Gas investments prove wise for Qatar

26 October 2010

Qatar’s decision to invest in the world’s largest gas-to-liquids project at Ras Laffan has been supported by the financial crisis

Qatar in numbers

$19bn: Estimated cost of the Pearl gas-to-liquids project at Ras Laffan

2012: Projected date for the Pearl scheme to hit full production

Sources: MEED; Shell

At the giant industrial city of Ras Laffan in the northeast of the Qatari peninsula, history is being made. The first phase of the world’s largest gas-to-liquids (GTL) project is in the process of being commissioned. At an estimated cost of $19bn, it is the largest natural gas development ever undertaken.

Any new development and expansion [of the Pearl GTL] is up to the state of Qatar … there is potential to expand

Andy Brown, Shell Qatar

The project is being executed by the UK’s Shell in partnership with the state energy firm Qatar Petroleum (QP). By the end of the year, the major construction works will be completed. Early next year, gas will be brought in and the plant will begin commercial production. It will take around 12 months for production to ramp up and Shell expects to hit full capacity in early 2012.

Mega schemes in Qatar

The Pearl is not Qatar’s first GTL production plant. Oryx GTL, also located at Ras Laffan, started up in late 2006. It has a capacity of 32,400 barrels a day (b/d) of GTL products and its products are sold in Europe, the Middle East and Asia. But it is the sheer scale of the Pearl scheme that sets it apart from other GTL projects around the world.

The two-train plant will convert 1.6 billion cubic feet a day 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. At the height of construction, some 52,000 workers were involved on the project, and more than 2 million tonnes of materials have been imported to build the plant.

The Pearl project forms part of Qatar’s two decade-long drive to exploit its hydrocarbons resources. This year also saw the country’s investment in liquefied natural gas (LNG) infrastructure reach an historic milestone, with capacity hitting 77 million tonnes a year.

Doha’s decision to invest simultaneously in GTL and LNG production has already proven wise. Industry analysts had been predicting rapid growth in global demand for LNG for years to come, but in the wake of the global financial crisis, energy use among the world’s leading economies fell.

This was accompanied by an unexpected surge in domestic gas production in the US and increased output from Russia. Inevitably this led to pressure on gas prices and resulted in LNG shipments being redirected to other markets.

“GTL in today’s market place offers a better return for state of Qatar as compared to sending LNG to marginal markets for additional supply – mainly in the West,” says Andy Brown, Qatar Shell country chairman and managing director, Pearl GTL.

“GTL has a clear role in providing a diverse source of revenues. This is a choice of economics and the state of Qatar needs to look at which technologies are providing the nation with the highest value. Clearly, there is some very good business there for sending LNG to the Far East, but GTL gives them an alternative.”

A further advantage of GTL products is that they are replacements for oil-derived products, which makes them especially attractive when oil prices are high.

Plans had been drawn up for three other GTL projects to be built in Qatar, which would have taken the country’s combined GTL capacity to more than 400,000 b/d by 2012. But these schemes were abandoned when the Qatari government placed a moratorium on further gas development from its North Field in 2005.

Initially, the ban was expected to be in place for just a couple of years, while the condition of the reservoir was studied, but now QP is only expected to review lifting the moratorium in 2014.

By then, scientists hope to be able to tell what impact the series of gas projects launched since 1991 has had on the reservoir. There is, however, strong appetite among QP’s international partners to collaborate on more LNG and GTL schemes.

Future plans for gas-to-liquids projects in Qatar

“Any further development and expansion [of the Pearl GTL] is up to the state of Qatar,” says Brown. “There is the potential to expand, but we can only really do so when we have the will and the contract from the state of Qatar.”

Despite the positive long-term outlook for LNG demand, the case for investing in GTL capacity has been strengthened by the financial crisis. Its diverse product slate offers much greater flexibility, both in terms of markets and end-users, than LNG, and recent experience shows that in times of uncertainty the more options gas exporters have the better. Once the moratorium is lifted, it is more than likely that further GTL projects will be launched at Ras Laffan.

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