Moratorium likely to remain in place

24 September 2014

The appointment of an official who favours upholding the North Field moratorium to lead Qatar Petroleum suggests Doha has no desire to expand its gas production any time soon

In mid-September, Saad al-Kaabi was appointed managing director of Qatar Petroleum (QP), a new role created in order to take some of the day-to-day running of the company away from Energy & Industry Minister Mohamed al-Sada.

The move will allow Al-Sada to concentrate on the strategic direction of Qatar’s oil and gas industry, and will drastically reduce his huge volume of operational duties.

Al-Kaabi had been QP’s director of oil and gas ventures since 2006, playing a major role in the massive programme of investment in liquefied natural gas (LNG) infrastructure that has made the Gulf peninsular state the world’s largest exporter of the resource.

Moratorium advocate

He has also been in charge of all of Qatar’s exploration activities, and is known to be a staunch advocate of holding off on further development of the North Field, the largest non-associated gas field in the world. This has earned Al-Kaabi the unofficial title of ‘Mr Moratorium’ among international oil company (IOC) executives, a title he reportedly approves of.

Even looking beyond LNG, there would be no shortage of takers for any extra gas in Qatar

Qatar-based executive at an IOC

The North Field moratorium came into force in 2005 and is due to be re-evaluated in 2015. The reason behind postponing further development was so QP could properly assess the long-term viability of the offshore field. Only once the viability has been studied will a decision be made to increase production.

“Doha made the right decision [in 2005] because [QP] was not in a position to know exactly what was going on inside that field,” says a Middle East-based hydrocarbons executive. “Now they have the best of both and no one can accuse anyone of overproducing from their primary asset.”

Most observers do not expect QP to lift the moratorium in 2015 and believe Doha is perfectly content to focus on other areas of its hydrocarbons business, such as upstream oil and downstream petrochemicals production.

The largest offtakers from the North Field are the LNG sector’s two operating firms: Qatargas Operating Company (Qatargas) and Ras Laffan Liquefied Natural Gas Company (RasGas).

Qatargas and RasGas operate 14 liquefaction trains between them, with a combined capacity of 77 million tonnes a year (t/y). Qatar accounts for about a third of global LNG supply and, according to the UK’s BP, it exported 105.6 billion cubic metres of LNG in 2013, more than three times as much as Malaysia, its nearest competitor. Out of this total, 75 billion cubic metres were exported into the key Asia-Pacific market, where prices have averaged $16 a million BTUs over the past two years.

At these prices, Qatar is estimated to be raking in $7bn-$8bn every month on LNG exports alone, meaning it can afford to take its time on any decision regarding the North Field. Add to that an extra $2bn from oil revenues, as well as hundreds of millions more from petrochemicals exports, and it is clear there is no rush to push through further development.

Doha is benefiting from the first-mover advantage it attained when ramping up its LNG infrastructure to global-leader status, and is reaping vast rewards for its foresight. Other gas producers such as Australia are investing heavily in an attempt to catch up or even overtake Qatar’s LNG capacity, although many of these new schemes are suffering from spiralling costs and the threat of future oversupply.

Falling prices

This means the next five years should see an easing of prices as more LNG supply comes into the market. Many experts predict that Australian LNG will result in the Asia-Pacific region becoming more competitive, and weighing down on prices.

Europe has also been cited as a region that could potentially ramp up its LNG exports, but few in the industry seriously believe it will be possible to extensively curb Russia’s dominance of the market in the short term. Moscow provides 30-34 per cent of Europe’s gas, or 150 billion cubic metres a year.

Adding to the increasingly interesting market dynamics is the potential impact of the North American shale gas boom. This is difficult to gauge until more is known about the US’ export plans. However, with so much uncertainty in global gas markets, it is doubtful that Doha will be looking to further develop the North Field in the short term.

