Qatar's downstream plans falter

01 March 2011

Due to the moratorium on the North Gas Field, Doha’s plans for its petrochemicals sector have failed to progress. Mixed feedstock crackers may be the answer

In numbers

1.5 million t/y: The mono-ethylene glycol capacity of Shell’s planned project

12 million t/y: Amount of liquefied petroleum gas Qatar expects to produce from 2013

t/y=Tonnes a year. Source: MEED

Although Qatar has succeeded in building up a dominant position in the global liquefied natural gas (LNG) industry, in the petrochemicals market, it is lagging behind its potential.

State-run energy firm Qatar Petroleum (QP), which also handles the petrochemicals sector, has not been helped in its timing. Its plans to expand production of ethylene – the basic building block of the petrochemicals industry – emerged just as global demand was booming.

In 2005-07, Doha signed initial agreements with three international oil companies (IOCs), the US’ ExxonMobil, France’s Total and the UK/Dutch Shell Group, to develop new petrochemicals projects using ethane gas as feedstock.

The Qatari government was set to make a decision in January 2010 on whether to go ahead with the three proposed cracker projects.

Changed climate for investment

The climate for investment in the petrochemicals sector has changed drastically since then. In April 2010, South Korea’s Honam Petrochemical announced it was pulling out of plans to build a $2.6bn joint venture petrochemicals complex in Qatar, due to the global financial crisis.

All the IOCs are focused on exploration and production. So upstream activity drives what happens downstream

Paul Hodges, International E-Chem

The complex at Mesaieed in the southeast of the country was to have included a 1.3 million tonne-a-year (t/y) ethylene cracker and a 700,000 t/y polypropylene unit. Honam says the project is unlikely to be revived in the short term as it plans to expand its existing domestic facilities instead.

Just a few months later, in August 2010, MEED reported that ExxonMobil had formally ended its agreement with QP to develop a $6bn petrochemicals facility at Ras Laffan in the north of Qatar, after a series of high-level talks.

Qatar ethylene capacity, 2011
LocationCompanyCompletedCapacity (tonnes a year)Feedstock
Ras LaffanRas Laffan Olefins Company20101,300,000Ethane
MesaieedQatar Petrochemical Company1996720,000Ethane
MesaieedQatar Chemical 2003500,000Ethane, propane
MesaieedQatar Petrochemical Company2014180,000Ethane
Ras LaffanQP/Shell20141,300,000Ethane, propane
Source: Asia Pacific Energy Consulting

The US energy major refuses to comment on whether it has officially withdrawn from its scheme, but the breakdown in talks underlines some of the problems facing investment in the Gulf petrochemicals sector, Qatar in particular.

Some sources have told MEED the deal was ended because of disagreements over unrelated LNG sales from existing joint ventures. Others close to ExxonMobil, however, say it pulled out due to concerns about feedstock availability, when the plant would eventually come online in 2015.

Qatar’s petrochemical industry is currently almost entirely based on ethane feedstock. Doha has previously said there might be room for three world-scale crackers to be built on the gas-rich peninsula. Over the next two years, the US’ Jacobs expects Qatar to produce as much as 4.9 million t/y of ethane, three times more than in 2006, along with 8.2 million t/y of liquefied petroleum gas (LPG).

Gulf ethylene capacity
CountryCapacity (tonnes a year)
Saudi Arabia14,450,000
Source: Asia Pacific Energy Consulting

But Doha’s moratorium on the development of further gas projects from its giant North Field until 2015, while it studies the reservoir, has limited options for new petrochemicals projects. It also has increased competition for gas feedstock in the medium term. The North Field, the world’s largest non-associated gas field, is estimated to contain about 900 trillion cubic feet of gas.

Gas progress in Qatar

Qatar’s Ras Laffan-based LNG producers, QatarGas and RasGas, have increased production capacity to 77 million t/y. LNG production also comes with LPG and Qatar expects to produce 12 million t/y of LPG by the end of 2012, up from 9 million t/y currently.

