Energy: Majors line up for fresh acreage

30 May 2008
International oil companies are keen to win the rights to four new gas blocks as the moratorium on exploration of the giant North field looks set to be extended beyond 2010.

As the most senior of Qatar’s energy executives gathered at Ras Laffan in mid-May for the inauguration of the landmark cross-border Dolphin gas pipeline running from Qatar to the UAE, there was just one thing on everyone’s minds. International oil company (IOC) executives, along with Qatar Petroleum’s (QP) own employees, were anxious to discover the latest on the exploration moratorium on the North field, the world’s largest non-associated gas field.

When Qatar’s Energy & Industry Minister Abdullah bin Hamad al-Attiyah took to the stage, there was a sense of disappointment when he remarked that even the state’s own energy and industrial projects had been instructed not to ask for extra gas until the North field study had been completed.

“We have demands for extra gas supplies from consumers around the world, [but] we cannot meet their demands due to the moratorium on additional North field gas extraction,” said Al-Attiyah. “Even our own projects have been asked not to seek extra gas until the North field moratorium is lifted.”

Complex reservoir

QP announced a moratorium on development of the North field in 2005, saying it wanted time to discover more about the reservoir. This was to be reviewed in 2007-08, but in October 2006 it was extended until 2010.

However, one senior QP executive tells MEED the moratorium could be extended by up to three more years. “We know there is tremendous interest in whether it will be 2010, 2011 or even 2012,” the executive says. “All I can say is that we expect gas from this field to keep going for many decades. A year or so delay now is not a big problem in the big scheme of things.”

Energy analysts have queried assumptions that the North field is a single, large, homo-geneous structure, claiming evidence points to a more complex reservoir containing variable hydrocarbon qualities.

Doha argues that the moratorium is simply to protect its gas field. QP says it will only embark on a second wave of expansion once it is satisfied that it can increase gas output from the North field without damaging the potential of the reservoir.

This means conducting a study to determine its condition, effectively producing a new model of the reserve.

Al-Attiyah’s comments on the progress of the study were typically vague, emphasising the need for patience while it is completed. “While we know our proven gas reserves are in excess of 900 trillion cubic feet, we initially targeted only a production of 30 million tonnes a year [t/y] by 2020,” he told reporters.

“But we are now set to clock a liquefied natural gas [LNG] production figure of 77 million t/y by 2011. Currently, we export 31 million t/y, which itself is a record.

“We ought to know the size and shape of our reservoir, because we need to conserve our valuable resources, [but] we do not intend to exhaust our resources quickly.”

Al-Attiyah admitted that the rapid growth of the state’s gas sector had surprised the industry, which was reluctant to invest in North field projects just 15 years ago. “In the 1990s, I was begging people to buy gas from Qatar,” he said. “Now my problem is how to say no. It is a complete change.”

However, he insisted he would not be rushed in lifting the moratorium and said he wanted to know the precise status of the field before planning future projects. “This will help us to plan energy projects properly,” he explained. “While we tap our resources, we also need to ensure it is done diligently.”

Barzan project

One senior QP executive at the Dolphin ceremony tells MEED the moratorium, so crucial to the development of the state’s overall economy, could even be delayed to 2012 or 2013, with the state eager to first deliver gas from its Barzan project.

Barzan, a joint venture of QP and the US’ ExxonMobil Corporation, was the last domestic scheme to be allocated gas in early 2007 after the Houston-based oil major pulled out of its Palm integrated gas-to-liquids (GTL) project with QP at Ras Laffan because of spiralling costs and technical challenges.

ExxonMobil has effectively been allocated the gas from its 154,000-barrel-a-day (b/d) Palm project to Barzan, with the first phase of the new project expected to deliver 1.7 billion cubic feet a day (cf/d) of gas by 2012, the second 2 billion cf/d and the third up to 2.5 billion cf/d.

The QP executive says Barzan may now start up in the first quarter of 2013, after which firm decisions can be made on the future of the gas industry. “These are just talks at the moment, but there is a line of thinking that, yes, we deliver Barzan to the market and after that we can start to look at new projects,” he says.

While gas-hungry energy majors may have left the Dolphin ceremony feeling downcast that they would have to wait half a decade for any clear direction on Qatar’s energy plans, other attractive acreage will be tendered this year. Four new gas blocks are to be tendered to international oil companies over the next 12 months, with some acreage within the offshore Khuff reservoir, which is also home to the North field.

The QP executive says the first tender will cover block 4 north, off the north coast, followed by another block in the area and two further blocks off the east coast. Although QP is thought to hold existing data on the blocks, little is known about the prospects of the explor-ation regions.

But that is unlikely to bother the small army of oil majors that have lined up on Qatar’s doorstep in the past few years, eager to win exploration contracts.

Norway’s StatoilHydro, Italy’s Eni and the UK’s BP have recently consolidated their presence in Doha to show their commitment to the state’s energy industry. In mid-May, France’s Total inaugurated a new office in Doha, while the UK/Dutch Shell Group has invested billions of dollars in its own ambitious GTL project at Ras Laffan.

