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Qatar will maintain its dominance of the global LNG market

The weekly note by QNB said that Qatar will maintain its dominance over the global liquefied natural gas market despite increased supply from Australia and the United States.

The report noted that Qatar currently accounts for 30.1 percent of the global market. The country captured nearly 70 percent of the new African demand, more than compensating for the lower cargoes to Japan.

Qatar’s position is likely to be cemented by its recent decision to boost production by 30 percent over the next five to seven years.

New data from BP have provided a summary of the state of the global liquefied natural gas (LNG) market in 2016. The market remained oversupplied, but the extent of oversupply increased.

Global LNG supply rose by 6.5 percent compared to virtually zero growth over 2011-2015. Demand growth increased by 4.2 percent, its fastest rate in the past five years.

The report noted four major market developments in 2016. The first was that supply growth was led by a surge in Australian exports. Exports from Australia increased by 49 percent and represented nearly 90 percent of the increase in global supply. This reflects over $200 billion in past investments and the completion of the first phases of mega projects, launched several years ago when prices were higher.

Australia is now the worlds second largest LNG producer and accounted for 16.4 percent of supply in 2016.

The second development was that the US began its first major international LNG shipments in 2016. The majority of its exports went to Latin American countries, particularly Chile and Mexico. Although it remains a small share of global supply, the US entry into the LNG export market represents a major shift.

The third was that demand was propelled by China and Africa, more than offsetting weaker demand from Japan and South Korea. Chinese LNG imports rose by a massive 33 percent. The rapid increase reflected the Chinese authorities goals to decrease reliance on coal and increase consumption of gas, one of the cleanest fossil fuels. African imports of LNG nearly tripled in 2016, drawn by lower prices, weak inter-regional pipeline infrastructure and rapid population growth.

These increases more than compensated for a 2 percent decline in imports from Japan and flat import growth from South Korea, the worlds largest LNG importers. A desire to reduce reliance on LNG, cheaper prices of alternative energy sources and weaker power demand contributed to slower demand growth from the two countries.

The fourth market development was Qatar remaining the biggest LNG supplier despite increased output from Australia and the US. The proposed 30 percent increase in LNG production looks to add to that leadership.

The four developments have important implications going forward. Production from the US and Australia is expected to increase substantially, maintaining the state of excess supply in the market. But subsequently, rising demand from Asia, a concerted global effort to adopt cleaner sources of energy and deferred investments are widely expected to push the market back into balance, potentially even into undersupply, around 2020. Qatar, being one of the most nimble and cost-efficient producers, is well positioned to take advantage by boosting its production as the market rebalances.

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