An investment magnet

Energy firms have poured cash into Qatar’s racing economy as reforms, gas and oil fuel its ambition to be the world leader in technology and gas exports

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By  Nicholas Wilson Published  March 2, 2006

Qatar|~|qatar200.gif|~||~|Last year, Qatar’s economy soared a sizzling 20%, as investment poured into the tiny country that is fast becoming the world’s natural gas giant. And in the thick of the action are foreign and private firms working in partnership with the government.

Qatar’s leaders laid the groundwork for today’s boom in 1995, when Emir Hamad Al Thani took the helm, throwing open the doors to foreign investors to achieve robust economic growth with a large budget surplus and ambitious energy projects.

Abdullah Al Attiyah, minister of energy and industry, said, “We expect that this rate of economic growth will be sustained in the future as we pursue an open policy under the leadership of the Emir. This rapid growth in Qatar’s economy can be directly attributed to the numerous projects we are pursuing in the energy sector.”

And the new projects are an opportunity boom for firms, as more partnerships become available and the government collaborates with companies of all sizes and in all segments of the energy business, he said.

While in the energy world Qatar has become synonymous with gas, companies are also seizing opportunities in the oil sector where the government’s sweeping reforms aim to boost output from its proven, recoverable reserves of 15.2 billion barrels, which go mainly to Asia.

The US government’s Energy Information Authority said, “The government has implemented new policies aimed at increasing oil production, locating additional oil reserves before existing reserves become too expensive to recover, and investing in advanced oil recovery systems to extend the life of existing fields. To accomplish this, the government in recent years has improved the terms of exploration and production contracts and production sharing agreements. The improved terms are designed to encourage foreign oil companies to improve oil recovery in producing fields and to explore for new oil deposits.” Foreign companies, including ChevronTexaco, Anadarko Petroleum, Total, Maersk Oil, Occidental Petroleum and Cosmo Oil now account for more than one-third of Qatar ‘s oil production capacity.

Recently, to make the oil sector even more attractive to foreign and private investment, state-owned Qatar Petroleum (QP) has improved its contracting process by forming a Contract Forum consisting of Qatar Petroleum and the companies that it contracts with, and it has benchmarked the Qatar Petroleum contracting process against norms and practices in international oil.

The result has been changes to QP’s contract conditions for work and service contracts including: Waiving the tender bond requirement for single source tenders and tender fees for single source and classified tenders; a reduction of tender fees in general and the implementation of an early payment discount principle for selected contracts above QR 50 million.
The reforms have also introduced advance payment of 10% on all GTC contracts against submission of a bank guarantee of equivalent value, implementation of multi-currency payments on selected major contracts, and waiving the retention money requirement for all contracts where the contractor can provide a performance bond.

The improvements are part of the government’s plans to increase oil output and attract five billion dollars within four years. Al Attiyah, who is also Qatar Petroleum’s chairman, said last month at the 11th International Middle East Gas (MEGAS) Summit 2006, “In the oil sector, our goal is to reach a production level of one million barrels per day. With the approval of a new development plan for Al Shaheen field in December 2005, we expect to be able to reach our target production level within the next three to four years.”

Downstream, Qatar Petrochemical Company (Qapco), a joint venture between Industries Qatar Co (80%) and Total Petrochemicals(20%), symbolizes the country’s openness and ambition. Qapco sells ethylene, low density polyethylene and sulphur to almost 4,000 customers in 75 countries and wants to grow bigger. Its projects include a US $220 million Ethylene Expansion Project (EP2 Project scheduled to be completed by the second quarter of 2007); and Qatofin, a joint venture signed by Qapco (63%), Total Petrochemicals, (36%), and QP (1 %) to establish a linear low density polyethylene plant to be mainly exported to Asia and Europe. Production is expected to start in 2008.

The company is also stepping up the annual ethylene production capacity to 700,000 tons, said Qapco general manager Hamad Al Mohannadi.

“Due to its high purity, ethylene has become the ideal feedstock for LDPE and other downstream petrochemical products,” he said.

As if to outdo the more famous record-breaking gas projects, Qapco is also building one of the world’s largest ethane cracker plants at Ras Laffan Ethane. This is a joint venture among Q-chem (53.31%), Qatofin (Qapco and Total Petrochemicals jointly owning 45.69%), and QP (1%). Production will start next year.
But it is Qatar’s gas that grabs the headlines and offers more lucrative opportunities to global energy firms.

With proven reserves of 910 trillion cubic feet (tcf), Qatar’s natural gas resources rank third in size behind Russia’s and Iran’s. Most of Qatar’s natural gas is located in the offshore North Field, which is the largest known non-associated natural gas field in the world. In addition, the onshore Dukhan field contains an estimated five tcf of associated and 0.5 tcf of non-associated gas. The government believes that the country’s economic future lies in developing this vast natural gas potential. Currently, Qatar has two liquefied natural gas (LNG) exporters: Qatar LNG Company (Qatargas) and Ras Laffan LNG Company (Rasgas).

“In the gas sector, our achievements are truly remarkable by any standards. We have focused our attention on LNG, GTL and pipeline export,” Al Attiyah said.

Qatar has made a huge investment in the Ras Laffan Industrial City infrastructure and by 2011 will be supplying 77 million tons a year of LNG making it the world’s largest — up from last year’s 20 million tons.

