This Soon-to-Be-Former OPEC Member Sees a Brighter Future in Natural Gas
Qatar made headlines recently after the long-standing OPEC member said that it was leaving the group of oil-exporting nations at the end of the year. That will drop OPEC's membership roll down to 14, although as the 11th largest producer in the group, Qatar's exit will only impact OPEC's production by about 2%.
While Qatar isn't a major oil exporter, it's the world leader in liquified natural gas (LNG). It's leaving the oil-focused OPEC so that it can turn the bulk of its attention to not only its top commodity, but a cleaner-burning fuel source that's growing increasingly important to meeting global energy demand.
An unexpected find has turned Qatar into an LNG giant
Qatar was the first new country to join OPEC, becoming a member about a year after five nations founded the organization in 1960. However, about a decade later, the country discovered a massive gas field off its northeast coast, dubbed North Field.
Qatar drilled several wells to appraise that field over the next 14 years, which proved that it was sitting on the world's largest non-associated gas field (meaning there's no oil). Overall, the North Field holds about 10% of the world's known gas reserves and makes Qatar the third-largest holder of natural gas resources behind Russia and Iran.
Since the small Middle Eastern nation doesn't need that gas, it has spent the past several decades building out the world's largest LNG export business. The country currently has the capacity to produce 77 million tonnes of LNG per year, which represented 26% of global LNG trade in 2017. Meanwhile, Qatar is working to expand its LNG business up to 110 million tons per year by 2023.
Taking its LNG business global
Even with that significant capacity increase by Qatar, the global LNG market could still run short of supplies by the middle of the next decade given the fast-paced demand growth from places like China and India. Overall, worldwide gas demand is expected to expand 46% by 2035 from 2017's level, according to a forecast by energy industry analysts at Wood Mackenzie.
For comparison's sake, Wood Mackenzie sees oil demand only increasing 14% over that time frame while renewables expand 18% by 2035. What's fueling that fast-paced growth? Gas is cheaper than renewables while cleaner than oil, making it an ideal alternative to meet demand while being mindful of climate change risks. That fast-paced demand growth for gas is leading Qatar to make investments outside of its home country to bolster its LNG franchise.
Qatar is looking to expand in the U.S. where it owns a majority stake in the Golden Pass LNG Terminal in TX along with minority owners ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP). The head of Qatar Petroleum, which is a state-owned energy company, stated earlier this year that the country is "looking very critically at the United States because we have a position there," noting that it expects to make a final investment decision on a $10 billion expansion of Golden Pass LNG by the end of this year.
However, Qatar Petroleum's CEO noted that his company doesn't just want to operate the LNG infrastructure but would also like to link it with upstream investments in the U.S. that it would buy to supply that project with gas. As such, it's currently evaluating partnership opportunities to invest in shale gas developments in the U.S.
In addition to the U.S, Qatar is investing in several projects around the world, including ones in Brazil, Argentina, and Mexico. It's also considering investments in several other countries such as Mozambique, for example, where ExxonMobil and Anadarko Petroleum (NYSE: APC) are developing LNG export facilities. In Anadarko's case, it could make a final investment decision on its Mozambique project sometime next year. Both companies still are seeking financing for their projects, which might open the door for Qatar to join one of them as a partner.
Pivoting toward gas
Qatar sees a much brighter future for natural gas than it does with oil, which is why it's leaving OPEC. That will free up the country to not only expand its LNG operations supporting the North Field, but invest in LNG projects around the world.
That shift toward natural gas and LNG by not only the soon-to-be-former OPEC member but large-scale oil giants like Exxon, ConocoPhillips, and Anadarko is something investors should keep an eye on since it could enable these energy companies to grow at a much faster rate than their oil-focused peers in the decades ahead. That could give their stocks more fuel to reward investors over the long term.
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Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.