Decision postponed

“Even looking beyond LNG, there would be no shortage of takers for any extra gas in Qatar,” says a Qatar-based executive from a major IOC. “But the uncertainty around that market means we believe a decision will not be made until 2017 at the earliest.”

The executive says his company does not expect any increased capacity coming onstream from the North Field until the turn of the next decade at the earliest. This is despite the common consensus that QP could easily ramp up gas and condensate production from the field.

BP, in its annual review of world energy, estimates Qatar’s gas reserves at 24.7 trillion cubic metres, with the vast majority of that contained within the North Field. Large sections of the field remain untapped and many IOCs believe that additional production would be possible and would represent some of the cheapest produced gas and condensate on the planet.

What would be unlikely to remain, however, are the long-term production-sharing contracts currently in place between Qatar and its IOC partners in the LNG business. Depending on the liquefaction trains, Qatargas is owned 65-70 per cent by QP, with the remainder spread across several partners including France’s Total, the US’ ExxonMobil and ConocoPhillips and the UK/Dutch Shell. RasGas is a 70:30 split between QP and ExxonMobil. 

“Everyone involved has done extremely well from Qatar’s LNG boom,” says the Qatar-based executive. “But as you can see from the renegotiating going on in [Qatar’s] upstream oil contracts, the same would almost certainly happen with LNG.”

QP is beginning to take a higher percentage in existing oil fields as the original deals come up for renewal. In 2012, the firm took a 60 per cent stake in the Al-Khalij field from Total. This is expected to become the norm for any future deals involving upstream operations.

Even if the moratorium were lifted in 2018, the average length of a multibillion-dollar gas megaproject is about five years from feasibility study to operation. This would mean any new scheme would only be operational from 2023-24 at the earliest. 

GTL expansion

There are plenty of Qatar-based companies that would request a new gas allocation in the event of the moratorium being lifted. MEED reported in March that Oryx GTL, the gas-to-liquids joint venture between QP and South Africa’s Sasol, would prioritise securing extra feedstock for an expansion of its operations if the suspension were lifted. 

The facility already receives 330 million cubic feet a day of gas from the North Field, and makes 34,000 barrels a day (b/d) of GTL products. Several expansion plans have previously been mooted. These include increasing capacity to 130,000 b/d to produce a fully integrated upstream/downstream complex.

Qatar’s other GTL venture, Pearl GTL, is not believed to be planning an expansion at its $19bn plant in the near future. Shell, the joint venture partner for Pearl, is mulling plans for a similar facility that would utilise its technology in the US, therefore making an expansion to the existing 140,000-b/d capacity at Ras Laffan unlikely, although there is space at the site.

After several years of consolidation in Qatar’s hydrocarbons sector, many will be hoping the energy and industry minister will make a recommendation to increase activity at the North Field sooner than 2018, but there is little evidence to suggest this will be the case.

By appointing a managing director for QP, the groundwork is being laid for the future. But, as it stands, it is clear Doha does not need the money and lacks the desire to expand what is already a world-leading gas export business.

Saad al-Kaabi

Saad al-Kaabi entered into service with QP in 1986 on a student programme that sent him overseas to study petroleum and natural gas engineering at Pennsylvania State University in the US. Al-Kaabi joined QP’s operational team in 1991, working in the reservoir and field development department. He worked his way up to become responsible for the management of the North Field.

In 2006, Al-Kaabi was appointed director of QP’s oil and gas ventures, overseeing all hydrocarbon developments including exploration.

His new role as managing director means Al-Kaabi now sits on QP’s board of directors. He joins Energy and Industry Minister Mohamed al-Sada, Economy and Commerce Minister Sheikh Ahmed bin Jassim al-Thani and Finance Minister Ali Sheriff al-Emadi, as well as Ibrahim al-Ibrahim, Hamad Rashid al-Mohannadi and Nasser Khalil al-Jaidah.

Key fact

Qatar is estimated to be making $7bn-$8bn every month from liquefied natural gas exports

Source: MEED

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