As a result, the government has been promoting mixed-feed crackers to make use of the ready supply of LPG in the absence of additional supplies of ethane.

Some relief is on the horizon, however, as major gas-related projects make progress. By 2015, Qatar expects to have two new major sources of ethane for petrochemical projects.

The first is Shell’s Pearl gas-to-liquids (GTL) plant, which will ramp up production throughout 2011. It will have the capacity to produce about 120,000 barrels a day (b/d) of natural gas liquids and ethane. Ethane production from the scheme is estimated at 950,000 t/y.

After waiting more than a year for raw material prices to fall, the long-awaited Barzan gas development scheme, a QP joint venture with ExxonMobil, is also moving ahead. The project will provide 6.2 billion cubic feet a day (cf/d) of natural gas over three phases. The first phase is scheduled to come onstream in 2014, after being delayed in 2009 to benefit from falling construction costs. The scheme comprises two onshore gas-processing trains with a combined capacity of 1.7 billion cf/d.

In early January, Japan’s JGC Corporation was awarded the estimated $1.7bn engineering, procurement and construction contract to build the onshore facilities. South Korea’s Hyundai Heavy Industries was selected for the offshore portion of the scheme, estimated at $800m, in November. The developments will add 2 million t/y of new ethane supply and more than 3 million t/y of LPG.

Petrochemicals race

“All the IOCs are really focused on exploration and production” says Paul Hodges, chairman of UK consultancy, International E-Chem. “So the upstream activity drives what happens in the downstream.”

Indeed, the race between the three IOCs to join Qatar’s petrochemicals sector was turning into a game of one-upmanship.

“Total’s MTO [methanol-to-olefins] technology has been developed for just such an opportunity, to separate its upstream people from the rest of the pack,” says Hodges.

But it is Shell that looks set to become QP’s first partner for a major new petrochemicals complex at Ras Laffan. Just months after talks with ExxonMobil ended, Shell signed a memorandum of understanding with QP to jointly study a petrochemicals scheme at the end of December 2010.

The agreement, signed in Doha by Abdulla bin Hamad al-Attiyah, Qatar’s deputy prime minister and then minister of energy and industry, and Peter Voser, chief executive officer of Shell, outlines plans for a mono-ethylene glycol (MEG) plant with a capacity of up to 1.5 million tonnes a year (t/y), along with other olefin derivatives.

ExxonMobil had planned to build a 1.6 million t/y steam cracker, a 700,000 t/y MEG plant and two 650,000 t/y polyethylene plants by the end of 2015.

More than five years has lapsed since Shell signed its initial agreement with QP, but now the oil major can finally get to work on feasibility studies. The completion date for the Shell/QP scheme is expected to be pushed back to 2018, according to a source close to the project. A heads of agreement between the two companies is due to be signed in March, while front-end engineering and design work is expected to take up to two years to complete.

The complex is expected to use mixed feedstock, using ethane from the Pearl GTL scheme and LPG. Naphtha feedstock is unlikely to be used, says the source. 

Hodges says the choices Shell has made make sense and is part of a wider strategic cooperation developing between Shell and QP, operating “throughout the energy value chain”.

Integrating petrochemicals with the Pearl GTL plant will not only reduce costs, but will allow QP and Shell to produce a wider range of products, going further up the value chain. This would not have been possible under ExxonMobil’s plans.

Mixed-feed potential

Shell is not alone in this strategy. France’s Total announced in November that it has also been in talks with QP over a new mixed-feed cracker, although it has yet to sign an agreement. ExxonMobil is not completely out of the picture, however. There is a chance its cracker may be revived. All three firms have said they are still in discussions with QP over feedstock allocations.

That the talks have gone on for so long, and that mixed-feed crackers are now under discussion reflects concerns over gas and liquid feedstock availability, but also a much wider regional issue.

Governments want to develop a broad slate of chemicals as they seek to diversify their economies and create employment opportunities. Petrochemicals will be a valuable pawn on the board for Doha, but it needs to move ahead with its schemes.

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