Identifier
Created
Classification
Origin
09DOHA471
2009-07-27 12:06:00
CONFIDENTIAL
Embassy Doha
Cable title:  

AMERICAN OIL & GAS ATTORNEY ANALYZES QATAR'S LNG

Tags:  EPET ECON ENRG QA 
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VZCZCXRO7125
PP RUEHDE RUEHTRO
DE RUEHDO #0471/01 2081206
ZNY CCCCC ZZH
P 271206Z JUL 09
FM AMEMBASSY DOHA
TO RUEHC/SECSTATE WASHDC PRIORITY 9282
INFO RUCNGEC/GAS EXPORTING COUNTRIES COLLECTIVE PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000471 

SIPDIS

E.O. 12958: DECL: 07/25/2019
TAGS: EPET ECON ENRG QA
SUBJECT: AMERICAN OIL & GAS ATTORNEY ANALYZES QATAR'S LNG
INDUSTRY

REF: DOHA 435

Classified By: Amb Joseph LeBaron for reason 1.4 (b) and (d)

--------------
(C) KEY POINTS
--------------

-- In a July 23, 2009 meeting with Ambassador, William
Cattan, an attorney with Dewey & LeBoeuf, projected that
Qatar will continue to scale back on its initial Liquid
Natural Gas (LNG) commitment to the U.S.

-- He nevertheless believes Qatar's LNG is competitive in the
U.S. market at present prices.

-- He revealed that Qatar had already exhausted the cheapest
gas available in the North Field and that future production
would involve higher costs.

-- The development of a fully spot market for LNG was
unlikely. High fixed costs required the reliable revenue
streams provided by long-term (20- to 25-year) contracts.

End Key Points.

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000471

SIPDIS

E.O. 12958: DECL: 07/25/2019
TAGS: EPET ECON ENRG QA
SUBJECT: AMERICAN OIL & GAS ATTORNEY ANALYZES QATAR'S LNG
INDUSTRY

REF: DOHA 435

Classified By: Amb Joseph LeBaron for reason 1.4 (b) and (d)

--------------
(C) KEY POINTS
--------------

-- In a July 23, 2009 meeting with Ambassador, William
Cattan, an attorney with Dewey & LeBoeuf, projected that
Qatar will continue to scale back on its initial Liquid
Natural Gas (LNG) commitment to the U.S.

-- He nevertheless believes Qatar's LNG is competitive in the
U.S. market at present prices.

-- He revealed that Qatar had already exhausted the cheapest
gas available in the North Field and that future production
would involve higher costs.

-- The development of a fully spot market for LNG was
unlikely. High fixed costs required the reliable revenue
streams provided by long-term (20- to 25-year) contracts.

End Key Points.


1. (SBU) On July 23, 2009, Ambassador met with William
Cattan, an oil and gas attorney with Dewey & LeBoeuf, to
discuss the outlook for Qatar's Liquid Natural Gas (LNG)
industry. Mr. Cattan previously worked for one of Qatar's
national natural gas companies, RasGas, and has considerable
insight into Qatar's place within the industry. An overview
of the meeting follows.

--------------
QATARI LNG SUPPLIES TO THE U.S.
--------------


2. (C) Mr. Cattan examined the current status of Qatari LNG
sales to the U.S., arguing that Qatar's LNG is competitive
in the U.S. market, especially compared to shale oil and gas,
which cost twice as much to produce. However, he cautioned
that competitiveness is a function of price. At present
prices, Qatar's LNG has an advantage over U.S. domestic
alternatives, but a higher price would fundamentally change
the situation. In fact, Canada technically has more oil than
Saudi Arabia when oil is selling at $100 per barrel; this
elationship holds for natural gas as well, accordig to
Cattan. (Note: In June, Qatar's Energy Miister Abdullah
Bin Hamad Al Attiyah told the Ambasador (reftel) that the
cost of shipping LNG to he U.S. was a minuscule $1.20 per
million btu.)


