When Qatar Petroleum (QP) and the UK/Dutch Shell Group pulled the plug on the $6.4bn Al-Karaana petrochemicals complex last month, it sent a clear message to contractors that the hydrocarbons projects market in Qatar was as good as finished for the foreseeable future.

The reason given for axing the 3 million tonne-a-year (t/y) capacity project was commercial unviability, and in these turbulent times, when oil prices are more than 50 per cent lower than they were seven months ago, there is wisdom in this conclusion.

Targets in disarray

However, Al-Karaana is the second planned petrochemicals complex to be cancelled in Qatar in less than six months, and this leaves Doha’s plans to increase petrochemicals production to 23 million t/y by 2020 in disarray.

In September, QP and Industries Qatar announced that the $7.4bn Al-Sejeel petrochemicals complex, nearly identical to Al-Karaana, was going to be shelved. At the time, it was stated that a project that offered a better return on investment would be sought. Al-Sejeel was also planned to be a world-scale complex producing more than 3 million t/y of chemicals when completed in 2018.

With almost $14bn-worth of projects now off the agenda, this leaves international engineering consultancies and engineering, procurement and construction (EPC) contractors wondering where the next significant job is going to come from in Qatar.

QP has said the ethane allocation that had been set aside for Al-Karaana will now be made available to existing producers in Qatar. These include Qatar Petrochemical Company (Qapco), Qatar Chemical Company (Q-Chem), Qatar Vinyl Company and Ras Laffan Olefins Company.

Lower prices

However, it is almost certain none of these entities would entertain any significant capacity increases in the current economic climate. Chemicals prices are significantly lower than 12 months ago. Products such as linear low-density polyethylene (LLDPE) are selling for about $1,000 a tonne in China, down from $1,800 a tonne in January 2014.

With the price of oil falling, Chinese petrochemicals firms that use naphtha as feedstock have witnessed production costs halve in the past six months. This means the low-cost base that gave companies such as Qapco and Q-Chem a competitive advantage in 2014 is not there today. Mesaieed Petrochemical Holding Company, a QP subsidiary and the entity responsible for marketing Qatar’s petrochemicals to global customers, is carrying out studies to try and establish the most commercially viable way to optimise the ethane that is now available. However, this means that even if some suitable alternatives were identified, the new facilities would not become operational until the next decade.

Plans on backburner

“No producer [in the Middle East] is really giving serious consideration to expanding petrochemicals capacity in the current climate,” says an executive from an international petrochemicals consultancy. “If the oil price remains low then you may see increased [project] activity in countries such as China and South Korea, where liquids are utilised.”

With the cancellation of Al-Karaana and Al-Sejeel, the outlook for downstream projects in Qatar is bleak, but this is a region-wide trend. “No one wants to spend big money on refining and petrochemicals now,” says an executive from a major EPC contractor working in the Middle East. “All of the major players are postponing or cancelling anything deemed non-essential.”

Since Doha spent tens of billions of dollars on building huge liquefied natural gas (LNG) plants and the completion of Shell’s $19bn Pearl gas-to-liquids plant, Qatar’s hydrocarbons projects market has been one of the most stagnant in the Middle East.

Regional projects tracker MEED Projects states that since the beginning of 2009, Qatar has spent less than $13bn on hydrocarbons schemes, a tiny figure compared with neighbouring Abu Dhabi and Saudi Arabia. Only one of these, the $3bn Barzan gas project, could be considered to be world-scale. The rest are made up of smaller schemes across oil, gas and petrochemicals.

Seemingly active

On paper, the prognosis for future energy project activity in Qatar looks extremely promising. MEED Projects says there are more than $25bn-worth of schemes at the pre-execution phases, including several studies.

However, on closer inspection, the pipeline for Qatar’s hydrocarbons projects indicates the outlook for activity is dire in the short-to-medium term. Discounting schemes under study, there are just $5.6bn-worth of projects at the main tender or front-end engineering and design phase, and of those, $3.8bn are in the upstream oil sector.

The majority of the upstream work focuses on US-based Occidental Petroleum’s $3bn fifth-phase expansion at the Idd al-Shargi North Dome offshore oil field. And while there has been no official announcement, with oil prices below $50 a barrel, the scheme appears to have gone rather quiet.

Market slowdown

To put some perspective on the recent period of inactivity in the hydrocarbons sector in Qatar, there was a requirement for consolidation after the sheer scale of its LNG expansion made it the fastest-growing economy in the world in 2010. The 2005 moratorium placed on additional gas production from Qatar’s major cash generator, the North Field, has slowed the projects market.

But a new factor seems now to be coming into play: the Fifa World Cup that Qatar will host in 2022. If Al-Sejeel and Al-Karaana had gone ahead, they would have required tens of thousands of tonnes of steel and cement, as well as 50,000 workers for the construction phases. This would potentially have placed an unbearable strain on human and material resources in a country that already has several huge non-hydrocarbons schemes under way.

Fifa projects

Looking ahead, it is clear the consolidation period will extend to the end of the decade. With LNG and oil prices cut in half as well as a World Cup to prepare for, QP is likely to keep project activity limited to its most essential schemes. The firm acted decisively regarding the cancellations of Al-Karaana and Al-Sejeel, and while there is disappointment among contractors that had hoped to win work on the schemes, there is also an acknowledgement that  the depressed global petrochemicals market made it the logical step.

“No one is going to give a green light to export-oriented projects in 2015, especially not in Qatar,” says the executive from the EPC contractor. “QP is always careful with its investments and the fact is [Al-Karaana and Al-Sejeel] don’t make any sense now. This is why they were cancelled.”