The country has also invested in two LNG receiving terminals in Europe, and access to other terminals worldwide is being planned. Qatar is also investing in LNG tankers.
In the area of pipeline investment, at the beginning of 2007 the Dolphin project will start delivering to its neighbours, the United Arab Emirates and Oman, two billion cubic feet (BCFD) of pipeline gas with a possible sub-sea connection linking Oman to Pakistan. The United Offsets Group (UOG), a UAE state-owned corporation backing the project, signed preliminary memoranda of understanding with Qatar, Oman, and Pakistan in June 1999. ExxonMobil also signed a preliminary agreement in June 1999 for the natural gas supply from ExxonMobil’s capacity in the North Field.
The total project is expected to cost around $10 billion, including costs associated with the development of more extensive gas distribution networks in the UAE and Oman. Qatar initially will supply gas, via a sub-sea pipeline linking the North Field to Abu Dhabi. Links between Abu Dhabi, Dubai, and Oman will be added afterwards. UOG announced in 2000 that TotalFinaElf and Enron had been selected to implement the project, and each would have an equity stake of 24.5%. Enron, however, announced in May 2001 that it was pulling out of the project and soon disappeared in a cloud of corruption, and UOG acquired Enron’s equity stake, which was resold to Occidental Petroleum in May 2002. The Dolphin Project has been driven in part by the desire of UAE and Oman to use more natural gas for power generation and industrial uses, and the decline in their own production of associated natural gas. Pakistan ‘s participation is highly doubtful, due to its financial condition and the possibility of imports from Iran.

Qatar also has held discussions with Bahrain on the possible supply of North Field natural gas, which could be accomplished with a “spur” from the proposed North Field-Kuwait pipeline. But the pipeline plan has just been scuttled by Saudi Arabia through whose territorial waters it would pass. As an alternative, Kuwait may consider importing LNG from Qatar.

”The gas industry faces many challenges and stiff competition from oil and coal in certain regions, therefore it is important for us to support and associate utilization of our gas resources with up-to-date technology and innovations to overcome the obstacles and to win the competition,” Al Attiyah said.

The technological development is most obviously on show in the field of gas-to-liquids (GTL) production, where Qatar will soon surpass all other countries to become the GTL centre of the world. It has already signed a number of agreements which should enable it to have production of over a half-million barrels of GTL products within the next few years.
Shell signed a contract with Qatar Petroleum in October 2003 for a GTL facility to be built at Ras Laffan, with the first barrels rolling off the Pearl plant production line in 2009, and the rest in 2010 or 2011. When completed, it will be the world’s largest GTL plant, producing 140,000 barrels per day. This is four times more than the Oryx GTL project, which is expected to be completed shortly, and it will produce 34,000 barrels per day of clean fuel. Oryx is a joint venture between QP (51%) and Sasol (49%).

Oryx is GTL’s first big test in Qatar, and its general manager, Chris Turner, told O&GME that “construction activity has peaked around the world, so resource availability has concerned us throughout the project.”

The third GTL project is ExxonMobil’s 154,000 bpd plant.
Three other major projects — proposed by ConocoPhillips, Marathon and Sasol-Chevron — are on ice, due to the government’s moratorium on further projects.
The GTL technology facilitates the production of sulphur-free, high performance GTL fuels. By 2011, three GTL projects will come on stream that will produce over 300,000 bpd of environmentally friendly products.

And backing the technology drive is Qatar Science and Technology Park (QSTP), which is also attracting foreign companies to the country.

QSTP marketing manager Ben Figgs said, “We are still targeting the oil and gas sector — we’re going on a trip to Houston in the second week in March, and we’ll be meeting with a number of companies over there. We’ve only got some of the big oil and gas companies, and, in addition, we want to get some of the service companies and technology firms.”
Companies set up here for both locally-focused research work and for general work that is applicable globally, he said. If you look at Shell, they are looking at GTL and environmental issues research, which is obviously extremely local. But then you’ve got companies that are developing their intellectual property here but that have worldwide potential,” Figgis said.
One such company that epitomizes Qatar’s innovation and willingness to roll back the frontiers of gas technology is Rolls-Royce, a QSTP newcomer, which is looking at maintenance technology on their Trent engine.

They have an interesting project. They have this great gas turbine technology that you see on airplanes, and now they’re looking at putting it into the hull of an LNG ship, which have traditionally been diesel powered, and they’re looking at sucking the vapour that comes off their tanks and using it to put through a gas turbine to power the ship.

Rolls Royce’s Terry Holland said, “Qatar has great potential for energy companies. It has a vision. Basically it’s a new development on LNG vessels where we put a gas into a turbine in a power station that provides power to the electrical system, and the turbine uses gas from the vessels cargo.
“It will be massive. Qatar’s got huge scope for large vessels, and the bigger the vessel the optimum solution is a gas turbine.”

And it was LNG that first drew the world’s eyes to the country’s potential in 1996, when a Qatargas delivered its first LNG shipment to Japan.

The Qatargas downstream consortium comprises Qatar Petroleum (65%), Total (10%), ExxonMobil (10%), Mitsui (7.5%), and Marubeni (7.5%). Qatargas inked a deal in 2004 with Gas Natural of Spain for the sale of the incremental volume over a period of 20 years, to start when the capacity expansion is completed.

Rasgas is Qatar’s second LNG project. The two major shareholders in the project are Qatar Petroleum and ExxonMobil. Its first train was completed in early 1999 and the second train came onstream in 2000. Rasgas contracted with Chiyoda, Mitsui, and Snamprogetti in 2001 for the construction of the third 4.7-million tpy (228-Bcf) train, which was completed in 2004. Train 4 came onstream last year, and the fifth is scheduled for 2007.

RasGas Managing Director Alexander Dodds told O&GME that RasGas expects to have $10 billion revenue by 2010, and is attracting investors. “We went out to the market looking for a $10 billion finance package. The whole offering was oversubscribed.”

As Qatar races to global gas supremacy, it also prepares to host the Asian Games this year. “Not only is Doha a city on the move, but the whole of Qatar’s economy is now also moving on a fast track,” Al Attiyah said.
And foreign and private firms are keeping pace with the government’s dynamic plans and projects.
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