3. (C) Cattan told the Ambassador two U.S. facilties, Golden
Pass in Texas and Elba Island in Georgia, possess sufficient
re-liquefaction equipment to receive LNG shipments from the

processing trains originating at Qatar's Ras Laffan gas
center. The Golden Pass facility, associated with Exxon
Mobil and Conoco Phillips, presently receives shipments from
Train 3 and is slated to receive supplies from Train 6 when
it becomes operational. (Note: The Golden Pass facility is
partly owned by the Government of Qatar.) Elba Island,
controlled by Shell, will receive shipments from Train 7,
which, like Train 6, is not yet producing.


4. (C) According to Cattan, RasGas originally committed all
of the gas in Trains 6 and 7 -- these trains produce 7.8
metric tons per annum (MTA) -- to the U.S. market, but since
then has re-allocated a large portion of this
production to other destinations. The trend began five years
ago with RasGas' decision to re-direct 5 MTA to the
Bahamas out of Trains 6 and 7. Upon hearing the Ambassador's
estimate that a total of 3 or 4 trains were
allocated to the U.S. market, Cattan said no more than 1 to 1
1/2 trains were likely to reach the U.S. In response to
Ambassador's comment that he had heard roughly 1/3 of Qatar's
LNG production was slated for the Atlantic Basin,
Cattan noted that the quantity would be well below 1/3,
adding that the assumption within the LNG industry was that
less and less Qatari gas would arrive in the U.S. than
previously believed.

--------------
DECREASED WORLDWIDE DEMAND
--------------


5. (C) Cattan addressed the downturn in the energy market,
arguing that it hurt Qatar only temporarily. He estimated
that demand in Asia -- where demand for LNG has been highest
-- dropped 20% over the last year and a half. When demand
was high, Asian countries, particularly Japan and South
Korea, bought up any excess capacity available at any price.

DOHA 00000471 002 OF 002


Now, with "buyers of last resort" scaling back their
consumption, he noted consuming countries can manipulate the
market to their advantage.


6. (C) Still, Cattan emphasized the natural gas market is
cyclical and this downturn would only be temporary. When
demand and prices rebound, he believed that Qatar would once
again be in a commanding position. As Qatar is roughly
equidistant from Asia and the Americas, it is well-suited to
play the role of a swing producer, moving gas to where it is
most needed.


7. (C) Although Qatar meets only a small percentage of any
given country's energy demand, Qatar's influence derives
from the absence of domestic alternatives to the gas it does
supply, according to Cattan. Indeed, he found Embassy
Doha's estimate that Qatar accounts for no more than 3.5% of
any country's energy demand "rather low."


8. (C) Cattan believes Qatar is in a strong position to
weather the storm in the short-to-mid terms. He agreed with
Ambassador's assessment that Qatar can more than offset any
decline in prices by increasing the amount of gas it
produces. The profit margin for producing natural gas is so
large, he said, that fluctuations in prices have
only a minor effect on revenues.

--------------
LONG-TERM DIFFICULTIES
--------------


9. (C) In the long-term, however, Cattan does not believe
this situation will hold. He pointed out that although
rumors Qatar is already running out of gas are unfounded, it
is nevertheless true that Qatar is running out of the
cheapest, most easily accessible gas. Cattan told the
Ambassador that the second generation of gas production in
Qatar -- which will begin once the moratorium on new
exploration in the North Field is lifted -- will require new
technology and financial arrangements, increasing costs and
whittling away at the favorable profit margin.


10. (C) Cattan remarked that continuing production at present
levels as Qatar enters the second generation will require
higher market prices. Although he believes the world economy
will pick up in the next year, Cattan said the
current natural gas market is "oversupplied," which will
restrict Qatar's opportunities. He cited Qatar's new
terminal in Wales as one instance where Qatar is entering an
unfavorable market.

--------------
LNG SPOT MARKET
--------------


11. (C) Ambassador mentioned that the evolution of a spot
market for LNG could bolster both Qatar's profits and
international influence. In response, Cattan expressed
skepticism that a spot market for natural gas would ever
develop, as the high fixed costs require guaranteed returns
over an extended period of time to sustain profitability. In
this sense, there is a trade-off between short-term spot
opportunities and the need for long-term security.
Contractually speaking, there are also obstacles to an
increased reliance on spot sales, he said. Even though Qatar
recently concluded a deal with Belgium to increase the
flexibility of supply, most of Qatar's agreements involve set
amounts on a "take-and-go" basis, noted Cattan.



LeBaron