Qatar Petroleum International: Time to build on overseas links

30 May 2008
As part of Doha’s economic diversification policy, Qatar Petroleum International has signed a series of headline deals with foreign firms. Now it needs to turn these into concrete investments.

On 24 April, Russian energy giant Gazprom announced that its chairman, Alexey Miller, had met with Qatar’s Prime Minister Sheikh Hamad bin Jassim bin Jaber al-Thani to discuss co-operation in the energy sector. In particular, said a statement from the company, the two countries were looking at working together on the joint implementation of projects by Gazprom and Qatar Petroleum (QP) in their home markets and abroad.

If an international co-operation agreement comes to fruition, it will be the latest in a series of deals agreed in recent months by QP’s wholly owned subsidiary, Qatar Petroleum International (QPI). Created in 2005, QPI has been set up to develop QP’s overseas business throughout the energy value chain, from hydrocarbons exploration and production to downstream oil and gas facilities, and gas and power distribution networks.

“They are looking at investment oppor-tunities across a range of sectors,” says Roy Thomas, senior economist at Qatar National Bank. “Rather than confining themselves to oil and gas, they are looking to invest in anything that offers the prospect of long-term returns.”

In April, QPI made its first acquisition, buying a stake in two Mauritanian oil and gas exploration permits owned by France’s Total. It is also taking over responsibility for the overseas assets of state companies Qatar Liquefied Gas Company (Qatargas) and Ras Laffan Liquefied Natural Gas Company (RasGas).

In 2007, it signed a memorandum of understanding with Petrochina to develop a refining and petrochemicals complex in China, and is now studying the feasibility of building refineries in Tunisia and Panama. By 2012, it aims to be a $60bn company with overseas production of up to 600,000 barrels a day of oil equivalent.

QPI’s creation is part of Doha’s strategy to diversify its economy. Qatar’s Finance Minister Yousef Hussein Kamal has declared he wants to reduce the state’s dependence on oil and gas to zero by 2020 (see feature, page 43). This, however, does not mean Doha intends to reduce its hydrocarbons earnings - far from it. But it does intend to use the profits of the current oil boom to invest in other countries and sectors, from which revenue can be generated to sustain the country’s economic growth should oil prices fall.

“Every oil and gas producer is trying to internationalise and spread risk,” says Jonathan Stern, director of gas at the UK-based Oxford Institute for Energy Studies. “Oil prices are high at the moment, but people are not confident that they will remain so forever.

“QPI has been set up with the thought that Qatar needs to follow the example of a large number of oil and gas companies looking to spread their wings, and ahead to a time when they reach the capacity of their national resources.”

Overseas investment

Several Middle East national oil companies (NOCs) have already made progress in this area. Kuwait Oil Company (KOC) has created two subsidiaries responsible for overseas investment: Kuwait Petroleum Company, which focuses on downstream investment; and Kuwait Foreign Petroleum Exploration Company, which seeks oppor-tunities upstream.

Sharjah, one of the UAE’s seven emirates, has a holding share in Dana Gas, through which it has acquired Canada’s Centurion Energy, a significant player in Egypt.

In Abu Dhabi emirate, International Petroleum Investment Company and Abu Dhabi National Energy Company (Taqa) are pursuing international investment opportunities on behalf of the state.

Meanwhile, Saudi Arabian Oil Company and Algeria’s Sonatrach have both chosen to develop international businesses without creating separate subsidiaries.

The central thrust of QPI’s strategy so far has been the signing of headline agreements with international companies. If a deal is eventually agreed with Gazprom, as seems likely (see box, page 36), it would be QPI’s first deal with an NOC. But since it started to build up its operational capacity in 2006-07, it has embarked on partnerships with several major international oil companies (IOCs) (see timeline).

It is doing so from a position of strength. A combination of dwindling hydrocarbons reserves in the developed world and rapidly rising oil prices mean that in recent years, the balance of power has shifted from IOCs to NOCs.

Qatar not only has huge gas reserves, but it is also no longer dependent on foreign capital to exploit these reserves and is not so reliant on IOCs for technological expertise.

The IOCs themselves are in a much more difficult position. NOCs now control 80 per cent of the world’s oil, while the five largest internationals control only 3 per cent between them. Most of the increase in production in the years ahead is also expected to come from the nationals, making access to reserves a key priority for foreign oil companies.

Development moratorium

The current hiatus in the development of new projects using gas from Qatar’s giant North field makes it a good time for the international companies to manoeuvre into position for the moment when the moratorium is eventually lifted.

QPI’s latest deal, signed on 20 April, is an agreement with Italy’s Eni to seek overseas investment opportunities. Eni chief executive officer (CEO) Paulo Scaroni has been a leading figure in Europe’s drive to diversify its sources of gas away from Russia and Algeria. These comprise 35 per cent of the region’s gas imports. Diversification is particularly urgent in Italy, where falling indigenous production has left the country dependent on Russia and Algeria for 72 per cent of its gas.

