Last week, the first ever shipment of Liquified Natural Gas (LNG) from the United States left Sabine Pass and began its journey to Brazil.
The shipment itself is nothing short of a landmark and has huge ramifications for the global gas markets, threatening to bring down prices even further and faster. Why? Put simply, the entrance of US LNG on the market adds to the already massive supply, and this coincides with Australian LNG projects coming online this year which are set to make the country surpass Qatar as the leading supplier of LNG worldwide.
The geo-political threat
With the US coming online as a major exporter, it is likely that it will seek to enter the European market, Russia’s most valuable gas market, threatening a spike in geo-political relations. With tensions already at a high over Ukraine and Syria, and with the Russian economy already under great strain following sanctions and military operations in Syria, the competition threatens to complicate the pursuit of a political resolution in both areas. Russia has historically dominated Europe and has used gas for geo-political gains, ‘turning off the tap’ in 2009 in a dispute over payment with Ukraine. Given this history, it may well be that Europe finds a more ‘reliable’ supplier in the US and would welcome the latter’s entry into the market.
The fall in oil prices has naturally had a knock on effect on gas prices, cutting revenues to the small but hugely influential Gulf State. With the increased supply in the market, this will only further cut revenues and eat into the market share that Qatar currently enjoys.
Qatar has already cut jobs at the flagship media channel Aljazeera, as well as RasGas and Qatar Gas with significant restructuring already taking place.
Iran currently possesses the second largest gas reserves which, until now, remain mostly untapped. More importantly, Qatar currently shares its major gas field with Iran. Should the latter begin exploiting that field, then this increases the potential for a more rapid depletion of the field’s capacity. Iran has already announced it wants to be a leading LNG supplier in the next five years, an intention that has the potential to deliver a heavy blow not only to Qatar’s revenues, but its influence across the world.