Alex Dodds, head of ExxonMobil Corporation’s Qatar operations, is widely regarded as one of the smartest operators in the state’s booming gas industry.

Among his international oil company (IOC) competitors, that respect is almost certainly laced with envy.

With IOCs scouring the planet in search of opportunities to develop reserves on competitive terms, Exxon’s close relationship with state-run Qatar Petroleum (QP) is rare in an era of national oil company dominance.

The Houston-based oil major holds an equity interest in about 80 per cent of projects being developed in Qatar, equivalent to 62 million tonnes a year (t/y) of the 77 million t/y of liquefied natural gas (LNG) expected to be produced in the emirate by 2011.

It holds a 30 per cent stake in the Ras Laffan Liquefied Natural Gas Company (RasGas) venture, with QP holding the balance, a 10 per cent stake in the first three trains of Qatargas, and 24 per cent of the Qatargas II venture under construction (see table, page 48).

While competitors such as the UK/Dutch Shell Group have dominated the headlines, with investments nearing $20bn on its hi-tech Pearl gas-to-liquids (GTL) development, Exxon has already banked more than a decade’s worth of profits from the vast North gas field.

Successful venture

Dodds is too diplomatic to gloat about the company’s relationship with QP. Yet he concedes its position is helping Qatar become the largest LNG developer in the world.

Like many successful joint ventures, Exxon’s role in Qatar was partly the result of being in the right place at the right time. In 1992, when QP was given the job of setting up the first Qatargas venture, Exxon did not have a presence in the country.

The UK’s BP, the US’ ConocoPhillips and France’s Total shared stakes in the venture, which had the relatively modest aim, in today’s terms, of producing 2 million t/y of LNG. In a move that must still provoke some confusion at its London headquarters, BP chose to pull out of its 10 per cent shareholding, sensing better opportunities elsewhere.

Exxon, rather fortuitously, stepped in as BP’s replacement, correctly detecting a strong exploration and management opportunity. The following year, it formed a joint venture with QP called Ras Laffan Liquefied Natural Gas Company (RasGas), which, along with Qatargas, has become one of the two operating companies that have propelled Qatar to its current position as the world’s largest LNG supplier.

Untapped markets

Dodds is quick to point out that creating an LNG business virtually from nothing was not easy. In the 1990s, Qatar was not widely known in energy circles. While its products were theoretically in demand, its reserves were untapped and Doha had yet to establish itself as a transport hub.

“At that time, Qatar had a geographic disadvantage in many people’s minds with regard to the ability to service traditional LNG markets and capitalise on other gas markets globally,” says Dodds.

The strength of the partnership came from a strong emphasis on technology development for onshore and offshore gas production, and the creation of synergies and economies of scale through joint facilities at Ras Laffan, he adds.

“Qatar, QP and its partners have been able to enjoy significant cost synergies as a result of sharing infrastructure,” says Dodds. “When a venture has access to that type of economy, it makes a big difference to the costs, in terms of production.”

Dodds also credits the vision of Qatar to develop a rolling expansion programme, which has allowed the implementation and start-up of large LNG trains in quick succession. It is a concept Dodds calls “design one, build many”.

Dodds gives the example of RasGas’s last venture, the 4.7 million-t/y train 5, where the first gas flow was reached in record time. “We built train 4 ahead of train 5 and were able to cut and paste a lot of the development project management [between the two],” he says.

While Exxon’s close relationship with QP enables Qatar to bypass some of the capacity constraints other Gulf countries are experiencing, it is not immune from the global increase in project costs.

The oil major pulled out of an integrated gas-to-liquids (GTL) project with QP at Ras Laffan in February 2007, with costs understood to have reached $18bn from an initial budget of $7bn. Dodds says the decision to drop the GTL project was made “for all the right reasons”.

While a less experienced operator may have been left in an awkward position, QP was quick to show that the decision did not affect its relationship with the firm. A deal was subsequently signed to develop the North field’s Barzan natural gas project, with expected production of 1.5 billion cubic feet a day (cf/d) of gas from 2012.

“It came down to a matter of prioritisation with regard to what the next best thing was, which was to develop the North field resource,” says Dodds.

Cost pressures

He says the GTL technology remains in place, to be applied if any other opportunity arises, although the respective technology and cost pressures experienced on the Sasol and Shell GTL projects in Qatar suggest Exxon’s exit may prove to be a smart move.

“Our GTL technology remains there,” says Dodds. “It is ready to be applied if another opportunity comes up. If the time is right and we are there, we will look at it.”

Dodds likens the Barzan project to the company’s upstream Al-Khaleej gas development, with the notable exception that the two projects’ commercial structures are “intensely different”.

Industry sources say Exxon was handed a more lucrative deal with QP than previous upstream agreements to reflect the huge cost incurred from pulling out of the GTL venture.

The development has grown fourfold from its initial target of 1.5 billion cf/d, with plans in place for six gas trains to be developed over the next eight years.

Dodds says Exxon has the option to participate in Barzan expansions, but declined to confirm the size or timing of future phases.Despite having billions of dollars of work under way in Qatar, the firm’s projects for the next decade are unclear. Since the state placed a moratorium on future exploration in the North field, IOCs have effectively been left guessing about QP’s future strategy.

Officials originally said the moratorium would be reviewed in 2007/08, but in October 2006 it was extended until 2010. The results of a study into the field will come out between 2010 and 2012. Qatargas told MEED in 2007 that it would take this long get a good understanding of the reservoir.

Dodds confirms Exxon has helped QP to evaluate particular opportunities in the North field, but declined to discuss findings. “QP is actively looking to exploit whatever it can with regard to what is there in the North field or what might be there around the North field,” he says.

Exxon is looking to diversify downstream with a sizeable investment at the world-scale petrochemicals complex at Ras Laffan, in conjunction with QP. The 1.3 million-t/y cracker will use a mixture of ethane and propane sourced from upstream gas developments in the North field, and will be the first in the state to have an ethylene glycol production capability.

Dodds is not concerned by rumours that the project is under threat because of rising costs. Sources close to the project claim the scope of the scheme is set to be reduced.

Dodds says the facility remains at the heads of agreement stage. “What we are doing right now is making sure we have evaluated all the potential options for plant configuration and design to optimise cost and opportunity capture,” he explains.

With future LNG projects off the agenda, the opportunity to seize new markets is clearly being promoted by QP.

Expansion projects, including a helium project and a ramp-up in associated natural gas liquids (NGL) production, are under way or being considered at its Laffan condensate refinery. “What you are seeing now is the opportunity for Qatar to capitalise on the fact that it does have the single largest non-associated gas field on its doorstep, and there are all sorts of ways to monetise that,” he says.

The expansion of Qatar’s global arm, Qatar Petroleum International (QPI), is also a good opportunity for Exxon. While Exxon has held talks with Nasser Jaidah, chief executive officer of QPI, nothing has yet materialised, although a deal is not expected to be too far away.

While Exxon will continue to aim for a commercial edge over its competitors, Dodds also appreciates the company’s good fortune in laying foundations in such a stable, energy-rich country.

“Qatar has opportunities and the [energy] advantages on its side,” he says. “There are not many places in the world that are lucky enough to enjoy those types of advantage.”

Key challenge

Maintaining planned capacity increases in the face of rising project costs

Table: ExxonMobil Qatar operations

t/y=tonnes ayear; cf/d-cubic feet a day; b/d=barrels a day. Source: MEED