Developments and upgrades to keep Qatar top of global energy market

In 2016 Qatar retained its title as the world’s largest exporter of liquefied natural gas (LNG). For many years the state has also been a global player in the crude oil and petroleum product markets. It is a key energy provider for many of the world’s leading economies, lying at the heart of a hydrocarbons logistics chain that stretches from Japan to the UK.

However, these are challenging times for the oil and gas sector internationally, and Qatar has not been exempt from these recent global trends. Falling prices, and a scaling down of exploration and production, have affected the state’s main oil and gas companies, alongside their multinational allies. Oil and gas service companies, too, have felt the impact, as have a range of related research and development (R&D) facilities, and energy financers and insurers.

Despite these trends, Qatar remains one of the world’s strongest hydrocarbons players, with the vast capacity of the North Field natural gas facility likely to secure its major role in global energy markets for many years to come. Efforts to boost oil recovery should also see Qatar remain among the world’s most significant producers of oil, while the state continues to boost efficiency through the ongoing development and use of both new technologies and production methods.

Production Pedigree 

Oil production first began in Qatar in 1940 following discoveries at Jebel Al Dukhan – the Hill of Smoke – in the south-west of the peninsula. This marked the beginning of the country’s largest onshore oil field, which is still in production today. The first shipment of Dukhan crude was dispatched in 1949, with non-associated gas discovered in the same region 10 years later. Qatar Petroleum (QP) was formed in 1953, and became the national oil company in 1972, a year after independence, before taking on its present structure in 1974. In 1977 Qatar fully nationalised its onshore and offshore oil and gas operations.

In 1960 Shell discovered the Idd Al Shargi oil and gas field, located 85 km off the east coast of Doha. The field has two elliptical formations, the North and South Domes. In 1963 the company discovered another field, Maydan Mahzam, and by 1969 total oil production had risen to 293,000 barrels of oil per day (bpd), up from 4480 bpd in 1940. The revenue from this production was transformative, with Qatar’s income and standard of living rising rapidly.

The development of the industry continued in 1972, when the offshore Bul Hanine oil field was established, while in 1991 deposits at the Al Khalij oil field were uncovered by Total. In 1992 Maersk formally discovered the offshore Al Shaheen oil field, while in 1994 the Al Rayyan oil field, located 50 km north of Qatar, was uncovered by ARCO.

Natural Gas

Meanwhile, another major find occurred in natural gas with the discovery of one of the world’s largest non-associated gas fields. Deposits at the North Field, which makes up the southern part of the larger South Pars/North Dome field in the Gulf, had been identified off the north coast of the peninsula as far back as 1971, but at the time the energy source was not considered particularly significant. It was not until some 14 years later that the relevance and potential commercial value of this discovery was fully understood. Production began in 1988, with 1997 seeing the first exports of LNG, consisting of 5.7bn cu feet sent to Spain.

Production has exponentially increased since, with the 2007 commissioning of the Oryx gas-to-liquids (GTL) plant boosting capacity. This was joined by Shell’s Pearl GTL project in 2012, establishing Qatar as a leading global centre for the technology.

However, at the same time exploration has continued. In 2013 QP announced further natural gas discoveries in Block 4 North, just outside the North Field, which may add a further 2.5trn cu feet to Qatar’s already substantial proven gas reserves.

Sector Bodies 

The main government authority for the sector is the Ministry of Energy and Industry (MEI), of which Mohammed bin Saleh Al Sada is the minister. At the same time, QP is Qatar’s main player in both upstream and downstream oil and natural gas. The state corporation operates a number of subsidiaries responsible for exploration and production, and local and international sales.

QP has also signed exploration and production-sharing agreements, and development and production-sharing agreements with a range of international companies. These have in the past included ExxonMobil, Occidental Qatar, Anadarko Qatar, Maersk Oil Qatar, Talisman Energy Qatar, Total Qatar, Wintershall Consortium and Marubeni.

The company works in the offshore Maydan Mahzam and Bul Hanine oil fields, in addition to the onshore Dukhan oil field and the offshore North Field gas development, which it operates in partnership with ExxonMobil. Total Qatar has been operating in the Al Khalij oil field since 1991, and in 2016 it won a 30% stake in the Al Shaheen field, replacing Maersk, which had held it since 1994. Oxy operates in the Idd Al Shargi North and South Domes, and in Block 12 of Al Rayyan.

