Can Australia Surpass Qatar To Become The Top LNG Exporter?

Qatar is presently the largest exporter of liquefied natural gas ("LNG") in the world. The country is alone responsible for 32% of global LNG exports. It also has the third largest proven reserves of natural gas of 24.5 trillion cubic meters. Moreover, cost of production of LNG in Qatar is the lowest in the world. However, there is a new contender for the top spot now, Australia.

Australia is expected to overtake Qatar following the completion of its new LNG projects. Per the Department of Industry, Innovation and Science of Australia, yearly LNG export capacity of Australia is expected to reach 74 million tons by June 2019 from 63.8 million tons estimated for 2017 and 52 million tons in 2016. On the other hand, Qatar’s LNG export in 2016 was 77.6 million tons.

By 2020, the $200 billion investment in the country's LNG industry is expected to push Australia to the top spot in the list of the largest LNG exporters. Australia’s LNG exports are expected to increase 41% year over year by this time period.

How Will Australia Climb to the Top?

Big Projects

The $54 billion Gorgon project deserves a mention here. It has increased Australia’s LNG production rapidly since it came online in March 2016. Energy giant Chevron Corporation (NYSE:CVX) is the majority shareholder (47.3%). Exxon Mobil Corporation (NYSE:XOM) – the largest U.S. oil company by market value – and Royal Dutch Shell (LON:RDSa) plc RDS.A have a 25% stake each in the development. The remaining stake is held by Osaka Gas, Tokyo Gas and Chubu Electric Power. Notably, 15.6 million metric tons of LNG will likely be produced every year once the Gorgon project is fully completed.

New projects that are supporting the country's rise include Chevron's Wheatstone LNG project in Western Australia. It started this month. The Wheatstone fields are estimated to contain over 4.5 trillion cubic feet of gas deposits.

In July, Shell's flagship project, Prelude floating liquefied natural gas (FLNG) facility set sail from a South Korean shipyard toward north-west Australia where the next phase of the project will commence. Prelude will handle production, liquefaction, storage and transfer of LNG at sea. It will also be responsible for processing, export and condensate liquefied petroleum gas. The facility has a production capacity of around 5.3 million tons per annum (mtpa) of liquids, with LNG accounting for 3.6 mtpa or 68% of the total capacity. Production is likely to start in early 2018.

Inpex Corp.’s Ichthys LNG off the northwestern coast of Australia is scheduled to come online in 2018. The floating production, storage and offloading facility (FPSO) vessel, Ichthys Venturer of Inpex's project has a huge capacity of 1.12 million barrels of gas condensate with 40 years of operating life. The $34 billion Inpex project is expected to tap more than 12 trillion cubic feet of natural gas reserves. It will be a milestone in the country's journey to the top.

Besides these mammoth projects, others worth mentioning are ConocoPhillips’ (NYSE:COP) massive Australia Pacific LNG (“APLNG”) facility that started shipment of liquefied natural gas in early 2016. The APLNG facility is located on Curtis Island in Queensland, Australia. China Petroleum & Chemical Corporation (NYSE:SNP) also has stakes in this project.

Tax Structure

The tax structure of the countries, pertaining to income from the royalties levied on the companies, is markedly different. Qatar government has levied a higher tax rate than the Australian government on LNG exports. Per IMF, the tax scenario in Qatar will help the country to receive AU$12.54 billion in royalty payments from LNG exports in 2020, from sales of AU$53.73 billion. On the other hand, by 2020, Australia’s LNG export value is expected to be around AU$40.63. However, Government of Australia’s Petroleum Resources Rent Tax (PRRT) receipts from all oil and gas production is estimated to be AU$0.8 billion, showing a huge difference in both the countries’ tax structure. This fact can attract more oil and gas majors to Australia.

Geographical Position

Increasing LNG demand in the Asian market from China, India, Japan, South Korea and other countries is benefiting Australia. Rising demand from the East Asian market can absorb and secure Australia's LNG supplies. It has made Australia the biggest rival in this market for Qatar.

How is Qatar Rising to the Challenge?

In July 2017, Qatar announced plans to increase its LNG production for the next decade. The energy department of the country expects the move to increase its LNG output to 100 million tons annually between 2022 and 2024.

Also, Qatar enjoys a favorable geographical location. Its supplies can reach Europe and most of the Asian market at low cost. However, distance from Qatar to East Asian countries is more than that of Australia, which benefits the latter.

Low cost of supply in addition to very large-scale plants and marketing operations can provide Qatar with strategic advantages over Australia. Qatar's cost of production is much lower than rival Australia, making its LNG business more profitable.

Also, the export controls installed by the Australian government to fulfill domestic energy needs can act as a positive for Qatar.

To Conclude

We can say that even though Qatar is planning to increase its exports in the future, the tax friendly environment in Australia, which has already drawn several oil and gas mammoths, can make it challenging for Qatar to retain the top spot in the near future.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>