Leveraging the world’s largest gas field has transformed Qatar into a leading global energy exporter, reports Glenn Freeman
QATAR passed a significant milestone this year when it reached LNG production capacity of 77 million tonnes per year (tpy), following the opening of its 14th liquefaction facility.
The occasion marks another stage in its rise as a global LNG exporter, with the small Gulf state punching well above its weight. Qatar is the largest global producer of LNG, with liquefaction capacity equivalent to around 25 per cent of global capacity as of mid-2011.
Last year it produced 117 billion bcm of gas, up from 78 bcm in 2008, according to a 2011 report from the International Energy Agency (IEA).
The majority of the small Gulf state’s natural gas is drawn from its North Field, the world largest non-associated gas field. Covering an area of 600 sq km, it spans an area roughly equivalent to Qatar itself.
In terms of reserves, Qatar holds some 25 trillion cubic metres (tcm) of natural gas, the world’s third-largest, according to 2011 estimates from the BP Statistical Review.
Though LNG was beginning to gain some attention in the 1970s, when the North Field was discovered, “it wasn’t scalable…nobody was really interested,” says Samuel Ciszuk, senior Middle East and North Africa energy analyst, IHS. “But it was in the 1990s when they looked at developing it - this was the tipping point. Qatar was really the marketmaker in a sense, and was quite visionary…we can say they have largely achieved this vision.”
Oil in the beginning
Prior to this discovery, the majority of Qatar’s national wealth came from oil, which had been enough to build considerable wealth, though as Ciszuk explains, it was never as oil-rich as it is gas-rich today.
Qatar’s proven oil reserves are approximately 15.2 billion barrels, according to the EIA, which makes it OPEC’s second smallest crude oil producer, behind only Ecuador. For most of 2011, its oil output remained at a steady 820,000 bpd, plus additional volumes of gas liquids, with the IEA estimating sustainable production capacity at just over 1 million bpd.
Its largest producing oil field is the onshore Dukhan field, on Qatar’s west coast, followed by six offshore fields: Bul Hanine, Maydan Mahzam, Id Al Shargi North Dome, Al Shaheen, Al Rayyan and Al Khaleej.
One of the only new oilfields to be added in recent years is the Al Shaheen, an oil layer located within the North Field, which was developed by Maersk Oil within the last five or six years. “With a capacity of around 500,000 bpd, it’s quite prolific and has made it possible for them to not only arrest the decline overall in their oil industry over the last decade, but also to grow it considerably,” says Ciszuk.
EOR is also playing an important role in supporting Qatar’s oil production across a number of fields. “Particularly in some of the older fields, such as Dukhan and Bul Hanine, EOR has been successfully deployed in arresting production decline,” adds Ciszuk, with EOR projects also being considered for Bul Hanine and Maydan Mahzam.
National LNG structure
Through deciding to strategically exploit its gas reserves by investing in LNG plants, Qatar is “rightly favoring natural gas as the chief propellant of its economy while quietly optimising the production of the more limited crude oil,” says Gopal Balalsubramaniam, head of oil & gas, KPMG Middle East & South Asia.
In addition to meeting much or its own growing energy requirements, Qatar also recognised burgeoning global demand for natural gas, which saw almost 224 million tpy of LNG traded in 2010 according to the International Group of LNG Importers.
Qatar accounted for 25 per cent of this supply, exporting 95 bcm in 2010 and an expectation of just under 105 bcm in LNG exports for 2011.
Qatar’s LNG exports are managed by Qatargas, a subsidiary of the NOC, formed to operate the LNG processing, storage and loading facilities of Qatargas 1, Qatargas 2, Qatargas 3 and Qatargas 4.
These last three added four new megatrains, each with a designed capacity of 7.8 million tpy, boosting Qatargas’ total LNG production capacity to 41 million tpy in December 2010.
Another key entity in Qatar’s LNG sector is RasGas, created in 1993 through a partnership between Qatar Petroleum and ExxonMobil. It has developed facilities for the extraction, storage, processing and export of LNG, with seven trains providing a total production capacity of around 36 million tpy.
