Qatar moves to bolster gas production and sustainable energy

Qatar is undertaking a major long-term expansion strategy in the North Field to increase the production of liquefied natural gas (LNG). The project, which involves tens of billions of dollars worth of investment, seeks to boost LNG capacity by 64% by 2027. The move is in line with the goal to capture greater global market share and is expected to help Qatar consolidate its position as one of the world’s largest LNG producers amid intensifying competition.

Qatar anticipates that natural gas will remain a key part of the global energy mix for decades to come and that it will play a central role in the global transition to a low-carbon energy system. Specifically, the country views gas as a transitional fuel, particularly for industrialising economies in Asia as they switch from coal to natural gas, which releases less CO₂ when combusted. As of early 2022 work on the expansion project was continuing apace, with major new contracts awarded in 2021 and early 2022.

While LNG expansion is front and centre in Qatar’s energy strategy, increasing focus has also been placed on sustainability and climate considerations in recent times. For example, in October 2021 government-owned company Qatar Petroleum (QP) rebranded to Qatar Energy (QE), reflecting its new strategic focus on the energy transition. The move comes as the company works to strengthen its credentials as a carbon-efficient producer and prioritises sustainability in its operations.

Structure & Oversight

QE is Qatar’s main energy producer. The company is involved in both upstream and downstream oil and natural gas operations. Saad Sherida Al Kaabi, minister of state for energy affairs, is president and CEO of QE.

Qatargas is a subsidiary of QE and is responsible for operating the country’s LNG facilities. RasGas, which previously operated some LNG facilities in Qatar, merged with Qatargas in 2018 in the interests of operational efficiency and cost effectiveness.

Qatar’s utilities sector comprises independent water and power producers (IWPPs). Qatar Electricity and Water Company (QEWC) is the largest IWPP, and the most significant player in the power generation and water production segment. Qatar General Electricity and Water Corporation, also known as Kahramaa, is the national utility company. The government-run corporation operates and maintains the electricity and water distribution network. QE is the sole provider of natural gas for domestic power and water production facilities.

Sustainability Strategy

In January 2021 QE – then operating as QP – launched its Sustainability Strategy. It aims to respond to an increasingly competitive energy landscape and ensure the company has a resilient business model within the context of the global energy transition. Key targets to be met by 2030 include reducing greenhouse gas (GHG) emissions from its LNG facilities by 25% and from its upstream facilities by at least 15%, relative to 2013 levels; capturing 7m tonnes per annum (tpa) of CO₂; limiting methane leaks along the gas value chain; adding 4 GW of electricity from renewable energy to the company’s portfolio; and ending routine gas flaring. Later that year QE revised its carbon-capture target upwards to 9m tpa by 2030.

The year 2021 also saw the country announce a number of climate initiatives amid a flurry of regional activity to launch new carbon-reduction pledges in the run-up to the UN Climate Change Conference, COP26, held in Glasgow. In April Qatar joined the Net-Zero Producers Forum, a new setting for fossil fuel producers to discuss ways to reduce emissions from the production of oil and gas.

In October 2021 the country unveiled the Qatar National Environment and Climate Change Strategy, which seeks to reduce GHG emissions by 25% by 2030, based on a business-as-usual scenario. This target is expected to limit Qatar’s overall rise in carbon emissions that would otherwise have been caused by the expansion of LNG production and a growing population. The new climate strategy also seeks to ensure sustainable and integrated management of all water resources. Targets include lowering groundwater extraction by 60%, reducing daily household water consumption by one-third, doubling desalination via reverse osmosis or more sustainable technologies, advancing eco-friendly waste management and circular use of materials, closing and rehabilitating all unsanitary landfills, and recycling 15% of municipal waste.

Also in October 2021, the Ministry of Environment and Climate Change was established to take over the environment portfolio from the Ministry of Municipality. While Qatar had yet to set a net-zero emissions target as of March 2022, climate action is regarded as a national priority, Al Kaabi said.

Size & Performance

According to BP’s “Statistical Review of World Energy 2021”, Qatar produced 171.3bn cu metres of natural gas in 2020, down 0.7% from 2019 and representing 4.4% of global natural gas production. This placed it fifth in the world, behind the US (23.7%), Russia (16.6%), Iran (6.5%) and China (5%). In the same year Qatar’s total production of crude oil, condensates and natural gas liquids stood at 1.8m barrels per day (bpd), representing 2% of global production. The country’s total oil refinery throughput was 366,000 bpd in 2020, while its total refining capacity was 429,000 bpd.

Qatar has the third-largest proven natural gas reserves in the world. At the end of 2020 this totalled 24.7trn cu metres, representing 13.1% of global reserves. Iran held 17.1% of reserves, with 32.1trn cu metres, and Russia held 19.9% of reserves, with 37.4trn cu metres. Qatar’s total proven natural gas reserves remained virtually unchanged between 2010 and 2020. The country’s proven oil reserves, meanwhile, stood at 25.2bn barrels of oil at the end of 2020, representing 1.5% of global oil reserves.

Exports

Qatar is one of the largest exporters of LNG in the world. The country exported 106.1bn cu metres of LNG in 2020, representing 21.7% of the global LNG export market. LNG exports from Australia were a close match, at 106.2bn cu metres, making it the largest exporter in 2020. In third and fourth place, respectively, came the US, with 61.4bn cu metres, and Russia, with 40.4bn cu metres. Qatar has exported more than 100bn cu metres of LNG per year since 2011. Australia, by contrast, only started to reach these volumes in 2019.