Other fields include the offshore Al Bunduq oil field, which lies along the border of Qatar and the UAE, and is jointly operated by the two countries. The field is being developed by Bunduq Oil and its main shareholders are the Japanese consortium United Petroleum Development and BP. Meanwhile, the Al Karkara oil field is operated by Qatar Petroleum Development (QPD), a subsidiary of Cosmo Oil, with the company also managing the A-North field.

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, is now home to one of the largest condensate crackers in the world. QP is also partnered with South Africa’s Sasol in the Oryx GTL project at Ras Laffan, and has a partnership with Shell in the Pearl GTL project – the largest of its kind in the world – also at Ras Laffan.

QP has four natural gas liquid (NGL) plants – producing propane, butane and condensate – and is also the major stakeholder in the Qatargas/RasGas LNG joint ventures. Other stakeholders in Qatar-gas include ExxonMobil, Mitsui, Marubeni, ConocoPhillips, Shell, Idemitsu Kosan, Total Qatar and Cosmo Oil, while ExxonMobil also has investments in RasGas. RasGas is the project manager for the $10.4bn Barzan gas project, which is set to help meet rising domestic gas demand when it comes on-line in either late 2017 or 2018. In addition, Qatargas has its own transport company, Nakilat, which has Shell as its maritime and shipping services partner.

Another key project for QP is Dolphin Energy. Since 2007 it has been producing, processing and supplying natural gas to neighbouring Oman and the UAE. This is the GCC’s first cross-border refined gas transmission project, which pumps some 3.2bn cu feet per day (cfpd) of gas, via undersea pipelines, from Ras Laffan to Abu Dhabi, to Sharjah, Ras Al Khaimah and Fujairah, and through to Oman. Total Qatar and Oxy are also partners in Dolphin, along with Abu Dhabi’s Mubadala Investment Company.

QP is also highly active in petrochemicals and fertilisers, with Qatar Fertiliser Company, Qatar Petrochemical Company (QAPCO), Qatar Vinyl (QVC), Qatar Fuel Additives and Qatar Chemical Companies 1 and 2. The latter two as well as QVC come under the umbrella of the QP-owned Mesaieed Petrochemical (see Industry chapter).

However, several mergers between these companies were announced in 2016 and 2017, with the aim of rationalising existing structures and cutting costs at a time of lower oil and gas prices. December 2016 saw the beginning of the merger of Qatar-gas and RasGas, with the transition period due to be completed by the end of 2017, and in February 2017 a merger between QAPCO and QVC was also announced. In 2016 QP announced it was integrating its retail arm, Tasweeq, into the larger QP structure, which was completed by the end of 2016.

Oil Reserves

According to the “BP Statistical Review of World Energy 2017”, Qatar had total proven oil reserves of 25.2bn barrels at the end of 2016. This was the same as in 2015, though less than the 27.4bn recorded at the end of 2006. The 2016 figure represented 1.5% of global proven oil reserves, as well as a reserves-to-production ratio of 36.3 years. According to the US Energy Information Administration, in 2015 Qatar had the ninth-largest oil reserves in Organisation of the Petroleum Exporting Countries (OPEC) and the 13th largest oil reserves in the world.

Qatar’s total oil consumption was 339,000 bpd in 2016, according to BP, a 7.5% increase on 2015, and equivalent to 0.4% of global consumption. These figures show the considerable export potential of crude oil and refined products, with Qatar seeing some 280,000 bpd of throughput at its refineries in 2016. This was a 10.8% improvement on 2015 and represented 0.3% of global refinery throughput.

Crude oil output has, however, been in decline since production hit an all-time high of 865,000 bpd in 2008. This figure eased to 733,400 bpd by 2012, then 545,000 bpd in early 2017, before rebounding to 621,000 bpd in April 2017. Indeed, since 2012 Qatar’s non-crude liquids production has exceeded its production of crude oil.

Opec Cuts

To some degree, this natural decline in crude, as wells age and exhaust, masked the impact of scheduled cuts in production agreed by OPEC in November 2016. At that time, the organisation – which Qatar has been a member of since 1961 – decided to cut total output by 1.16m bpd for six months, effective January 1, 2017, with Qatar’s share of this amounting to 30,000 bpd. The state’s compliance of this target was 100% when OPEC reviewed the oil market in early 2017, higher than the organisation’s overall compliance rate of 93%.

