Qatar’s transformation into one of the world’s largest liquefied natural gas (LNG) -producers has taken place at breakneck speed. Over the past decade, the gas-rich Gulf state has invested more than $60bn in LNG projects and will spend another $35bn by the end of 2010, when its exports will reach 77 million tonnes a year.
The projects boom has filled the order books of international and local energy contractors hired to engineer schemes and build facilities – none more so than Japan’s Chiyoda Corporation and France’s Technip. The companies formed a joint venture at the start of the decade to compete for lucrative LNG contracts in Qatar, winning a series of deals. Yet it has been far from an easy ride.
Qatar’s decision to build simultaneous LNG megaprojects directly contributed to a massive spike in construction costs across the region. As a result, few contractors working on LNG projects in the state have made the sort of profits they were anticipating when they signed their construction deals.
The problem was exacerbated by Qatar’s preference for signing lump-sum turnkey deals with contractors, placing virtually all project and inflation risk on the engineering firms. In 2008, one bank analyst estimated that the Chiyoda/Technip joint venture’s margins for onshore work in Qatar had dropped well below the industry standard of 10 per cent. Despite these obstacles, the two firms are eager to renew their joint venture and capitalise on future debottlenecking and maintenance deals.
To profit financially, contractors must now press Qatar to show more flexibility in its contracting model and share more of the risk of fluctuating prices between clients and contractors. If Qatar sticks to its rigid stance, the result is likely to be fewer contractors willing to bid for future gas deals. A compromise from Doha’s side is overdue.