More than hot air: Industrial gases such as helium and carbon dioxide are set to expand downstream opportunities

Qatar’s oil and gas exports are by far the country’s most valuable. In November 2013 alone petroleum gases and petroleum oils were worth QR33.9bn ($9.3bn), making up 86.5% of exports by value for that month, according to data from the Ministry of Development Planning and Statistics. While the country’s hydrocarbons are an important source of revenue for the time being, the authorities are aware that relying on oil and gas is not a sustainable economic model. Rather than run away from energy altogether, economic planners have favoured developing downstream and value-added projects within the energy industry. The idea is to wring every last drop of value out of the oil and gas resources by using – and in some cases inventing – advanced extraction and processing methods that isolate valuable compounds. Sometimes natural gas deposits contain rare gases that are valuable as exports on their own, like helium. In addition, industries can capture by-products of processing like carbon dioxide (CO ) and re-insert them into the supply chain to boost productivity.

A Ballooning Market

Qatar is not a newcomer to the industrial helium industry. Construction on Ras Laffan’s first helium plant started in 2003 and commenced production two years later. The plant produces liquefied helium from the North Field. Qatar’s helium production capacity also grew significantly in the past year. In December 2013 construction on Ras Laffan’s Helium 2 production facility finished. The facility’s completion puts the state on track to become the world’s largest exporter of the industrial gas. Appropriately, Helium 2 is the largest production facility in the world, with a capacity of 1.3bn standard cu feet per year, Sheikh Khalid bin Khalifa Al Thani, CEO of Qatargas, said at a press conference in December 2013. That rate is nearly double Helium 1’s yearly production, which is about 700m standard cu feet per year.

Qatar’s helium expansion comes at a time when demand for gas has been on the rise. Industrial helium is critical for feedstock in a variety of scientific and high-tech industries. Firms can use the gas to produce superconductors, LCD screens and fibre optic cables.

In recent years, demand has grown faster than supply, putting pressure on the global market.

It is likely that the supply of helium will remain tight.

As a result, several firms are taking measures to conserve the gas by diversifying suppliers and reducing the amount used. The gas’s low freezing point is also useful for health care manufacturers, who use it to keep MRI scanners’ magnets cool. “This is certainly consistent to the pricing pressure we are seeing as an end user,” Tom Rauch, a sourcing manager for US-based General Electric’s health care unit, told Bloomberg in January 2013. “Demand has exceeded supply.”

As demand continues to grow, helium prices have risen the past decade. Privately sourced grade-A gaseous helium prices per cu metre rose from $1.62 to $6.13 between 2003 and 2013, according to data from the US Geological Survey. Prices rose over 35% in the past three years alone, according to the same data.

Shifting Landscape

The helium industry often recovers the substance from natural gas, of which it is a component part. In central areas of the US like Texas, Oklahoma and Kansas, geologic conditions have helped to form especially rich deposits, according to the US Department of Interior’s Bureau of Land Management.

Indications are that the mismatch between supply and demand in recent years is not the result of any sort of shortage. Global consumption is around 180m cu metres per year but global supply is 50bn cu metres, according to the US Geological Survey.

Rather, supplies seem to be caught in a combination of political and structural bottlenecks, contributing to the higher prices of the past two years. Policy in the US – the world’s largest helium producer – could be altering the market. The US government’s Federal Helium Reserve, located in Texas, was set to close in late 2013 due to a sunset provision set in 1996. The helium industry responded by raising prices in anticipation of tighter supplies. Lawmakers judged that the private sector was not yet ready to shoulder current demand, and decided to keep the reserve afloat with an October 2013 law. The US Congress’s decision to maintain the helium programme may help hold prices down in the short term, but other trends point to rising demand and decreasing supply in the long term.

