Qatar, Exxon, Total Declare ‘Force Majeure’ on Qatargas-1 LNG

By Yuji Okada and Dinakar Sethuraman

Jan. 16 (Bloomberg) -- Exxon Mobil Corp., Total SA and Qatar Petroleum declared “force majeure” after halting output of liquefied natural gas for a ninth day at the Qatargas-1 plant, the project’s biggest buyer said.

Qatar, the world’s biggest producer of LNG, invoked a legal clause that excuses a supplier from making contractual deliveries, said Hiroaki Ohashi, a spokesman for Chubu Electric Power Co., which buys about 40 percent of the project’s output. The plant was shutdown on Jan. 8 after a mechanical fault.

Qatargas-1 is the fifth LNG project to face supply disruptions in the last four months after problems at plants in Algeria, Nigeria, Norway and Australia disrupted shipments of the cleaner-burning fuel. The global recession has crimped demand for LNG in Japan and South Korea, the world’s biggest LNG buyers, while a warmer Asian winter and high inventories have reduced demand for spot cargoes.

“We are not facing any shortage immediately as we have enough inventories,” Ohashi said by phone today. “We will think about buying spot cargoes and alternative fuels such as fuel oil, crude and coal if a lack of supplies from Qatar persists.”

Prices of LNG have declined by half to less than $10 per million British thermal units since the middle of last year as oil prices dropped 75 percent from a record last July.

“The general state of the world economy is pushing prices and demand down,” James Palairet, an analyst with LNG Shipping Solutions, said by telephone from London yesterday.

Customers Informed

Qatargas, which confirmed the shutdown of the plant on Jan. 14, won’t confirm or deny that it had declared force majeure on LNG shipments, Abdulla M. Hijji, a spokesman for the project, said by telephone today. “We are in touch with our customers and they are being kept informed,” he said.

“In addition Qatar has the flexibility to provide gas to any of our customers around the world at any time.” The Emirate has a total capacity of 31 million tons of the clean-burning fuel.

Officials from Tokyo Gas Co. and Osaka Gas Co., who declined to be identified for confidentiality reasons, said Qatargas-1 informed them about the shutdown. The utilities import a combined 7 percent of the affected project’s output.

RasGas, Qatar’s second LNG project with a capacity of about 21 million tons a year, declared force majeure in January 2007 because of ice formations inside pipes, P. Dasgupta, managing director of Petronet LNG Ltd., said.

Qatargas-1 consists of three so-called production trains with a combined capacity of 10 million tons of LNG a year. Other buyers of its fuel include Japanese utilities Kansai Electric Power Co., Tokyo Electric Power Co., Toho Gas Co., Chugoko Electric Power Co. and Spain’s Gas Natural SDG SA, with contracts that stretch as far as 2025, according to World LNG Review. Chubu imports 4 million tons a year.

The Qatargas-1 plant is 65 percent-owned by Qatar Petroleum. Exxon Mobil Corp., based in Irving, Texas, has a 10 percent stake, France’s Total SA holds 10 percent, and Japan’s Mitsui & Co. and Marubeni Corp. each hold 7.5 percent.

To contact the reporters on this story: Yuji Okada in Tokyo at yokada6@bloomberg.net; Dinakar Sethuraman in Singapore at dinakar@bloomberg.net