shipments. Qatar can lower its gas output, but it will squeeze the emirate’s revenue. Cutting production will also pave the way for Australia to dethrone Qatar as the world’s top LNG exporter.
Another choice is to slash prices to secure sales, but it might threaten margins, although Qatar is a low-cost gas producer. Keep sending cargoes to Europe may also replicate what happened to Cushing: storage space running out, pushing prices to negative territory. Currently, European storage units are already at 66% capacity, well above the five-year average of 38%, data from Gas Infrastructure Europe showed.
Qatar appears to be slowing deliveries to Europe after peaking in April. There are 17 LNG carriers idling off Qatari coast, higher than the average number of idle LNG tankers for this time of year. Qatar Petroleum, which manages LNG exports, will not need to redirect shipments to Europe if demand in Asia recovers. However, the recovery is expected to take many months. Meanwhile, the global LNG glut is likely to persist until the mid-2020s.
Gas producers have no cartel such as OPEC, rendering them unable to coordinate effective measures to cut output and support prices. Gas prices have plunged by more than 50% this year to about $2/MMBtu, compared to $10/MMBtu in the fourth quarter of 2018. Low prices can send Qatar’s LNG to break-even levels, although its production cost is the lowest in the world.