Exporting energy
The key export markets for Qatar’s LNG are Japan, South Korea and India, which accounted for 57 per cent of its exports in 2009, while Belgium, UK and Spain purchased around 33 per cent. Asia is among the largest importers of Qatar’s LNG, with China buying over 1 million tonnes in December 2010 alone. Japan is also a huge export market, with its use of LNG having risen by at least 25 per cent by July this year, in response to its widespread shut-down of nuclear reactors following the March 2011
Tsunami and earthquake, having exported 4.5 million tonnes according to official figures. One of the most recent developments in its Chinese LNG exports came via the Qatar Gas Transport Company, known as Nakilat, responsible for shipping Qatari LNG.
In November 2011, Qatargas made its first shipment via a Q-Max LNG vessel, part of a 2008 agreement to ship up to 3 million tpy LNG to Petrochina for up to 25 years.
Another partnership which was flagged recently could see Qatar extend its reach into the European export market, with Qatar Petroleum negotiating towards a stake in Russia’s Yamal LNG project, according to Qatar’s energy minister Mohammed Al-Sada.
“The opportunity of Qatar joining to Yamal has been discussed…we are in active discussions and negotiations with our partners,” Al-Sada told reporters last month at the Gas Exporting Countries Forum in Doha.
The field is expected to produce 5 million tpy of LNG, with two or three other foreign partners also potentially joining, including Shell, Statoil and ONGC.
The big value add
One of the key reasons for the resilience of Qatar’s LNG sector is its low cost of production, which according to Ciszuk, are widely acknowledged as among the lowest in the world. He says that the economy of its LNG projects benefits immensely from the high amounts of associated condensate and LPG being produced from the North field.
“These can then be blended with their crude, which makes it more valuable. Just by doing that they can almost pay for the running costs of their LNG production – the basic economics now are marvellously impressive, putting them in a very strong position where they have a production price for LNG which will be hard for anybody else to match.”
Another considerable advantage for Qatar is its favourable pricing of LNG: “The Qataris have managed that very well, in managing to get a good price for their LNG, though in future they may actually move toward freeing themselves of this pricing model,” says Ciszuk.
He explains there is an understanding within the industry that Qatar’s LNG prices are indexed to oil: “One way they may move in the future is to start shifting away from that, but right now they are benefiting from it as oil prices are strong.”
Pausing production
Given the central role of the North Field in Qatar’s economy, in 2005 the Qatari government placed a moratorium on additional natural gas development projects in order to study the field and decide how to optimise production in prolonging output for future generations. Importantly, it did not impact exploration or production projects already underway or scheduled.
Though the moratorium had been initially set to end in 2013, it has been extended, and according to Ciszuk, new production here may not start until 2016 or 2017. However, he also suggests that given Qatar’s ability to find new production capacity through debottlenecking existing facilities, which could add roughly 10 to 12 million tpy, “They’re very comfortable at existing levels.”
He says Qatar’s self-imposed moratorium may also be a politically-motivated move in maintaining stable relations with its neighbour, Iran. Around one-third of the total North Field lies within Iranian territory, which it calls South Pars.
“There is a popular widespread notion in Iran that because the Qataris are using their side, there is a theory it is depleting supplies on Iran’s side too…it doesn’t necessarily matter whether they’re right or not, if there’s a popular perception about reservoir depletion on the Iranian side, then that is a threat and could add to the Qataris’ disinclination to proceed with development,” he adds.
Domestic demand
Much like other nations of the GCC, power demand from Qatar is expanding at an unprecedented rate. Surging global demand for gas is also fuelling a boom in the local economy, which is also making huge investments in infrastructure ahead of the FIFA world cup, which Qatar will host in 2022. Over the last two to three years, Qatar experienced energy demand growth of around 17 per cent, significantly higher than the GCC average of between eight and 10 per cent, according to estimates from the Qatar government.
Figures from the EIA and Business Monitor International indicated Qatar consumed some 20 million bcm of gas in 2008, with this figure climbing to 30 million bcm in 2011 and set to exceed 40 million bcm by 2015.
On the question of whether Qatar can adequately meet this demand, KPMG’s Subramaniam refers to its production of around 100 million tpy of natural gas, including LNG: “so far this has been sufficient to fuel the domestic consumption for its infrastructure requirements.”
