Qatar to capitalise on growing demand for LNG

For over a decade Qatar has been the world’s leading supplier of liquefied natural gas (LNG), and by 2024 the country aims to strengthen its share in the market and boost output by 43%, from 77m to 110m tonnes per year (see analysis). While much of Qatar’s growth in the decades after independence in 1971 was fuelled by crude, natural gas gained prominence in the 1990s. In 2018 Qatar announced it would leave the Organisation of Petroleum Exporting Countries (OPEC), which it joined as one of the first members in 1961, in order to focus on gas.

Qatar’s ambitions signal it will be in a strong position moving forward as worldwide demand for natural gas increases. Projections to 2040 in BP’s “Energy Outlook 2018” suggest global demand for natural gas will grow more rapidly than for either oil or coal as demand for primary energy increases by a third over the next 25 years. The added capacity will allow Qatar to increasingly capitalise on and expand its overall market share.

In addition, Qatar is taking steps to proactively develop its solar power generation. “Solar energy is the cheapest source of power available today, even with maintenance costs added in Qatar,” Marc Vermeersch, executive director of the Qatar Environment and Energy Research Institute (QEERI), told OBG. “In this line, the country has plans to open the first energy certification centre in the MENA region at the QEERI, which will ensure the long-term viability and effectiveness of solar panels,” he said.

History

Qatar’s first oil well, Dukhan 1, was completed in 1940, but the onset of the Second World War delayed the development of the country’s hydrocarbons resources. Qatar awarded concessions for offshore exploration and production in 1949, and the first shipment of crude oil from the onshore field was exported on December 31 of that year. Offshore production of crude oil and associated gas began in 1965 at Maydan Mahzam and in Bul Hanine in 1972. In 1977 Qatar fully nationalised its onshore and offshore oil and gas operations.

Today the Dukhan field, 80 km west of Doha, covers an area of 80 km by 8 km and its production facilities have a capacity of 335,000 barrels per day (bpd). The field, which had 598 wells as of 2016, is divided into three sectors: Khatiyah, Fahahil, and Jaleha/Diyab. The field also has four degassing stations where oil and gas are separated: Khatiyah North, Khatiyah Main, Fahahil Main and Jaleha.

Qatar’s natural gas North Field was discovered offshore in 1971 and production began in 1988, with the first exports of LNG leaving for Spain in 1997. The field covers an area of 6000 sq km, about half the land area of Qatar. With total recoverable gas of more than 900trn standard cu feet (scf), the field is regarded as the world’s largest non-associated gas field. The first phase of commercial production began in late 1991. By 2008 average production was 750m scf of gas and 24,000 bpd of stabilised condensate, with the gas mainly used for the local market and condensate for refining and export.

Size & Performance

According to BP’s “Statistical Review of World Energy 2018”, Qatar has proven reserves of 25.2bn barrels of oil, ranking it 14th among oil-producing states in terms of oil reserves. BP’s analysis of the country’s reserves-to-production ratio suggests that Qatar’s oilfields can continue to produce at current levels for another 36.1 years. The report noted that in 2017 Qatar produced 1.9m bpd of oil and natural gas liquids (NGLs), representing a 2.7% decline in production from 2016, making Qatar the world’s 15th-largest oil producer. According to OPEC’s calculations, which do not include NGLs, Qatar produced 609,000 bpd of crude oil in the third quarter of 2018. BP found Qatar’s proven reserves of natural gas were 879.9trn cu feet, equivalent to 12.9% of the world’s total natural gas deposits. The only countries with larger endowments of natural gas are Russia with 18.1% and Iran with 17.2% of global deposits. Based on production levels in 2017, Qatar’s natural gas fields can continue production through the year 2159. The international oil company also estimated that Qatar produced 4.8% of the total global production of natural gas at 175.7bn cu metres, a 0.5% decline from 2016 output. However, from 2006 to 2016, the report noted Qatar’s production of natural gas increased by 12.9%.

Qatar was the world’s fifth-largest producer of natural gas in 2017, after the US, Russia, Iran and Canada. Qatar produced 231m tonnes of hydrocarbons in 2017, with natural gas accounting for 151.1m tonnes of oil equivalent, while oil accounted for 79.9m tonnes. Gas accounted for 65% of the country’s hydrocarbons production that year. Accordingly, Qatar is a leader in natural gas exports. In 2017 the country exported 18.4bn cu metres of natural gas to the UAE and Oman through the Dolphin pipeline and 103.4bn cu metres of LNG via shipping overseas. This represents 26.3% of the global total of 393.9bn cu metres of LNG exported by all gas-producing countries combined for that year.