The shale gas boom in the US, for example, could also alter global production patterns. While shale has been a boon for energy producers there, the industry yields little helium, according to Bloomberg. US dominance can also create a more volatile market. In July 2012, for example, maintenance on a Texas pipeline put the brakes on 30% of the world’s helium supplies, thereby putting upward pressure on prices. In any case, Qatar’s increase in production seems fortuitous. The state’s entry into the market will allow it to extract a valuable export – industrial helium – from its natural gas resources. With demand on the rise and the world’s largest exporter beginning to reduce supply, Helium 2’s returns on investment could be strong.

Rising Prospects

A low consumption rate combined with growing production could help the state develop its already growing trade ties with East Asia. Industries in Japan, a major helium importer, sourced 98% of their helium from the US in the first three quarters of 2012. With its uses in medical and high-tech research, it is no surprise the element is in such demand in the world’s third-largest economy. Japanese firms are already looking abroad to diversify their imports.

In January 2013 the Japan Oil, Gas and Metals National Corporation and the Japan Bank for International Cooperation announced an agreement with Russian energy giant Gazprom to develop a helium production project in the eastern Siberian gas field of Chayanda. Fast-developing China is also set to increase its helium imports. In the six-year period leading up to 2011, MRI machine exports to China grew fourfold in terms of value, Japanese energy giant Iwatani Corporation said in January 2013, according to The Korea Herald.

Key Elements

Helium is not the only strategic element Qatar can obtain from its natural gas reserves. Extracting other elements has proved to be profitable in recent years. The value of Qatar’s inorganic metals, precious metal compounds and isotope exports – which include hydrogen, CO and phosphates – rose from $185.4m to $677.1m between 2008 and 2012, according to data from the UN Commodity Trade Statistics Data Base. These compounds serve as critical resources for industries like fertilisers and fuel additives.

However, conventional industrial gases remain equally important to the growth and expansion in the downstream sector. “Industrial gases are the backbone of development for the downstream sector and in particular petrochemicals and chemicals. With pipeline networks in place in Ras Laffan and Mesaieed Industrial Cities, customers can easily obtain feedstock, allowing for growth and future investment in this arena,” Manuel Binoist, CEO of Gasal, a company providing industrial gases such as oxygen, nitrogen, hydrogen and argon to downstream industries in Qatar, told OBG.

Qatar’s petrochemicals industry has become increasingly involved in carbon-capture activities in recent years. Taking the lead is the Qatar Fuel Additives Company (QAFAC), held jointly by state-owned Industries Qatar, Taiwan’s Overseas Petroleum Investment Corporation, International Octane and the LCY Middle East Corporation. The firm produces fuel additives like methanol and butane, as well as products derived from both. It has a capacity of 982,350 tonnes per annum (tpa) of methanol and 610,000 tpa of methyl tertiary butyl ether, another fuel additive.

In June 2012 QAFAC signed an $80m loan agreement with Qatar National Bank to fund a major CO cap- ture project. The idea is to reduce CO emissions and then put it to use. The plant is set to recover 500 tonnes of CO per day, Nasser Jeham Al Kuwari, general manager of QAFAC, told OBG in September 2013. Using that carbon, the project’s planners say they can boost methanol production at the plant. Al Kuwari indicated that QAFAC aims to have the operation running by the third quarter of 2014. QAFAC’s project is by no means the first carbon-capture venture in the state.

Research

In December 2012 Shell, Qatar Petroleum, the Qatar Science and Technology Park and Imperial College, London announced a $70m research and development project for carbon capture and storage. Funding is set to provide for at least 10 years of research at the Carbonates and Carbon Storage Research Centre, according to Imperial. Developing areas such as helium extraction and CO capture could offer several benefits to the Qatari economy. In addition to adding value to natural gas reserves and creating new exports for global markets, the scientifically complicated extraction techniques offer opportunities for Qataris to join the research side of the petrochemicals industry. Cultivating more knowledge-based sectors is a central goal of Qatar Vision 2030, Qatar’s economic blueprint for the future. Drawing on resources like Education City, existing partnerships with energy majors could recruit local talent to join the teams researching these value-added downstream techniques. Thus, industrial gas projects could initiate both short- and long-term returns.