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The Times: Qatar to launch first market for LNG

April 9, 2007
Carl Mortished, International Business Editor

Qatar is to launch the first market for trade in liquefied natural gas (LNG) amid fears that the world’s gas-exporting countries are forging closer links that could lead to the formation of a gas cartel.

The Gulf emirate is seeking to capture global trade in the world’s fastest-growing energy commodity with the creation of an LNG contract based at IMEX, an energy exchange to be launched this year in Doha, the capital of Qatar.

Talk of the formation of a gas cartel overhangs a meeting of the Gas Exporting Countries Forum (GEFC) that begins today in Doha. The notion of a gas Opec, proposed by Iran last month, has been rejected by Russia, but other members of GECF, such as Algeria, have expressed ambivalence and recommended that an expert group study the proposal.

The creation of a traded contract in LNG will pose a new challenge to gas-exporting countries, with the arrival of liquidity and price transparency in an opaque market. There are only two spot gas markets in the world: Henry Hub, in America, and Britain’s NBP price. Henry Hub and NBP prices are often widely divergent, while in Asia and continental Europe the sale of gas is cloaked in secrecy and dominated by long-term supply contracts with destination clauses that prohibit secondary trading.

Philip Thorpe, head of the Qatar Financial Centre Regulatory Authority, reckons that IMEX will bring transparency to a market on the cusp of change because of the growing trade in LNG cargoes. “There is currently no pricing reference point for LNG,” he said. “Last year was a wake-up call as shipments of LNG were diverted to European markets in response to higher prices.”

The new LNG contract is being developed for IMEX by Hess Energy Trading Company (Hetco) and Clifford Chance, the City law firm.

Jon O’Neill, of Hetco, says that there is an emerging spot trade in LNG cargoes and that the first task for IMEX is to develop a spot market for LNG similar to the dated Brent crude oil contract developed by BP and Shell in the 1970s.

Mr O’Neill has no doubt that there would be huge interest in a tradeable LNG contract. He said: “The whole gas market east of Suez has zero transparency. LNG is the bridge that brings the markets together.”

According to Patrick Heren, a gas industry consultant, gas exporters in the Middle East and Asia are coming under pressure, with new LNG supplies hitting the market. “You will also have two thirds of the old LNG contracts coming up for renewal,” Mr Heren said.

If a new, tradeable LNG contract is emerging, it gives added reason for Qatar to act first. Its North Dome field is the largest gas reservoir in the world. Qatar expects to export 30 million tonnes of LNG next year, about a third of the world market, and projects are under way to more than double that capacity.

Technology advances over the past decade have dramatically cut the cost of chilling gas to minus 160 degrees Centigrade, at which point the fuel liquefies, enabling transport in ships equipped with cryogenic tanks. The International Energy Agency predicts that LNG will account for almost half of global trade in gas by 2030.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1629366.ece

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