Decades of investment in Qatar’s gas sector will come to fruition in the next two years. A significant milestone in the development of the state’s downstream gas projects was achieved in the third quarter of 2008, when revenues from gas production surpassed those from oil for the first time, following a sharp drop in oil prices and an increase in gas export volumes.
For the first nine months of 2008, income generated by gas sales was up almost 109 per cent on the same period in 2007. Gas revenues in 2008 were QR88.3bn ($24.3bn), compared with QR61.9bn for the whole of 2007 (see chart, opposite).
This follows another major achievement in early 2006, when the country overtook Indonesia to become the world’s largest exporter and trans-shipper of liquefied natural gas (LNG). Until then, Indonesia had dominated the market for more than 30 years, with annual LNG exports of up to 25 million tonnes a year (t/y).
Qatar will consolidate that leading position with six world-scale liquefaction trains set to come on line between 2009 and 2010, boosting the country’s LNG output by 46.8 million t/y to more than 77 million t/y.
Eight trains are currently in operation, and four more will be commissioned by the end of 2009, adding more than 31 million t/y of capacity. With global LNG demand estimated to reach 270 million t/y by 2012, Qatar will have a 29 per cent share of the global market.
As the purchase agreements for the LNG supplies are mostly based on long-term deals of up to 25 years, Qatar has a solid, regular income stream that is less vulnerable to the instability in the world economy than oil.
This year, the 1.3 million-t/y Ras Laffan ethylene complex and associated derivatives projects Q-Chem 11 and Qatofin will also come on stream at Mesaieed. Ethylene feedstock will be sent via pipeline to Mesaieed to fuel the poly-ethylene, olefins and linear low-density polyethylene plants at the site.
The Ras Laffan condensate refinery will also be commissioned in 2009. Running under optimal conditions, it will be able to refine 146,000 barrels a day of condensate feedstock, produced predominantly by the LNG operations.
However, the list of new projects does not end with refineries. The world’s largest gas-to-liquid (GTL) plant will soon begin commercial production in Qatar. The two-train, $20bn plant being developed by Qatar Petroleum and the UK/Dutch Shell Group will convert 1.6 billion cubic feet a day (cf/d) of well head gas to produce 140,000 b/d of GTL products – gas oil, kerosene, naphtha, lubricant base oils and normal paraffin – as well as 120,000 barrels of oil equivalent a day of upstream products – ethane, liquefied petroleum gas and condensate.
The first train is due to be commissioned in 2010, with the second to follow a year later.
The source of the natural gas for all these projects is Qatar’s North field. The offshore reservoir sits next to Iran’s South Pars complex and is the single-largest non-associated gas field in the world.
Covering 6,000 square kilometres, the field is understood to have recoverable reserves of more than 900 trillion cubic feet, or 14.4 per cent of the world’s known reserves.
In March 2005, Qatar announced a moratorium on new developments based at the North field to allow time to assess the state of the reservoir. The freeze on new allocations was initially expected to be in place for about three years, but has since been extended, and industry experts now say it is unlikely to be lifted before the end of 2012. Some have even suggested 2015 as a possible date.
This would allow Qatar to monitor how the gas field reacts when all projects have come on stream, and to determine whether it will be able to sustain a renewal of the LNG projects after the initial 25-year period expires.
Qatar’s cautious guardianship of its hydrocarbons wealth is a sign of its recognition that the North field needs careful management if the state’s huge and growing wealth is to be sustained over the long term.
“The North field has the biggest reserve of gas in the world, but the reservoir has to be studied,” Qatar’s Energy & Industry Affairs Minister Mohamed Saleh al-Sada told MEED’s Qatar Projects conference in January. “Our objective is to fulfil our commitments and to safely guard the health of the field. We do not want to put a date on [when the moratorium will be lifted].”
The block on new gas-based schemes has prevented a series of proposed projects from advancing. Three planned joint venture cracker projects with international oil majors at Ras Laffan have made little progress since they were announced between 2005 and 2007, and seem unlikely to move ahead until the ban is lifted.
Because of this, Qatar Petroleum’s GTL projects with Canada’s Marathon and the US’ ConocoPhillips were also put on hold indefinitely in early 2006.
Together with the US’ ExxonMobil Corporation’s decision to pull out of its GTL project because of spiralling costs, this has severely dented the country’s aspirations to dominate the GTL market. Capacity had been predicted to reach 400,000 b/d by 2012.
With so many projects reaching completion over the next 24 months, and no new projects on the cards, Qatar’s project pipeline is running out.
In the past, the emphasis for investment in Qatar’s energy sector was on building up long-term, profitable export businesses, as gas can be sold for up to 10 times the price on the domestic market.
But with Qatar’s rising population driving up domestic demand for power and desalinated water, the state’s own gas needs are predicted to rise from about 1.5 billion cf/d to 4.5 billion cf/d in 2020. As a result, priorities are changing.
The focus is now on infrastructure to support the energy sector and on searching for new oil and gas deposits to meet growing requirements at home. Exploration activity is centring on the pre-Khuff reservoir outside the North field, and licensing of blocks will continue over the coming months.
Two important projects under way are destined to serve the local market. ExxonMobil is developing the Al-Khaleej Gas Phase 2 project, which will be commissioned this year and will supply 1.58 billion cf/d gas.
The energy giant is also working on the Barzan upstream development, which will produce 1.7 billion cf/d of gas when the first of six trains starts up in 2012.
There are also plans to install an acid gas removal unit at the onshore Dukhan field to treat the gas associated with the crude oil produced through the enhanced oil recovery project. The scheme aims to boost oil output from the field by 15,000 b/d to 350,000 b/d, as part of the country’s aim to increase oil production to more than 1 million b/d. The unit will be able to process about 450 million cf/d of gas.
The largest essential infrastructure project set to get under way in the next 12 months is construction of New Doha Port. With the current port increasingly congested, the Qatari government has decided to move the port 35 kilometres along the coast to a site between Mesaieed and Al-Wakrah. The new port will be built over three phases at an estimated cost of QR14-16bn.
By 2025, the port will have a container capacity of at least 6 million 20-foot equivalent units a year (TEUs). Construction of the 2 million-TEU first phase is expected to begin in one year’s time, with completion due in 2014. Doha’s current port has a capacity of 400,000 TEUs.
“The expansion of the port will plan for forecast growth to 2030, and provide for growth beyond 2030,” says Craig Holland, vice-president of global transport company Aecom Transportation and programme manager of the New Doha Port project. “It is a long-range infrastructure investment vital to the economy.”
Qatar’s rapid ascent to become the world’s dominant LNG producer in little more than a decade is phenomenal. Determination and a well-executed rolling programme of start-ups of megatrains, built to the same specification, have guaranteed revenues for Doha for the next 25 years.
The massive increase in LNG sales has been made possible by soaring demand for gas for industrial use and power generation in the US, Europe and Asia.
But with its own requirements now also soaring, the hiatus in developing new gas-based export lines will play an important role in preventing the country from over-committing itself to the international market to the detriment of its own needs.
This period of consolidation will enable Qatar to ensure that its future domestic gas consumption is well provided for before it embarks on new projects to service over-seas demand.