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Qatar announced on Tuesday it planned to raise liquefied natural gas (LNG) capacity by 30 percent in an apparent show of strength in its dispute with Gulf neighbors who have imposed political and economic sanctions on Doha.

The unexpected move came as Qatar appears to be preparing itself for greater economic independence should the dispute with Saudi Arabia, the United Arab Emirates, Egypt and Bahrain become protracted. Its immediate effect will be to worsen a glut on the LNG market where Australia, the United States and Russia vie.

The Gulf states and Egypt have severed diplomatic and transport ties with Doha, accusing it of supporting terrorism and courting regional rival Iran. Qatar denies the accusation.

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The Arab states, who have presented Doha with a list of demands, meet on Wednesday to discuss how to end the crisis; or they could impose more sanctions, which may include asking trade partners to pick a side in the rift.

Qatar Petroleum’s chief executive said the firm would increase gas production from its giant North Field, which it shares with Iran, by 20 percent after new gas development.

In April, Qatar lifted a self-imposed ban on development of the North Field, the world’s biggest natural gas field, and announced a new project to develop its southern section, increasing output in five to seven years.

That new project will raise Qatar’s total LNG production capacity by 30 percent to 100 million tonnes from 77 million tonnes per year, CEO Saad al-Kaabi told a news conference.

“Once completed…this project will raise the production of the State of Qatar to about 6 million barrels of oil equivalent per day,” Kaabi said.

With such low production costs and LNG facilities closer to buyers in Europe and Asia, the Qatari move means U.S. producers could struggle to sell their LNG competitively and projects still needing finance could struggle to find investors. So far only Cheniere exports U.S. LNG, but there are project proposals with a total capacity of some 150 million tonnes/year.

Energy sales have driven Qatar’s rapid rise as a regional player, with vast infrastructure projects and widening diplomatic influence as well as a role in the Syrian conflict that is viewed with suspicion by Gulf neighbors.

German Foreign Minister Sigmar Gabriel said in Jeddah the stand-off between Qatar and its Arab neighbors would best be solved by an agreement across the region to prevent the financing of terrorism,

“We all know that (this support) is not organized by states, but often by private persons,” he added. “But we must somehow succeed in ending support in the region for extremist and terrorist organizations.”

IRANIAN QUESTION

The glut has already driven down prices. Asian spot LNG prices LNG-AS have fallen more than 40 percent this year to $5.50 per mmBtu and by 70 percent from peaks in 2014.

So far, the majority of LNG is supplied via long-term contracts between producers and users which allow little flexibility and in many cases also prevent importers from reselling cargoes. With supplies far outpacing demand, analysts expect more and more LNG to be freely traded.

Many producers have already started to offer contracts without resale or destination restrictions.

The political dispute started on June 5, roiling LNG trade and causing at least one tanker to change course and UK gas prices to spike.

Kaabi said the company’s operations would not be affected by the diplomatic crisis or sanctions.

“Qatar Petroleum will continue working…If some companies decide they don’t want to work with QP that’s their choice. We will find other foreign companies to work with,” he said.

Analysts said the move to boost production was partly to do with added competition in the LNG market, mainly from Australia, the United States and Russia.

“It is also to do with Iran now set to increase production on the South Pars field, which means they can up production from their side of the field (North Field) without destabilizing the geology of the field,” said Oliver Sanderson, gas analyst at Thomson Reuters.

Some experts say that, while the Gulf States accuse Qatar of cooperating too closely with Iran, their sanctions could push it to cooperate with Tehran more on the gas production and exports from the shared field.

“Qatar needs the support of Iran now more than any time before. I don’t believe it would be possible for Qatar to increase production without the cooperation with Iran, if in the long term the (political) situation stayed same as now,” said Reza Mostafavi Tabatabaei, president of London-based ENEXD, a firm involved in oil and gas equipment in the Middle East.

“Also, major (oil) companies may be asked to choose between working in Qatar or Saudi/UAE and Egypt, otherwise there be sanctions against them. That’s why I don’t think that developing this project by Qatar now will be as easy as before, politically not financially,” he added.

Qatar Petroleum’s Kaabi said there is no cooperation with Iran on any project in the North Field, but the countries have a joint committee that meets every year to discuss development of the field.

He added that the company will be looking for international partners, declining to say when a tender would be issued.

Qatargas, the largest LNG-producing company in the world, and RasGas also operate projects on the North Field.

While QP owns a majority stake, energy firms including Total, Mitsui & Co and ConocoPhillips also possess small stakeholdings. RasGas is a 70/30 percent joint venture between QP and Exxon Mobil.

“Qatar has one of the lowest LNG production costs in the world. It has followed an astute policy of maximizing value from market prices around the world,” said Ajay Singh, special advisor at Japan Petroleum Exploration Co and former gas executive at Shell.

“For Qatar, LNG is everything.”

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