Doha develops liquefied assets

03 February 2010

Doha plans to double its liquefied petroleum gas production in the next two years and is seeking to develop fresh markets for the fuel in the Far East

Over the next two years Qatar aims to double its liquefied petroleum gas (LPG) exports to 12 million tonnes a year (t/y), from the current level of 6 million t/y. LPG is a by-product of crude oil and gas production, and is used to fuel vehicles and cooking and heating appliances.

While traditionally LPG has been sourced from crude oil and associated gas, Qatar has built up infrastructure over the past five years for non-associated gas extraction and is confident of achieving its goal of doubling production by 2012.

Key facts

12 million t/y - Qatar’s forecasted liquefied petroleum gas output by 2012

7 per cent - Liquefied petroleum gas content in gas extracted from the North field

t/y=tonnes a year.

Source: MEED

The emirate is already the world’s largest producer of liquefied natural gas (LNG). State-owned gas companies Qatargas and RasGas, based at Ras Laffan, are increasing LNG production capacity to 77 million t/y by the end of this year, from about 43 million t/y in 2009. Much of this comes from Qatar’s giant North field, the world’s largest non-associated gas field, estimated to contain some 900 trillion cubic feet of reserves.

Developing markets

According to Ali al-Hammadi, chief executive officer of Qatar International Petroleum Marketing Company (Tasweeq), which will market Qatar’s LPG production, the natural gas extracted from Qatar’s North field typically has an LPG content of 7 per cent.

John Aspden, a consultant at London-based energy brokers Poten & Partners, says Qatar’s investment in LPG production will take it from being the third largest LPG exporter in the Middle East to the region’s largest by 2011. 

Marketing this amount of LPG while the world economy is still in recovery will be a major challenge for Qatar. Domestic demand for LPG is relatively small, so finding an export market for the surplus will be crucial.

“Home demand is insignificant at the moment,” says Phil Parker, a Singapore-based business development manager at UK/Dutch Shell Group. “There is a small bottling plant at Mesaieed, which will hardly make a dent in Ras Laffan’s output.”

Most of Qatar’s LPG will be exported to Asia, according to Al-Hammadi, but, if necessary, product can be redirected to Western Europe or the US.

Aspden says there is a substantial market in Asia. “There has been a sizeable leap in Asian demand for LPG,” he says.

“Most crackers have some flexibility to use LPG, provided they have the logistics to receive and store it”

Michel Govaerts, Total Petrochemicals

Poten & Partners estimates seaborne LPG demand in the Asia Pacific region increased by 7 per cent last year compared with 2008. Asian LPG demand is driven mainly by the retail sector for use in cooking, heating and as a fuel for motor vehicles.

An added benefit of LPG is that it contains propane, which can be used as a feedstock in the production of Fpetrochemicals, so the Qatari government is building mixed-feedstock crackers to exploit this alternative usage.

“We have been in discussion with Qatar Petroleum (QP) for several years to build a mixed-feed cracker that would multiply the added value of feedstock for the country,” says Michel Govaerts, Middle East and Asia business development manager at French petrochemicals giant Total Petrochemicals. “Most crackers have some flexibility to use LPG, provided they have the logistics to receive and store it.”

With this flexibility, Qatar could use LPG as an alternative to meet up to 20 per cent of its total feedstock requirements.

On 7 January QP announced a joint venture with US oil major ExxonMobil for a $6bn petrochemicals complex at Ras Laffan. The proposed scheme includes a 1.6 million t/y steam cracker.

“[The cracker] will consume some propane. The amount is not clear yet, but one could speculate that it might be up to 1 million tonnes a year,” says Parker.

However, the range of products that can be made from LPG cracking is more limited than from other feedstocks, such as naphtha, so the demand for LPG will necessarily be limited.“There is still demand for products, such as butadiene and aromatics, derived from other feedstocks,” says Parker. “So the uptake for LPG will be limited.”

Estimating how much LPG Asian petrochemicals producers are likely to consume is a difficult task, he adds.

“Middle East naphtha supply to Asia is typically about 30 million t/y. LPG could replace 10-15 per cent of this – about 3 million tonnes, on current business,” he says.

On top of the existing demand, there are several new petrochemicals projects planned in Asia that could extend the market for LPG in the region. Qatar Petroleum International (QPI) has played a significant role in developing these schemes.

In the past six months several new projects including QPI have been announced in Asia. QPI signed a $3.5-4bn deal with Thai con-glomerate Siam Cement Group in November 2009 to build a petrochemicals complex in southern Vietnam, which will include a 1.4 million t/y mixed-feed olefins cracker, along with 400,000 t/y propylene and 450,000 t/y poly-propylene plants.

Joint ownership

Singapore’s strategic location and status as a major energy hub also lured QPI to the city state in November 2009 – its first downstream investment abroad. QPI and Shell signed a series of agreements giving QPI 50 per cent ownership of Petrochemical Corporation of Singapore (PCS) and 30 per cent of The Polyolefin Company (Singapore). Under the agreements, QPI operates two naphtha steam crackers in the country with a combined capacity of 1.9 million t/y. 

Industry sources report that Singapore is now looking at proposals for the construction of a dedicated LPG-receiving terminal, which would take advantage of Qatar’s expanding LPG output and close ties with PCS.

QPI also has a prospective interest in a petrochemicals complex on Hainan Island, in China. “There will probably be 2.5 million t/y of LPG earmarked for that project, if it gets off the ground,” says Parker.

Qatar’s expansion of its LPG production has come later than people had expected, owing to delays in its LNG projects.

“LPG exports have not yet reached their full potential,” says one industry source familiar with the plant’s operations.

“There were operational problems on Qatargas 4 [an LNG train with a production capacity of 7.8 million t/y], and this delayed the start-up of subsequent trains, which held down LPG utilisation rates initially. However, Qatargas 4 exceeded its nameplate capacity in October and November.”

Ships ordered to export the LPG have been forced to sit idle as a result of the delays.

“Qatar will have to compete in the markets with growing production from Abu Dhabi and Iran”

John Aspden, consultant, Poten & Partners

“A lot of new ships were ordered to carry the new LPG supply. But the LPG projects were quite substantially delayed, whereas the ships were delivered on time,” the source adds.

This situation is not expected to last much longer. While LNG is a contract business, requiring massive 260,000-cubic-metre vessels, LPG is a traded commodity and is typically transported in smaller volumes.

The largest LPG ships transport cargoes of just 85,000 cubic metres. Anticipated demand for further LPG carriers may eventually attract state-owned Qatar Gas Transport Company (Nakilat) into the picture. But it would take a significant investment on its part.

Nakilat already provides LPG and sulphur export shipping services to Tasweeq. However,  Muhammad Ghannam, managing director at Nakilat, says the company is willing to jump in and invest, if the price is right.

Marketing additional LPG while the global economy is still weak will be a major challenge for Qatar. At the same time it will have to compete with rising output from other LPG producing countries.

“The new tonnages from Qatar will have to compete for space in the end-user markets with growing production from Abu Dhabi and Iran,” says Aspden.

However, Qatar’s strategic decisions to shore up a market for its LPG in the growing economies of the Far East put the state in a strong position to be a major suppler of LPG for decades to come.

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