While the global markets for coal and oil continue their slow-but-steady slide into obscurity, one fossil fuel is poised for a final moment in the limelight: liquified natural gas. And Qatar is winning the global race to tap it.
More and more countries are transitioning their electric grids away from coal and onto gas, which emits less carbon when burned. As a result, global demand for LNG is expected to double between today and 2040, according to a recent Wood Mackenzie analysis.
But the world’s most accessible natural gas deposits are concentrated in a handful of countries—the US, Russia, Iran, and Qatar lead the pack—and gas needs to be liquified before it can be traded across oceans. So a number of multinational companies, working with gas-rich governments, are racing to build multi-billion-dollar LNG import/export terminals that can allow far-flung gas fields to supply the global market.
The trouble is, there are far more LNG terminals in the works than the world requires, even with growing demand for gas. LNG could be the last great gold rush of the fossil fuel era—and any company or country that doesn’t lock in financing and build its project soon will probably never get another chance.
“People are starting to appreciate that this could be the last window,” said Nikos Tsafos, a senior fellow at the Center for Strategic and International Studies who researches the global gas market. “If you don’t sanction a project in the next few years, you may never sanction a project.”
So far, he said, there’s a clear leader building LNG’s future, says Liam Kelleher, an LNG analyst with Wood Mackenzie: “Qatar is really taking the bull by the horns.”
Qatar and its state-owned oil company are forging ahead with a $50 billion plan to build the world’s largest LNG terminal, due to come online by 2025. That facility alone will eat up about a third of the 2030 LNG market.
That’s not an option for many other countries. Competition is fierce for a relatively small slice of the LNG pie. Nearly three dozen LNG terminals are in varying stages of development worldwide, adding up to about 180 million metric tons per year (mmtpa) of supply. But according to the Wood Mackenzie projection, by 2030 demand will only be about 102 mmtpa higher than today—and if countries get more serious about accelerating their climate goals, that number could be even lower.
On top of that pressure, the pandemic has made it harder to invest in new LNG terminals. “If you’re Exxon or Eni, for example, right now they’re thinking, ‘Revenues are not good. We need to cut our capital costs because of low oil and gas prices, and we have to be careful about what projects we put money into,” says Kelleher. In the last few months, Exxon has put the brakes on LNG projects in Texas, Mozambique, and Papua New Guinea.
But Qatar has some strategic advantages that make it more willing to stomach bad market conditions today in the interest of cornering the LNG market tomorrow. It’s already a leading oil and gas exporter, with easy access to existing infrastructure and gas that’s cheap to drill. Plus, its national oil company is willing and able to take risks for political reasons.
“This is all they’ve got as an economy,” Tsafos said. “They are geopolitically isolated in the region, they’re looking for friends, and this is a great way to raise your stature.”
Along with Qatar, other smaller projects in Russia, Canada, Mozambique, and Australia are steaming ahead. But others in Papua New Guinea, the US gulf coast, Mexico, Tanzania, Timor-Leste, and elsewhere are highly uncertain, held up by protracted bargaining between governments and companies, and high gas production costs.
Because these terminals are typically built to last 40 years or more, even some existing ones are already pushing the 2050 deadline for the world to reach net zero emissions. Those that get built in the future come with the liability that the world may lose its taste for gas well before they’ve paid back their investors, and risk joining the ranks of the fossil fuel assets that were written down by tens of billions of dollars during the pandemic oil crash. To avert that risk, Tsafos and Kelleher said, some of these projects will inevitably get axed.
For a country like Tanzania, which doesn’t currently rely on LNG exports, a cancellation like that may amount to no more than a missed opportunity for economic development; for Timor-Leste, already a gas exporter, the budgetary consequences of losing the LNG race may be more severe.
Then again, Tsafos said, they may dodge a bullet. In the mid 2000s, the Alaska oil industry pushed unsuccessfully to build a pipeline to the lower states. Anyone who was disappointed then was counting their blessings by the time the mid-2010s fracking boom obliterated the need for a high-cost project like that, Tsafos said.
“There’s a fine line between missing out on an opportunity,” he said, “and rushing to get through the window and getting hurt.”