One of the state’s largest sources of gas for domestic supply and power generation is the Al-Khaleej Gas (AKG) Project in the North Field, a development and production sharing agreement formed between Qatar Petroleum and ExxonMobil. The two AKG phases, AKG-1 and AKG-2, will have a total combined production capacity of 2 billion cubic feet per day (cfd) of natural gas.
Qatar’s vast supplies of associated gas are also utilised in meeting its domestic power demand, with gas from the Dukhan oilfield on the west coast, along with Bul Hanine, Maydan Mahzam and Idd El Shargi North Dome, offshore to the east of Doha.
Competition builds
In terms of LNG, Qatar’s main objective has been to diversity its client base as much as possible. In addition to boosting its exports to Asia, Ciszuk says Qatar had also planned to ship large quantities of its LNG into the Atlantic Basin, “but of course the shale gas boom in the US put an end to this…the idea that the US would be importing LNG has just gone completely out the window.”
“They’re still trying to encourage more European clients, and to some extent South American, but this will never match Asia,” he says, referring to the ongoing growth from the East, including China and also post-Fukushima Japan.
However, he refers to the potential for competing demand, with more countries becoming net exporters of LNG, primarily Australia, which is aiming to become the second-largest LNG exporter behind Qatar by 2016.
Indonesia, Malaysia and Algeria are also significant LNG exporters, with other countries having also recently become LNG exporters: Russia and Yemen in 2009, and Peru in 2010. Angola is expected to start exporting in 2012, and Papua New Guinea in 2014.
Another potential competitor could be the US, if it builds liquefaction facilities to allow for the export of some of its considerable shale gas reserves. “If they [the US] can make that profitable, that’s yet another kid on the block, bringing more competition,” says Ciszuk, though he maintains Qatar is still well ahead of the game.
NOC and IOC partnerships
A number of IOCs operate in Qatar under production sharing agreements (PSAs) that typically run for 25 years. ExxonMobil, Conocophilips, Shell and Total are all involved with Qatar Petroleum, either via Qatargas or Rasgas, with most of the PSAs in place until 2020 and beyond, with the option for renewal.
As KPMG’s Subramaniam explains, “The newer PSAs are more favorable to the NOC. Some of the PSAs on the crude exploration and production might come up for renewal before 2020.”
One of the newest deals to be inked was the US$8.6 billion Barzan deal signed between RasGas and ExxonMobil, for the production and processing of gas from Qatar’s North Field. The project is expected to supply 1.4 billion cfd of gas, with production scheduled to begin in 2014.
In addition to the large oil and gas companies, a number of smaller players have established a strong presence in Qatar. One of these is Ramboll, an international engineering consultancy with a dedicated oil and gas division, which has operated here for the last 16 years.
“In this market, we’re working with oil companies right across the value chain within engineering, front-end engineering and design (FEED), concepts, value engineering and maintenance, along with a secondment offering to our clients,” says Gert Gensen, managing director of Ramboll Oil & Gas Middle East.
“There is a lot of innovation happening at the moment in Qatar and we’re very happy to participate in that,” says Gensen. “Sometimes we can bring the knowledge from Europe to places like Qatar, but now knowledge from Qatar is being leveraged in the rest of the world. This is quite new for this part of the world, with a lot of IOCs now having test and development facilities in Qatar and around the region, to develop that knowledge and take it elsewhere.”
Expanding GTL
Qatar has also been making inroads into its downstream production, having opened the world’s largest gas-to-liquid (GTL) plant, Pearl GTL. In March 2011, the plant started receiving gas from the North field and initial production started in May. In June, the commissioning cargo was shipped from Ras Laffan in Qatar while its first shipment of base oil was exported in October.
At full capacity, the project will convert 1.6 billion cfd of wet gas into 120,000 bpd of condensate, liquid petroleum gas and ethane as well as 140,000 bpd of duels including gasoil, naphtha and base oil.
Formed under a production sharing agreement with Qatar Petroleum and is financed entirely by Shell, the plant will produce high quality GTL products such as GTL kerosene, gasoil, base oils, paraffin and naphtha for petrochemicals.
It joins the Oryx GTL facility, which came online in 2009 through a partnership between the Qatar government and Sasol-Chevron. At full capacity, it uses around 330 million cfd of natural gas feedstock from the Al Khaleej field to produce 30,000 bpd of GTL.
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