Structure & Oversight

The main government body with oversight over the energy sector is headed by Saad Sherida Al Kaabi, minister of state for energy affairs. The ministry has prioritised securing Qatar’s energy needs, ensuring the optimal use of natural energy resources and effectively using revenue to further develop the economy. The country’s main energy player is state-owned Qatar Petroleum (QP), formed in 1953 and turned into the national oil company in 1972, which has both upstream and downstream oil and natural gas activities. The company’s remit includes exploration, production and refining as well as sales and marketing of a range of products including oil, LNG, NGL, gas-to-liquids (GTL), petrochemicals, fertilisers, aluminium and steel. It has signed a number of production-sharing agreements (PSAs) with international and national upstream and downstream companies.

The company works in the offshore Maydan Mahzam and Bul Hanine oilfields, in addition to the onshore Dukhan oilfield and the offshore North Field gas development. In terms of downstream production, QP Refinery, 100% owned by QP, has its oldest facility at Mesaieed, while a new plant at Ras Laffan, operated in partnership with Total Qatar, will house one of the world’s largest ethane crackers, with an annual capacity of 1.6m tonnes ethylene.

Additionally, QP operates a number of subsidiaries responsible for exploration, production and local and international sales. QP’s Qatargas and RasGas, already the world’s top two natural gas producers, merged in January 2018, saving the company $550m in annual operation costs. The new company, under the name Qatargas, has PSAs with ExxonMobil, Total, ConocoPhillips and Shell, and is responsible for all of Qatar’s natural gas exports. The country also exports natural gas to its regional neighbours, the UAE and Oman, through the Dolphin pipeline built in 2007. The 48-inch pipeline, with a capacity of 2bn cu sq feet of gas per day, was the first GCC cross-border refined gas transmission project and is the longest gas pipeline in the Middle East. It connects Qatar’s Ras Laffan gas processing and compressing plant with Abu Dhabi’s Taweelah receiving facility. The gas is then distributed to customers in the UAE and Oman. The Dolphin project is a vital source of energy for industries and power stations in destination markets, and its flow of gas has continued despite political tensions between Qatar and the UAE.

Energy Policy

Qatar’s energy policy is increasingly focused on gas, the discovery of which has propelled the country into the top ranks of international hydrocarbons producers and established the country as the world’s richest by per capita income. According to the World Bank, in 2017 Qatar’s gross national income per capita was $128,050, compared to $74,410 for the UAE and $60,200 for the US.

Qatar’s energy policy is increasingly focused on gas, the discovery of which has propelled the country into the top ranks of international hydrocarbons producers and established the country as the world’s richest by per capita income Looking to capitalise further on its natural gas reserves, in September 2018 Saad Sherida Al Kaabi, minister of state for energy affairs and president and CEO of QP, announced the country would seek to expand natural gas production by 43% from 77m tonnes a year to 110m tonnes by 2024.

QP had initially announced its intention to increase capacity to 100m tonnes a year in 2017 when a moratorium limiting the pace of exploitation of the North Field was lifted. At the time QP said it planned to build three new LNG mega-trains, but with the new announcement came the revelation that a fourth train would be commissioned, increasing production capacity from 4.8m barrels of oil equivalent per day (boepd) to 6.2m boepd. “This new capacity will further strengthen our leading position as the world’s largest LNG producer and exporter, and will further boost QP’s strategic growth plan,” Al Kaabi told local press.

Oil & Gas Value Chains

One of QP’s key priorities is the optimisation of Qatar’s oil and gas reserves, and the company has made substantial investments in refining and processing crude oil, condensates and natural gas in order to extract more valuable by-products. According to OPEC’s “2018 Annual Statistical Bulletin”, Qatar exported 639,400 bpd of petroleum products in 2017 from a total production of 699,000 bpd.

Qatar is working to increase its output of GTL products including naphtha, with the government aiming to increase exports of the liquid by 3m tonnes per year, up from just under 500,000 tonnes in 2016. The country is on pace to meet this target due to its Pearl GTL plant operated by Shell, the largest of its kind in the world with a daily capacity of 140,000 barrels of GTL products including gasoil, kerosene, naphtha, paraffin and base oils for lubricants. Qatar is also home to Oryx GTL, a joint venture between QP (51%) and Sasol of South Africa (49%) that began production in 2006. The Oryx plant uses natural gas treated at Ras Laffan Industrial City and converts it into low-sulphur diesel, naphtha and LPG. The Oryx plant has a daily capacity of 32,441 bpd. In September 2018 Oryx GTL made its first direct delivery to Germany when 8.2m litres were bought by the German company HGM Energy.

