Qatar to Ramp Up Gas Production Amid Feud With Arab Neighbors

The New York Times- STANLEY REED

Locked in a confrontation with its neighbors, Qatar said on Tuesday that it would dramatically increase its production of natural gas — the fuel that made the tiny emirate rich and gave it regional influence.

Saad Sherida al-Kaabi, the chief executive of the national oil company, Qatar Petroleum, said at a news conference in the capital, Doha, that the country’s output of liquefied natural gas would rise 30 percent over the next five to seven years. The announcement confirms that Qatar — already the world’s biggest producer of L.N.G. — is determined to shift back into a phase of rapid production expansion, after years of little growth.

“This project will strengthen our position as the world’s largest L.N.G. producer and exporter,” Mr. al-Kaabi said. The increase would be the equivalent of adding about 8 percent to the world’s current supplies of the gas.

Qatar had frozen development of a field that it shares with Iran and that is the world’s largest trove of gas, for more than a decade. But its latest plan involves increasing production there.

The decision is probably driven by Qatar’s worries over losing market share to emerging competitors like the United States, whose shale gas industry has been growing fast, and Australia. An increase in the emirate’s exports could discourage investment by would-be rivals.

The surge in supplies from Qatar could also shake up the market, further weakening gas prices, which are already relatively low. But because Qatar has among the lowest production costs in the world, the country is more able to weather falling prices.

Still, Doha is picking an awkward time to increase production.

While Qatar undoubtedly has the raw resources to lift output, how it would do so is less clear. The country rose to become a world leader in exports of L.N.G. — gas chilled to liquid temperatures so it can be transported on ships, in that way reaching more potential customers than those afforded by pipelines alone — thanks to partnerships with energy giants like Exxon Mobil and Total of France.

In normal times, companies like those would welcome new opportunities for business.

But Qatar is now locked in a confrontation with Saudi Arabia and other Arab nations that have imposed an air and sea blockade on the emirate. If that persists, or escalates, countries opposed to Doha may pressure the companies, which have business interests throughout the gulf, to avoid dealing with Qatar.

That means Doha, which is already facing deteriorating finances and increased expenses because of the blockade, may be forced to dip into its own pocket for the billions required for new drilling and chilling facilities.

Even if the emirate ramps up supplies to the degree cited, the new supplies would be heading into a much less welcoming market.

Much of Qatar’s existing L.N.G. facilities were built to serve customers like Japanese electricity utilities on exclusive long-term contracts often linked to the price of oil.

But L.N.G. is increasingly traded around the world with its own value, like oil is, and customers are demanding more flexible pricing, analysts say.

“A lot of Qatari contracts are coming up for renewal,” said Trevor Sikorski, a London-based analyst at Energy Aspects, a market research firm. “Buyers are saying, ‘we want a change.’ ”

Market prices for L.N.G. exported to Japan, a major market, have fallen by around two-thirds over the last three years, according to Japanese government statistics.

Demand for L.N.G. has grown more rapidly than for other fuels, such as oil, in recent years, but the market now has a glut, with more gas output set to come online in the coming years.

Despite the uncertainty, it seems likely that there will be substantial demand for L.N.G. in the future.

Fast-growing economies like those of China and India have an incentive to substitute gas for coal in industry and in power generation because that move would reduce air pollution, as well as the emissions blamed for climate change. Europe, where gas demand has been weak in recent years, may also need more of the fuel to compensate for the closing of aging nuclear plants.