Interview: Hamad Mubarak Al Muhannadi
How have declining oil and gas prices affected the manner in which RasGas approaches the international liquefied natural gas (LNG) industry?
HAMAD MUBARAK AL MUHANNADI: The decline in both the price of oil and demand for LNG in some of the traditional markets has resulted in some immediate challenges for our industry. However, LNG is a long-term business: with project timelines extending over decades, prices are expected to fluctuate in line with economic cycles and supply-demand fundamentals during a project’s lifetime. From the perspective of RasGas, it is imperative that LNG projects continue to operate profitably at different stages of the economic cycle.
In this context, it is crucial that there is flexibility, particularly in areas such as portfolio diversification, destinations, delivery, pricing and product specifications. RasGas’ objective is to meet our customers’ individual needs and to maintain a balanced partnership with our customers.
To what extent has this altered the way that customers approach long-term contracts in terms of duration and pricing?
AL MUHANNADI: With the additional LNG coming to market from new projects, customers today are comfortable with the availability of LNG. The environment of oversupply has provided them with the comfort to defer longer-term commitments, and they have generally adopted a wait-and-see approach, resulting in more spot and shorter-term deals. Approximately 27% of LNG in the market is currently sold under short-term or spot arrangements, a figure which has increased three-fold since 2006.
We anticipate that this percentage may increase as new supply becomes available, and, as long as customers are comfortable with assuming the associated spot price risks, we will continue to help mitigate market changes and meet the deman in the long-term, short-term and spot sales markets.
To what degree has the drop in gas prices benefitted existing LNG producers?
AL MUHANNADI: LNG will play an increasingly important role in meeting global demand, with growth in demand projected to reach a rate of approximately 5% per year from 2015 to 2025. This is a business that requires significant investment in human capital, production, liquefaction and transportation, yet lower prices will likely delay the development of some planned supply projects. Suppliers need to be able to continue to develop the resources required to meet the aforementioned projected demand growth, or a resulting supply-demand imbalance will have implications for LNG prices over the long term. LNG needs reliable participants, and the next wave of gas supplies will require a diversity of supply options from new market entrants, as well as from those who have long-proven records of reliability and stability, such as RasGas, which has the resilience to overcome periods of short-term uncertainty. We currently produce approximately 37m tonnes per annum and enjoy a degree of flexibility that allows us to serve short-, medium- and long-term market needs, and to respond to shifting market requirements. This is a key competitive advantage that allows us to remain focused on executing our sales commitments.
On the demand side, what markets regionally and globally offer the greatest potential to expand Qatar’s existing customer base for LNG?
AL MUHANNADI: Over 34 countries currently import LNG, more than twice the number that was importing a mere decade ago. Gas markets in Asia, South America and Europe will all have to rely on increasing volumes of imported natural gas and LNG over the coming decades. In 2015 alone, we saw new markets emerging in Poland, Egypt, Jordan and Pakistan, and we expect other new markets, such as Bangladesh and the Philippines, to continue to grow and develop.
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