Development in Qatar’s downstream sector has been overshadowed by the enormous expansion of its gas production and export facilities over the past decade.

However, the refining and petrochemicals sectors are key to the government’s strategy to diversify the country’s industrial base and become less reliant on the export of crude oil and liquefied natural gas (LNG).

Qatar has a relatively low-key refining sector compared with its neighbours, with two refineries located at Mesaieed, in the south of the peninsula, and Ras Laffan, in the north.

The second facility, the Ras Laffan condensate refinery, was commissioned in 2009 with a capacity of 146,000 barrels a day (b/d) aimed at the domestic and export markets.

Doubling capacity

The operator, Ras Laffan Refinery Company, is now carrying out an estimated $1bn second-phase expansion that will add a further 146,000 b/d, doubling the capacity. The engineering, procurement and construction (EPC) contract was awarded in May 2013 to a consortium of Japan’s Chiyoda and Taiwan’s CTCI Corporation.

The scope of phase two will differ slightly from that of phase one. It will process 60,000 b/d of naphtha, 53,000 barrels of jet fuel, 24,000 barrels of gas oil and 9,000 barrels of liquefied petroleum gas (LPG). The first phase processes 61,000 barrels of naphtha daily, 52,000 barrels of jet fuel and 24,000 barrels of gas oil.

Bigger shareholding

Qatar Petroleum (QP) will take a larger shareholding in the phase two expansion. Under the terms of the new agreement, it will hold an 84 per cent stake in the second phase, while retaining 51 per cent of the first.

The remaining equity will be split between five international shareholders. France’s Total will hold 10 per cent, Malaysia’s Idemitsu and Japan’s Cosmo will each have a 2 per cent stake, while Japan’s Marubeni and Mitsui will have 1 per cent each.

With domestic product demand rising by an estimated 8-10 per cent a year, other refining schemes have been looked at. In 2007, QP announced plans for a third refinery, known as Al-Shaheen. With a proposed capacity of 250,000 b/d, it was intended to process heavy crude and in part meet rising local product demand. However, the project was put on indefinite hold in early 2010 for cost reasons and there has been little indication since that it will be revived.

Petrochemicals base

Qatar was one of the first GCC states to establish a petrochemicals base, forming Qatar Fertiliser Company (Qafco) and Qatar Petrochemical Company (Qapco) in the late 1960s and early 1970s to take advantage of associated gas production. Since then, Doha has set up eight more petrochemicals ventures, nearly all with foreign partners, and significantly expanded its product slate.

With the exception of the Ras Laffan ethane cracker, all the state’s petrochemicals capacity is located in Mesaieed. It receives non-associated and associated gas feedstocks from the North Field and the onshore Dukhan field to process into ethylene and its derivatives.

Feedstock prices

Local petrochemicals producers enjoy some of the lowest gas feedstock prices in the world, with the first generation of plants paying as little as $0.50 a million BTUs. Although prices have since risen for new industries, they still remain extremely competitive.

Gas supplies are priced on a long-term basis, meaning investors have a clear idea of their fuel bills for a period of up to 20 years, making the market a safe investment for overseas companies. Unlike much of the rest of the Gulf, Qatar still has new ethane allocations available, meaning a new wave of petrochemicals projects is a possibility.

Huge investment

As with oil and gas, the petrochemicals sector has received unprecedented investment over the past decade, with an estimated $10bn going into building new capacity.

The move back towards petrochemicals is a clear sign that Doha wants to further diversify its hydrocarbons supply chain away from an almost total reliance on LNG and oil exports.

Despite some of the lowest feedstock prices in the world, Qatar does not have a natural domestic market to sell into, and this means the product slate on offer is limited to what can be easily exported into foreign markets.

Ambitious plans

In 2012, Oil Minister Mohammed al-Sada announced an ambitious strategy to increase Qatar’s petrochemicals production from 9 million tonnes a year (t/y) to 23 million t/y by 2020. This was to include two world-scale projects that would cost a combined $13.8bn and add 7 million t/y of extra capacity between them.

Al-Sejeel was to form a central pillar of Doha’s petrochemicals push, alongside the Al-Karaana petrochemicals complex due to be built on an adjacent site at Ras Laffan. 

Both of these new schemes would use ethane and liquid feedstock such as propane and butane, which would be provided from the second phase of the Ras Laffan condensate refinery, in order to diversify the product slate from both schemes.

Al-Sejeel cancelled

However, these plans suffered a severe setback when Al-Sejeel, the larger of the two projects, was shelved this year by its joint venture partners QP and Qapco.

In a statement to the Qatari bourse on 18 September, Qapco’s majority shareholder, Industries Qatar, said the cancellation was in favour of seeking an alternative solution that would “yield better economic returns”. QP has remained silent as to what exactly the details of the new study would entail.

Al-Sejeel had been planned as a world-scale complex producing more than 3 million t/y of chemicals when completed in 2018.

Its scope included the production of 1.4 million t/y of ethylene, which would feed other units at the proposed complex. These included facilities with a capacity of 850,000 t/y of high-density polyethylene (HDPE), 430,000 t/y of linear low-density polyethylene (LLDPE), 760,000 t/y of polypropylene and 83,000 t/y of butadiene.

The complex was to use a combination of ethane and butane as feedstock in order to create a fully diversified product slate. The vast majority of output was to be exported, although the joint venture partners hoped that some would be utilised locally.

Al-Karaana scheme

Despite Al-Sejeel stalling, QP is still pushing ahead with expanding its petrochemicals portfolio. The company has tendered the EPC contract packages on the Al-Karaana project, an 80:20 joint venture of QP and UK/Dutch Shell.

Al-Karaana will use ethane and propene feedstock to produce 1.1 million t/y of ethylene and 170,000 t/y of propylene when completed in 2018. This will feed downstream units to produce 300,000 t/y of linear alpha olefins, 1.5 million t/y of monoethylene glycol and 250,000 t/y of oxo-alcohols.

The project is split into two packages. The first covers the mixed-feed cracker and offsite and utilities and the second package includes the linear alpha olefins (LAO) unit, a monoethylene glycol (MEG) unit and an oxo-alcohols unit.

Profit margins

Qatar is the GCC’s second-largest producer of petrochemicals, with several world-scale complexes. However, as a world leader in polyolefins production, it is at the mercy of global markets and any large fluctuation in price would have a serious impact on profit margins.

While QP and Qapco continue to study the best way forward for Al-Sejeel, it is clear the global industry is set to become more competitive with the anticipated addition of significant extra petrochemicals capacity in the US.

With only one year separating the proposed completion dates of Al-Karaana and Al-Sejeel, it may just be that QP wants to wait until work is under way on the first of the two world-scale projects before starting on a second.

Fertiliser production

Away from large, cracker-based chemicals facilities, Qatar also has a significant fertiliser industry. Qafco has been considering a seventh-phase expansion of its urea and ammonia production at Mesaieed. However, very little progress appears to have been made since the project was first mooted in 2009 and the scheme seems to be on hold. Phase 6 was officially opened in December 2012, giving the company a urea capacity of 5.6 million t/y and making Qatar the world’s fourth-largest producer of nitrogen fertilisers.

Qatar’s vast gas exports and small population make it the richest of the six GCC countries per capita, and the need to diversify its industrial base is perhaps the least urgent in the Gulf.

Despite this, Doha has put its gas abundance to good use to become a world-scale plastics and fertiliser producer. With the country’s downstream projects pipeline relatively thin, contractors in the region will be hoping for a new round of investment to meet the country’s ambitious 2020 expansion goals.