Gas Giants

These are heady times for energy and construction in Qatar, as the two combine over some massive plant contracts. These are also good days for international oil and gas service companies, as Japan's Chiyoda and JGC Corporations and the US' Halliburton arm, Kellogg Brown & Root (KBR), have recently found. Securing some of the world's largest contracts for plant construction at Qatar's Ras Laffan site will see all three benefit by some billions of dollars in the years ahead.



First, on September 23, Bloomberg reported that JGC and KBR had won an order worth more than $6bn from Royal Dutch Shell for the construction of a gas-to-liquids (GTL) plant at Ras Laffan. Shell originally signed a development and production-sharing agreement for the140,000-barrels per day (bpd) facility, called Pearl GTL, back in July 2004.



The first production line there is scheduled to start up around 2009, and the second in 2010, with the eventual costs potentially as high as $7bn, according to the JGC plant project sales division senior general manager, Kazunori Nito.



His colleague, JGC Middle East sales operation senior manager Hiromi Katagi, told reporters in Tokyo on September 22 that if this were the case, "Under the contract, Shell will reimburse the costs and fees that we pay... This is the best way when the construction cost is rising."



GTL is a technology that many industry insiders see as having now found its moment of glory, as high oil prices make financially feasible the extensive investment necessary to make it work. This is also particularly useful for Qatar, which has the world's third-largest natural gas reserves, after Russia and Iran.



ExxonMobil Corp, Sasol Ltd, Chevron Corp and ConocoPhillips all have GTL projects, totalling some $19bn in value, currently planned for the country - in addition to Shell's plans, which are widely thought to feature an eventual three GTL plants in Qatar.



Meanwhile, liquefied natural gas (LNG) has also been scoring headlines in the state.



September 23 saw news that Chiyoda Corporation and the French Technip had won a $3.8bn order to build two of the largest LNG trains in the world - also in Qatar and at Ras Laffan.



The two companies signed a contract with the Ras Laffan Liquefied Natural Gas Company Limited 3 (RasGas 3) for the engineering, procurement and construction of RasGas Onshore Expansion Project Trains 6 and 7. Each train is designed to produce 7.8m tonnes per annum of LNG, with Train 6 scheduled for start up in late 2008 and Train 7 a year later.



The two companies were already well known in Qatar, as they had earlier won contracts for LNG work, and have completed Trains 3 and 4 and are finishing Train 5. Front-end engineering and design (FEED) work for the RasGas 3 project was also undertaken by Chiyoda.



The Japanese company's share in the order is estimated at more than 60%, or around $2.5bn, news that sent its share price back in Tokyo rising, as did JGC's on news of its GTL success.



The RasGas 3 LNG project has targeted the US for its entire output, given surging levels of demand across the Atlantic. When its production is added to that of Qatargas, the country's other LNG production company, Qatar should become the world's largest producer of LNG, with a 2012 target of 77m tonnes per year being set by the state.



Achieving this ambitious goal requires yet more investment in the years ahead, with some $50bn-60bn of financing currently earmarked for the country's energy sector, according to remarks made by Economy Minister Sheikh Mohamed bin Ahmed Al Thani to Reuters on September 24.



The sheikh was attending a meeting of the World Bank and International Monetary Fund in Washington at the time, with his statement part of an outline for around $110bn worth of project financing for Qatar by the year 2010.



"At the moment, Qatar is in the market and looking for lenders," he said. "We are transforming the country for the coming 20 to 50 years. We have a route map for diversification."



Qatar also has major budget surpluses and expected economic growth of around 20% this year - a sound basis for any quest for project financing. With few predicting any slackening in energy prices next year, or indeed the year after, it seems that the kind of sums necessary for GTL and these massive LNG projects will be available. The sheikh also stated that maturities of 25 to 30 years might be extended for syndicated loans to finance energy and other projects, with both Islamic and conventional debt being considered. There will therefore likely be little shortage of sources for financing Qatar's ambitious future plans.