The US’ ExxonMobil, which is heavily involved in the bulk of Qatar’s gas projects, and Conoco-Phillips, also of the US, are likely to show interest in the bid round.

Active development

The QP source says while exploration has paused on the North field, Qatar is still actively looking to develop other gas fields around its shores in conjunction with the international oil groups.

“Yes, there are four blocks in this next round and, yes, the focus is on gas rather than oil,” he confirms. “We hope this will be the start of regular gas exploration in our emerging areas and there may be more blocks offered within the next few years.”

One longstanding Qatar-based IOC executive tells MEED there is strong interest in the upcoming bid round.

“As you can imagine, all of the established IOCs want to add to their portfolios in the country, while the list of other companies wanting to participate is as long as your arm,” the executive says. “QP will not make this a free for all, though. Only a select number will be invited to take part.”

The executive says while it is difficult to generalise about the acreage, much of it will be at deeper drilling levels of about 15,000 feet. “Some of it will be unchartered territory. Putting the North field to one side, there is comparatively little known about the gas prospects of these other areas.”

While Qatar’s gas riches tend to dominate the headlines, it is also a sizeable oil producer, with output expected to hit 1.1 million b/d by 2010 from the current 900,000 b/d.

As part of that challenge, QP has decided to award four new blocks in two phases to speed up the process, rather than wait to agree on all four at the same time. The oil majors could begin work on the first two at the end of 2008, according to one executive close to the talks.

Paris-based Gaz de France (GdF) and Ger-many’s Wintershall are frontrunners to win the first of two new offshore exploration blocks. GdF is in discussions with QP to start exploration work on block 7 (see map).

This is part of an area, along with blocks 1 and 8, where Qatar completed a study of reservoir structures in 2006. Wintershall, which is already drilling for oil in blocks 3 and 11, is expected to be the preferred bidder for block 8, about 75 kilometres offshore.

The biggest part of Qatar’s capacity increase is expected to come from an upgrade at the Al-Shaheen field in block 5, where Denmark’s Maersk hopes to lift production to 531,000 b/d by 2010 from about 350,000 b/d now.

While the introduction of international oil companies into Qatar’s offshore fields has helped to push up production over the past decade, capacity at QP’s own fields - the onshore Dukhan and offshore Bul Hanine and Maydan Mahzam fields - has been almost static, at about 400,000 b/d. Dukhan, one of the oldest fields in the state, is producing about 330,000 b/d, with the offshore Bul Hanine and Maydan Mahzam fields providing the balance.

One IOC executive involved in offshore oil exploration in Qatar says rumours are circu-lating within the industry that an ongoing study of the three fields may recommend the widescale introduction of enhanced oil recovery (EOR) technology to stem the gradual production decline.

Trial scheme

A trial EOR scheme is already under way at the Dukhan field, which contains three oil reservoirs and a fourth non-associated gas reservoir, as part of an expected 15,000-b/d lift in production to 350,000 b/d over the next few years.

The executive says recovery schemes may also be introduced at Bul Hanine and Maydan Mahzam in addition to the Al-Khaleej field, where output is thought to have slipped over the past few years to about 45,000 b/d from 50,000 b/d previously.

“There is a realisation that Qatar now needs to look at some of the techniques being used in Oman and Kuwait so it can extend the life of these fields,” says the executive. “We are still waiting for word from QP as to when its study on some of these oil fields will be completed, but there should be some movement by the end of this year.”

The executive says new oil exploration beyond what has been announced is unlikely to happen. “I think Qatar has done well to get oil production close to the 1 million b/d mark but there is little decent acreage left to explore,” he says. “The priority will be to arrest declines on the older fields and work with IOCs on getting some of these new blocks going.”

With so much domestic activity, Qatar’s ambitions to invest in overseas energy projects have slowed after a frantic 12 months of signing a raft of agreements with both governments and oil companies overseas.

The QP source says the next phase for Qatar Petroleum International (QPI) will involve detailed analysis of the most promising opportunities. “We are in no rush and in fact we have taken a break recently just to assess where we are,” he says. “We hope to make more investments, but only when good opportunities come up.”

Al-Attiyah has previously said Qatar hopes to make $20bn worth of investments overseas, without specifying a timeframe. Projects under construction include two new LNG receiving terminals in the US and Italy.

The US terminal, located in Texas, is expected to cost about $2.5bn and will receive 15 million t/y of LNG from 2009, which will increase to 23 million t/y into the next decade. QPI holds a 70 per cent stake in the project, with ExxonMobil and ConocoPhillips splitting the remainder.

Overseas links

QPI has also teamed up with Exxon and Italy’s Edison on the offshore terminal in Italy, which is expected to become operational in the second half of 2009 and will receive gas from Qatar under a 25-year deal with the Italian company.

While it gradually places more emphasis on its international ambitions, Qatar realises that its immediate task is to keep its promise of delivering 77 million t/y of LNG by 2011, making it the world’s largest LNG supplier.

“We have many plans and many dreams,” says the QP source. “But for now we must put our heads down and complete the job we have been tasked with. After that, we can look to the future.”

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