The production cut, which was later expanded to include several non-OPEC members such as Russia, was aimed at supporting oil prices. In June 2014 benchmark Brent crude was at a recent high of $114.81 per barrel, before slumping to $28.94 in January 2016. Prices crept up to around $51.78 in October 2016, with expectations of the OPEC cut widely thought responsible for some of this recovery, and prices then rose to around $57 per barrel in early 2017. However, this rebound was relatively short lived, with oil prices declining again as US crude inventories swelled, and resumed US shale oil production provided an effective cap on further price hikes. However, by October 2017 Brent crude rose again, and was trading at around $57.58.

These fluctuations have had a negative impact on the oil sector globally, with Qatar no exception. The country’s budget, which heavily relies on oil and gas revenues, was in deficit for the first time in 15 years in 2016, and deficit budgets are expected for at least three more years.

Fresh Fields

With Al Rayyan the most recent significant oil discovery, the last few years have seen a greater concentration on boosting output and efficiency in existing fields. Enhanced oil recovery (EOR) techniques have been deployed at all major blocks currently in operation, with three fields – Al Shaheen, Dukhan and Idd Al Shargi – now responsible for around 85% of current output capacity.

EOR techniques include water alternating gas, deployed in Al Shaheen when it was a Maersk concession; and water injection, used by Oxy in Idd Al Shargi, among others. Total’s new concession at Al Shaheen also comes with a commitment to invest some $2bn in developing the field, with the company’s first objective to maintain output at 300,000 bpd, according to officials. Total may well deploy some of its advanced gas technology EOR techniques in order to achieve this.

Meanwhile, QP is making an $11bn investment in redeveloping the Bul Hanine oil field, which currently produces around 40,000 bpd. This is one of QP’s largest projects for 2017, with the aim of raising output to 90,000 bpd by 2020.

The field is one of the oldest offshore developments, starting production back in 1972, with the redevelopment scheme seeing an upgrade of both onshore and offshore facilities. A total of 150 new wells are to be drilled by 2028, along with extensive modification of existing wellhead jackets. An offshore complex consisting of compression, production, utility and living-quarter platforms is being constructed, with the oil extracted being sent on to Halul Island – Qatar’s key offshore oil storage and loading facility, located 80 km north-east of Doha. The Bul Hanine redevelopment project will also see some 900m cfpd of sour gas piped to a new treatment facility at Mesaieed, 150 km away. Sweet gas extracted there will be sent back to the field for injection, pushing out more of the field’s high-quality sweet crude.

The Al Shaheen field illustrates a growing trend as 25-year production agreements for fields in Qatar and elsewhere come up for renewal. QP will likely be looking for the most productive investment plans from bidders, with EOR projects being highlighted. Getting the maximum return from such techniques is becoming increasingly vital, with correspondingly greater emphasis – and risk – on the international oil companies that are bidding.

At the same time, exploration budgets have generally been cut, as concentration on existing assets takes precedence. Many offshore blocks have still not been fully explored or developed, however, and these are likely to include small-scale oil deposits, as well as gas. In Qatar, as elsewhere in the Gulf, production costs are still relatively low, with future expansion remaining the goal for many current players. However, in the short term the emphasis for industry players is on cost cutting and efficiency measures – both of which will likely place Qatar’s energy sector in good stead in the years to come.

Gas Giant 

The discovery and development of the giant North Field propelled Qatar into the top ranks of global hydrocarbons producers, while also establishing the country as the world’s richest in terms of per capita income. Indeed, in early 2017 QP overtook Rosneft and ExxonMobil in total output, selling more LNG than any other company in the world.

BP recorded Qatar’s total proven natural gas reserves at 866.2trn cu feet in 2016, 13.1% of the world’s total, with a reserves-to-production ratio of 134.1 years. Almost all of this is in the North Field, which makes Qatar the third-largest holder of gas reserves in the world, after Russia and Iran.

In 2016 production stood at 181.2bn cu metres, up 1.3% on 2015, and some 5.1% of total global production. Annual production has been steadily increasing in recent years, nearly tripling from 45.8bn cu metres in 2005 to 131.2bn cu metres in 2010. This increase occurred despite a moratorium on further exploration imposed back in 2005, which ran until April 2017, and indicates a significant ramping up of output from existing wells and facilities.

