Given that the local LNG industry is based on North field gas, it would be easy to assume that the revisions are related. They are not. Even at 750 tcf and taking into account existing users and the raft of new LNG, cross-border pipeline, gas-to-liquids (GTL) and petrochemical capacity planned by 2010, QP calculated that just 27 per cent of the field’s reserves needed to be allocated. The message is clear: the sky is the limit as far as Doha’s gas ambitions are concerned.
The North field’s size and non-associated gas reserves have been a boon for the local LNG industry. Unlike many of their competitors, neither Ras Laffan Liquefied Natural Gas Company (RasGas) nor Qatar Liquefied Gas Company (Qatargas) has to worry about feedstock availability for future expansion.
Having built up capacity of about 14.3 million t/y – 7.7 million t/y from Qatargas’ three trains and the remaining 6.6 million t/y from RasGas’ two – the second stage in Qatar’s LNG development is very much under way. Qatargas is planning new trains and undertaking a major debottlenecking of its existing plant, which will see capacity rise to 9.5 million t/y in 2005. At RasGas, construction is proceeding on trains 3 and 4, which will add a further 9.4 million t/y by 2006.
The RasGas expansion, being implemented by a new legal entity, RasGas II, is not only taking advantage of the North field riches. ‘The key for us on trains 3 and 4 is that the capital costs are about the same as on trains 1 and 2. Yet, they will deliver about 40 per cent more capacity,’ says RasGas’ managing director Jerry Wolahan.
The savings, the result of new technology and leveraging off existing infrastructure, do not end there. ‘Our target is to take people from our existing operations and employ them on the new trains. We do not envisage any new hires,’ Wolahan explains. ‘It is feasible with the new LNG train technology, but it will require extensive training.’
The reduction in both capital and operating costs is having a dramatic impact on the economics of Qatar LNG. ‘In the past, our break-even point was at an oil price of $11 a barrel,’ said QP’s oil & gas ventures director Nasser Jaidah in London in mid-September. ‘Today we are talking $7 a barrel or less.’
The marked improvement is creating new opportunities for an industry that was established on Far Eastern gas demand. Train 4 will service RasGas II’s 3.5 million-t/y sales and purchase agreement with Italy’s Edison, the first long-term contract to be secured by a local producer with a European customer.
A second long-term agreement with an Italian company is also in the offing, after RasGas signed on 14 October a heads of agreement (HoA) to supply Eni with 750,000 t/y for 20 years, starting in the second quarter of 2004. The gas, destined for the Spanish market, will be supplied initially from spare capacity on trains 1 and 2 and will reduce RasGas’ reliance on the vagaries of the spot market. ‘The big problem with the spot market is that there are so few vessels available. It has been a question of lining up a ship, then a sale, rather than the other way around,’ says Wolahan.
The Edison and Eni deals highlight that despite a considerable cost disadvantage on transportation, Qatar LNG can now compete with North African producers, such as Algeria, for long-term European contracts. For European importers, that has been a welcome development in their attempts to diversify supplies.
Europe is a priority for the Qatar LNG marketing men. With full liberalisation of the European gas market becoming a reality, LNG consumption is projected to double to 65 million t/y by 2010. Demand in the established markets of France, Spain and Italy will expand, while the UK is also likely to join the ranks of LNG importers after 2005, when it becomes a net gas importer.
Qatargas will be at the heart of the European drive. The company is at an advanced stage of discussions with Italy’s Enel and Spain’s Repsol about constructing a fourth train to deliver 4.7 million t/y of LNG into Europe. ‘By the first quarter of 2003, we hope to have signed a detailed heads of agreement, setting out the commercial parameters,’ says Qatargas’ vice chairman managing director Faisal al-Suwaidi.
Qatargas’ main shareholders are also proposing new capacity at the Ras Laffan complex. QP and the US’ ExxonMobil Corporation, which signed in June an HoA to look into the feasibility of supplying LNG into the UK, have selected the Qatargas site for the required production capacity. At present, two trains are being discussed, each with a capacity of 7 million-7.5 million t/y.
France’s TotalFinaElf has also thrown its hat into the ring, announcing on 12 October that it was proposing to Qatargas to build a further two trains. Under the proposal, the French company would take some of the first train’s output for its own requirements in the Atlantic basin, and market the remainder.
While Europe may be grabbing all the headlines, marketing efforts are continuing in Asia. Existing offtakers Japan and South Korea are not planning any new commitments, at least over the short term, so the focus is shifting to new markets. Qatar LNG bid for China’s first LNG tender, covering 3 million t/y for Guangdong province. Although it lost out to Australia’s Northwest Shelf Venture on the tender, it is likely to bid for further Guangdong tenders for an additional 7 million t/y. Taiwan is also being closely monitored, in light of the government’s recent announcement that it is once again planning to go to the market for LNG. The size of the Indian market means it cannot be ignored either, especially as RasGas already has a strong foothold through its 7.5 million t/y contract with Petronet LNG.
With Europe joining Asia as a purchaser of RasGas and Qatargas output, Qatar LNG has managed to achieve what many of its suppliers strive for: diversification. It has also left just one major market, the US, to be cracked. ‘It will be a stretch,’ says Wolahan, referring to the high transportation costs, the lack of receiving infrastructure and the competitive nature of the US gas sector. ‘But Europe was like that five years ago.’