“The development of a strong and stable relationship with Qatar, which holds the world’s third largest gas reserves and plays a leading role in the liquefied natural gas (LNG) market, is really important to us,” Scaroni said in an official statement when the agreement was announced.

Gaz de France (GdF), which signed an agreement with QPI in January, echoes Eni’s outlook on the potential opportunities in the emirate. “We wanted to be in Qatar because there are a lot of gas reserves,” says a company spokeswoman.

A deal between the two companies has been planned for some time. “Qatar is missing from our portfolio except for spot trading,” said Jean-Marie Dauger, chief operating officer and head of gas at GdF in September 2007.

“It sounds extremely logical that the number one LNG player in Europe would buy from Qatar; that our futures would meet.”

The impact of the partnership agreements signed by QPI and the various IOCs will depend on how they are developed.

“Qatar might be behind the curve in terms of agreeing headline deals with international partners, but it is not necessarily behind the curve in terms of actual developments,” says Stern. “The question can fairly be asked of many NOCs what they have actually achieved [through their international agreements].”

Now is the time for QPI to turn its memo-randums of understanding into concrete investments. “We have signed the bulk of the memorandums that we are going to sign,” says Ibrahim Ibrahim, vice-president of QPI. “Now it is time to solidify what we have already done.”

Nasser Jaidah, CEO of QPI, has spoken about an ambition to realise projects with one or two of the partners with whom headline agreements have been signed. With so many IOCs actively seeking to team up with Qatar, it is spoiled for choice.

Gazprom and QPI

The announcement in late April that the head of Russia’s Gazprom had met with senior government officials in Doha to examine the possibility of co-operation in the energy sector should come as no surprise. A headline agreement between Gazprom and Qatar Petroleum International (QPI), which is responsible for developing overseas investments on behalf of parent company Qatar Petroleum (QP), would be a logical step for both parties.

Just as the world’s energy consumers are increasingly preoccupied with ensuring diversity of supply, global gas producers are looking to diversify their markets.

“Gas market security is a top-priority issue,” says a Gazprom spokeswoman. “It is important for the leading gas exporters to have tight co-operation. It is only through joint efforts that it is possible to provide downstream security, market development and predictability.”

Gazprom would not reveal any further details of the potential deal, but would confirm that discussions are ongoing.

“There are regular meetings between representatives of Gazprom, the Qatari government and companies including Qatar Petroleum and Qatargas [Qatar Liquefied Gas Company],” says the spokeswoman. “The parties regularly discuss the possibility of developing operations in the oil and gas sphere.”

Gazprom is the world’s largest producer of natural gas, and QP the largest global producer of liquefied natural gas (LNG). With global gas demand rising, there are benefits for both parties in signing a deal that could increase the flexibility of their gas dealings.

In principle, Qatar could fulfil Gazprom’s contractual commitments to provide gas to its clients, and vice-versa, depending on which of them could leverage the better margins at a particular time.

While Gazprom offers Qatar the potential to extend its market reach and diversify its investment portfolio, QP could offer Gazprom the expertise it is looking for to develop its own LNG industry. “Gazprom may be willing to discuss giving QPI a piece of a project in return,” says Jonathan Stern, director of gas at the Oxford Institute for Energy Studies in the UK.

Relations between Moscow and Doha have been improving since early 2007, when Russia’s former president Vladimir Putin visited Qatar amid speculation that the world’s gas producers were planning to form a cartel. “Russia and Qatar will co-ordinate their actions in the gas sphere irrespective of whether a gas equivalent of Opec is set up,” said Putin.

The meetings resulted in an agreement between Russia and Qatar to protect investments in each other’s countries, and QP signed a memorandum of understanding with another Russian state-owned hydrocarbons company, Lukoil, under which “possible joint activities” were envisaged. The following month, Gazprom held further talks on hydrocarbons co-operation with QP and Qatargas. Close contact has been maintained ever since.

Timeline of agreements

  • 24 April 2008 Gazprom announces it is considering joint investment projects in the energy sector with Qatar Petroleum (QP)

  • 20 April 2008 QPI signs memorandum of understanding with Eni to seek joint investment in international oil and gas ventures

  • 8 April 2008 QPI buys a 20 per cent stake in Taoudenni permits Ta7 and Ta8 in Mauritania from France’s Total, its first overseas investment

  • 14 January 2008 QPI signs a partnership agreement with Gaz de France covering international co-operation on both upstream and downstream activities

  • 11 December 2007 QPI signs a memorandum of understanding with ConocoPhillips to develop international energy projects

  • 7 June 2007 QPI signs a memorandum of understanding with the Shell Group aimed at identifying and developing “international projects of mutual interest”

  • May 2007 QPI signs a memorandum of understanding with Occidental Petroleum for a $7bn, 350,000-barrel-a-day refinery in Panama

  • April 2007 QPI is selected by state oil company Entreprise Tunisienne d’Activites Petrolieres to build a 140,000-barrel-a-day refinery in Tunisia worth an estimated $3bn

  • 2 March 2007 QPI signs a memorandum of understanding with Petrochina to build an ethylene plant in China, scheduled to start up in 2013

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