Covering approximately 6000 sq km in water depths of up to 65 metres, the North Field is host to significant infrastructure developments that have been assembled to facilitate its exploitation. A total of 14 LNG trains operate the field: seven run by Qatargas and seven by RasGas. In addition, the new Barzan gas project will draw some 1.4bn cfpd of natural gas from the North Field, sending it to a new gas processing plant in Ras Laffan Industrial City.

Qatargas’ LNG trains are divided into four projects, which are named Qatargas 1-4. Qatargas 1 has three trains, with a combined capacity of 10m tonnes per annum (tpa). Gas is delivered via a single 32-inch subsea pipeline from 20 offshore production wells, feeding the three onshore LNG trains at Ras Laffan. Qatargas 2 has two LNG trains, each with a capacity of 7.8m tpa, alongside capacity to produce 850,000 tpa of liquefied petroleum gas (LPG). Qatargas 3 and Qatargas 4 both have an additional single 7.8m-tpa-capacity train.

Exportation

As integrated projects, the four Qatargas developments also have major associated storage, processing and export facilities. The giant Qatargas 2 facility has five 145,000-cu-metre tanks and three LNG berths, a 12,000-tonne-perday common sulphur system, and an export pipeline and mooring buoy approximately 55-km offshore.

From these marine facilities, dedicated LNG tankers run by Nakilat deliver to a range of global markets. Qatargas 2 delivers to the UK, the US, Asia and Europe, among other destinations, with the dedicated South Hook offloading terminal and regasification plant at Milford Haven in the UK capable of handling 20% of the UK’s entire natural gas needs. QP, ExxonMobil and Total are South Hook’s shareholders. Qatargas 1, meanwhile, ships mainly to Spain and Japan, Qatargas 3 delivers cargo primarily to the US, Europe and Asia, while Qatargas 4 ships to North America, the Middle East and Asia.

Of RasGas’ seven numbered trains, the first started production in 1999 and the last started in 2010. RasGas 6 and RasGas 7 are large 7. 8mtpa trains, while RasGas 1 and RasGas 2 both have capacities of 3.3m tpa. The other three trains have capacities of 4.7m tpa each.

The main markets for trains 1-3 are in Asia, while RasGas 4 targets Europe, RasGas 5 Europe and Asia, and the last two sell to Europe, Asia and North America. RasGas currently operates a fleet of Q-Flex and Q-Max ships to deliver its LNG, with the latter class among the largest in the world.

RasGas also produces helium as a byproduct of its gas processing, manufacturing it at its Helium 1 and Helium 2 plants at Ras Laffan, which have a combined capacity of 2bn cfpd – enough to meet 25% of global helium demand. RasGas also operates the Al Khaleej Gas Project at Ras Laffan, which consists of two phases – AKG-1 and AKG-2.

The first of these produces 750m cfpd of sales gas, which is used to power customers at the Ras Laffan and Messaeid industrial cities, while also supplying feedstock for the Oryx GTL project. AKG-2 has the capacity to produce 1.3bn cfpd of sales gas, and 61,000 barrels of field and plant condensate, along with 2400 tonnes of propane and butane, and 2500 tonnes of ethane.

Domestic Demand

Meanwhile, the first phase of the Barzan gas project was due to come on-line in November 2016, but due to pipeline integrity issues, the project’s start date has been moved to year-end 2017. This QP-ExxonMobil project aims to address the growing domestic energy demand in the run-up to the country’s hosting of the 2022 FIFA World Cup and beyond.

One of the most technically complex endeavours in the country, Barzan includes three offshore wellhead platforms connected by undersea pipelines to onshore gas processing, sulphur recovery and NGL recovery units. The latter will produce methane, ethane, propane, butane and condensate. Two processing trains will produce some 1.4bn cfpd of sales gas, along with 22,000 bpd of condensate, 6000 bpd of plant condensate, 34,000 bpd of ethane, 10,500 bpd of propane and 7500 bpd of butane. Barzan uses proprietary technologies to strip out the nitrogen from the sale gas stream and remove NGLs. This is further proof of the technological strength of much of the oil and gas sector in Qatar, a level that is similarly demonstrated by the two major GTL projects in the country.

