Just a few days before the December 6 OPEC meeting, Qatar announced that it will be leaving OPEC starting January 1.
Qatar has been a member since since 1961 and will become the first Middle Eastern nation to exit OPEC, a 15 nation bloc that produces 40% of the world’s oil and accounts for over 60% of all oil traded internationally.
Simply put, the political situation had deteriorated too far too fast. Qatar has had a rather difficult relationship with OPEC linchpin Saudi Arabia, which led a blockade against Qatar last year after accusing it of funding extremist groups along with Iran. Qatar’s withdrawal signifies its independence from the Saudis.
The decision to leave is also based on Qatar’s goal to more focus energy efforts on its “bread and butter:” natural gas.
And why not? Mushrooming environmental policies around the world have installed cleaner natural gas as the go-to fuel to reduce emissions and backup intermittent wind and solar power. At nearly 2% per year, the growth in global gas demand is expected to be almost triple that of oil in the coming decades.
Qatar wisely plans to increase its gas production 45% in the coming years to stave off a quickly emerging group seeking to expand market share, namely Australia, the U.S., and Russia – and potentially Canada and even Mozambique.
Qatar shares the world’s largest gas field, the North Field, with Iran, helping to stabilize relations between the two neighbors that hold nearly 33% of all proven gas reserves.
Last summer, state-owned Qatar Petroleum, which has been selling almost a third of the world’s LNG, lifted a decade-long moratorium on North Field development to up gas production.
With global LNG demand surging 4-6% per year over the modeled future, such an upgrade for Qatar was clearly needed. Qatar’s LNG exports have been flat in recent years at around 10-11 Bcf/d.
This is contrast to second place Australia, a nation that has surged its shipments from 3 Bcf/d to over 8 Bcf/d since 2013. Global shale leader the U.S. has dozens of projects now under consideration to export more LNG. And Qatar has seen Russia signing LNG deals with Japan, China, India, and South Korea, nations that are some 70% of the global market.
Qatar also has plans to build the largest ethane cracker in the Middle East, enabled by more natural gas production.
Make no mistake Americans: Qatar will be stiff competition for the U.S. in the LNG market, although the country’s limiting factor could eventually be its own rapidly rising consumption.