Global Oil Prices

Although Qatar’s main export commodity is not crude, the country’s GDP and balance of payments have been affected by fluctuations in global oil markets since the price collapse starting in mid-2014, when prices fell from $115 per barrel in June 2014 to under $35 at the end of February 2016. According to the World Bank in 2014 Qatar’s GDP was $206.2bn, falling to $161.7bn in 2015 and $151.7bn in 2016. Data from Qatar’s Planning and Statistics Authority reflects this, showing the mining and quarrying sector, which includes hydrocarbons production, contracted from QR403bn ($110.7bn) in 2013 to QR196bn ($53.8bn) in 2017 at current prices. In December 2016 Qatar and 12 other OPEC members, joined by 11 non-OPEC countries, agreed to decrease crude oil output to reduce global inventories and stabilise prices. The OPEC agreement saw Qatar cut crude oil output by 30,000 bpd to 618,000 bpd. In 2017 oil prices began to rise again, and with it, Qatar’s economic performance began to improve.

Foreign Direct Investment

Foreigners are allowed, granted approval from the Ministry of Economy and Commerce, to own up to 100% of any investment made in the energy and mining sectors. For many other sectors, foreign ownership is limited to 49%, but Qatar is in the process of approving reforms to allow for 100% foreign ownership across all sectors of the economy. Qatar hopes the new rules will make it a more attractive destination for foreign investors, accelerate growth and help diversify the economy. According to the UN Conference on Trade and Development, Qatar saw a 27% increase in foreign direct investment inflows in 2017, which rose to $986m from $774m in 2016.

Exploration & Production

Qatar developed its energy sector by working with international oil companies to promote the transfer of knowledge and technology, and many of these partnerships are managed by PSAs. In June 2017 QP took over management of Al Rayyan Field when Occidental’s PSA came to an end. That same month, Maersk Oil Qatar’s PSA for the Al Shaheen Field expired and Total won the bid to take over the field as part of a new joint venture, North Oil Company, with QP owning a 70% stake and Total having 30% for a period of 25 years. Al Shaheen is estimated to contain approximately 43bn barrels of oil, with just 1.7bn barrels extracted to date, and it produces approximately 300,000 bpd through its nine platforms.

In 2019 QP will take over the operations of Idd Al Shargi North Dome Field, located 85 km off the coast of Doha, after the PSA with Occidental Petroleum of Qatar expires. “Managing and operating this important oilfield showcases QP’s distinctive technical capabilities in operating and managing oil and gas fields, and maximises the value for the state,” Al Kaabi told local press. “It also further enhances our efforts to implement our ambitious growth plan designed to set QP firmly on the road to becoming the best national oil and gas company in the world.”

Technology Upgrades

Through its partnerships with international oil companies across all areas of its business, QP is able to invest in and adopt the latest technologies in oil and gas. In 2014 QP announced plans to invest QR40bn ($11bn) in the redevelopment of the Bul Hanine oilfield to counter production decline and double the oil production rate in two phases to be completed in 2020 and 2023. In the Maydam Mahzam field reservoir modelling technology is being used to conduct new surveys of its reservoirs, while in the Al Khalij oilfield the results of 4D seismic survey technology are being used to optimise production.

Investments, Strategies & Opportunities

In 2018 QP made a number of investments in exploration overseas, expanding its reach beyond Qatar’s borders. In February of that year the company announced it acquired a 25% stake in Exploration Block 11B/12B in South Africa, with Total holding 45%, Canadian Natural Resources (20%) and Main Street (10%). That same month QP acquired stakes in five exploration blocks in Mexico, four in partnership with Shell and one with Eni. In March 2018 QP announced it won exploration rights for four blocks in Brazil as part of two separate consortia, one with ExxonMobil and the other with ExxonMobil and Petrobras, with QP holding a 36% share in the former and 30% in the latter. In June QP announced it had become a 30% equity holder in two ExxonMobil affiliates in Argentina with hydrocarbons licences for seven blocks and in September 2018 the company revealed it had won exploration rights for another block in Brazil, giving ExxonMobil 64% of the equity and 36% to QP. Most recently, in December 2018 Qatar announced plans to invest more than $20bn over five years in the US energy sector in multiple projects including the Golden Pass LNG terminal in Texas. QP owns 70% of the project, with ExxonMobil and ConocoPhillips splitting the remaining shares.

Petrochemicals Production

QP is planning to capitalise on the expansion of its North Field by building one of the Middle East’s largest ethane crackers. The planned petrochemicals complex, which will also include derivative plants, will have an annual capacity of 1.6m tonnes of ethylene and is to be built at Ras Laffan Industrial City.

In March 2018 QP invited international companies to submit proposals for the facility, which is due to open in 2025. “Petrochemicals represent a major pillar of our growth strategy,” Al Kaabi told local press. “This project will complement our efforts to implement our strategy and will enable QP to expand its footprint in the global petrochemicals market.”

Outlook

With a significant expansion in output from its natural gas fields planned over the next five years, Qatar is confident that the additional supply will coincide with a growth in global demand for clean energy. Investments in technologies and value-added products such as GTLs and petrochemicals will allow Qatar to further develop in diverse energy and petroleum product markets, while the national oil company expands its operations internationally, winning exploration rights across several countries.