Pearl GTL is the largest of these, with full ramp-up achieved in 2012. The plant, run under a development and production-sharing agreement between Shell and QP, is located at Ras Laffan and is the world’s largest source of GTL products. Costing approximately $18bn-19bn to develop, it takes some 1.6bn cfpd of natural gas, which it can then convert into 140,000 bpd of GTL products, along with 120,000 bpd of NGL and ethane per day, when running at maximum capacity.

The Oryx GTL plant, meanwhile, began production in 2007 and is 51%-owned by QP, with Sasol holding the remaining 49% share. The plant was the first in the world to convert natural gas to liquid fuel using the low-temperature Fischer-Tropsch technology. The plant has a capacity of approximately 34,000 bpd of liquids, which includes some 24,000 bpd of GTL diesel, 9000 bpd of high-grade GTL naphtha, as well as around 1000 bpd of LPG.

Domestic & Foreign

Qatar itself consumed some 41.7bn cu metres of natural gas in 2016, which was down 5.4% on the year before; however, this came after a 13.8% rise in gas consumption between the years 2014 and 2015. This was in addition to some 11.7m tonnes of oil, an increase on 2015 levels. Domestic demand has risen in line with economic and demographic trends; GDP was up 1.5% year-on-year (y-o-y) in July 2017, and population growth rose by 6.3% y-o-y to 2.47m in the first quarter of 2017.

Higher standards of living have increased car ownership, as well as the use of air conditioners and demand for residential, commercial and industrial power. Qatar’s domestic electricity consumption quadrupled between the years 2000 and 2012, and continues to rise, with power and desalinated water production accounting for most domestic natural gas consumption in the country.

In order to keep pace, domestic electricity generation capacity is projected to rise from 8.6 GW in 2015 to an estimated 13 GW by 2018, which is largely due to two expansion programmes at the Ras Laffan and Umm Al Houl plants, with the latter also adding roughly 590,000 cu metres per day of water desalination capacity.

The years ahead will likely see domestic energy and water demand rise further, while demand from abroad is also set to continue expanding. The Dolphin Energy project, which currently sees Qatar pipe 1.92bn cfpd of natural gas to customers in the UAE and Oman, may see increased demand in the future as these two countries are experiencing strong economic growth and diminishing domestic hydrocarbons resources.

Qatar currently exports around 83% of its natural gas as LNG, with LNG prices arguably more significant to the country’s wealth than oil prices. Around one-quarter of exported LNG is sold at spot rates, while the rest is sold on long-term, oil-indexed contracts with built-in lags, which has, as a result, helped protect the country’s revenue streams during periods of lower oil prices.

Striking A Balance

Trying to balance regional and domestic demand for the country’s natural gas resources is a key task for Qatar’s authorities. This balancing act has focused minds on how to maximise efficiency in domestic consumption, thus freeing up more output for export, and minimise the impact of growing domestic demand on export revenue.

This is one major reason behind recent domestic campaigns to reduce per capita energy consumption. These campaigns range from efforts to promote solar energy use, green building technology and wastewater recycling, to scientific research into energy and water security by bodies such as the Qatar Environment and Energy Research Institute. The Qatar Science and Technology Park is also home to a variety of energy efficiency research projects, with major oil players ExxonMobil, ConocoPhillips, Shell and Total all present.

These supply and demand considerations are also behind Qatar’s decision in April 2017 to end its 12-year moratorium on further exploitation of the North Field. The development of the southern section of the field, once completed, will see capacity increase by 10% to 2bn cfpd.

The project, which will take five to seven years to complete, is expected to help Qatar maintain its competitive edge in the global market.

Outlook

 For the energy sector, a great deal depends on the future of both global oil and gas prices, and local efforts at EOR and field development. While global demand for hydrocarbons continues to expand, price rises have been kept in check by new supply and unexpectedly high inventories. In these circumstances, major new investments and other projects already in operation in the country will have to pay close attention to global pricing.

The end of the North Field moratorium, the Barzan gas project, and the Bul Hanine and Al Shaheen redevelopments will add even more supply, and focus the efforts of local and global players. Meanwhile, efforts to boost efficiency and cut costs are likely to continue, as the major mergers announced in recent months begin to take place.

Despite significant activity in the sector, industry players expect a year of consolidation in 2017, and a more efficient sector to emerge in the near future.