The majority of Qatar’s LNG is exported to markets in Asia. In 2020, 68% went to Asia, with India, South Korea, Japan and China, in that order, as Qatar’s largest Asian customers. A further 28% went to Europe, with the UK, Italy, Turkey and Spain serving as Qatar’s largest European customers. An additional 3% was exported to the Middle East, with Kuwait accounting for virtually all of this demand.

Qatar also exports natural gas via the Dolphin pipeline, which connects Qatar to the UAE and Oman. A total of 21.8bn cu metres of natural gas was exported through the pipeline in 2020, with the UAE accounting for 20.2bn cu metres. The pipeline has a total capacity of 33bn cu metres per year. It is currently the only intra-regional gas pipeline in the GCC. In terms of crude oil, Qatar exported 502,800 bpd in 2020, down from 524,500 in 2019. It also exported 460,000 bpd of petroleum products in 2020, down from 537,600 the previous year.

Infrastructure

Qatar has 10 oil and gas fields, spanning both onshore and offshore oilfields. The North Field is the largest single non-associated gas field in the world, covering around 6000 sq km. It lies mainly offshore to the north-east of the peninsula.

Ras Laffan Industrial City is the centre of Qatar’s oil and gas sector. The industrial energy centre is strategically located near the North Field and is home to the country’s main gas-processing facilities, including for LNG and gas-to-liquids (GTL). Ras Laffan features the world’s largest LNG export facility. The site is home to 14 liquefaction trains operated by Qatargas; six of which are mega-trains, each with a capacity of 7.8m tpa. From Ras Laffan, Qatargas currently charters a fleet of 70 vessels to transport LNG to markets around the world. This includes 14 Q-Max, 31 Q-Flex and 25 conventional vessels. The capacity of each class reaches up to 266,000, 210,000 and 152,000 cu metres, respectively.

Ras Laffan Industrial City is also home to two GTL plants: Pearl GTL and Oryx GTL. The former is the largest GTL production plant in the world, with a total capacity of 140,000 bpd of GTL products, including gasoil, kerosene, naphtha, paraffin and base oils for lubricants. The plant, which is operated by Shell, also produces 120,000 bpd of natural gas liquids and ethane. Oryx GTL converts natural gas into low-sulphur diesel, naphtha and liquefied petroleum gas. It has a capacity of around 32,440 bpd. The plant is a joint venture between QE, which holds 51%, and South Africa-headquartered energy and chemicals company Sasol, which holds the other 49%.

LNG Expansion

In 2019 Qatar announced plans to boost its LNG production capacity by 64%, from 77m tpa to approximately 126m tpa by 2027 (see analysis). The project, which will be completed in two phases, calls for a significant increase in gas production from the North Field and sizeable expansion of LNG facilities. Phase one, termed North Field East (NFE), will expand capacity to 110m tpa by 2025 and will see the addition of four new 8m-tpa liquefaction trains at Ras Laffan Industrial City. Phase two, termed North Field South (NFS), will expand capacity further, to 126m tpa by 2027, with two additional 8m-tpa trains. In February 2021 QE announced the first phase will cost $28.75bn. It has been estimated both phases will together cost up to $50bn, making it one of the largest energy projects in the world.

In February 2021 Qatar awarded a $13bn contract to a joint venture between Japan-based Chiyoda and France-based Technip Energies to build the NFE’s four LNG trains. The contract includes a large carbon capture and storage (CCS) facility, which is expected to reduce GHG emissions from the new facilities by 25% when compared to similar LNG plants. In January 2022 Qatar awarded US-based engineering firm McDermott a major engineering, procurement, construction and installation contract for the project’s offshore work. McDermott will provide eight offshore wellhead platforms for the NFE and an additional five for the NFS. It will also provide over 500 km of pipelines and more than 225 km of 33-KV subsea cables and associated works for the NFE. While not disclosed, the contract was estimated by international media to be worth around $3.5bn.

This deal follows Qatar’s signing of a series of agreements with shipyards in South Korea and China in 2020, which secured 60% of the global LNG shipbuilding capacity until 2027. The agreement, worth over QR70bn ($19.2bn), is expected to see Qatar ordering up to 100 new LNG vessels to cater for its growing carrier fleet requirements.

Qatar has been facing increased competition in recent years as other major LNG producers have been boosting output. The US, in particular, has been rapidly expanding its production capacity, and in December 2021 outpaced both Qatar and Australia in terms of monthly export volumes for the first time. As of 2021 Australia had the largest operating capacity, at nearly 88m tpa. Qatar’s key competitive advantage in the LNG race is having the lowest production costs among the major exporters due to an abundance of relatively easy-to-extract gas from the giant North Field, which will help Qatar maintain a leading position in the market.

Consumption

Qatar is currently highly reliant on fossil fuels for its domestic energy needs. In 2020 natural gas provided 74% of the country’s energy needs, while oil provided 26%. The country consumed 35bn cu metres of natural gas in 2020, representing around 20% of its natural gas production that year. An additional 296,000 bpd of oil were consumed in 2020, down from 375,000 bpd in 2019. The significant difference between 2019 and 2020 statistics is due to the Covid-19 pandemic, which impacted transport activity. Natural gas consumption between 2019 and 2020, however, remained relatively unchanged.

Qatar’s total GHG emissions were estimated to be 116.2m tonnes of CO₂ equivalent in 2019. The oil and gas sector is responsible for the greatest share of the country’s emissions. This is a key reason why Qatar’s total emissions are much larger compared to other small, high-income countries. In 2019 the natural gas segment, which includes emissions from LNG and GTL production, was responsible for 43% of emissions. This was followed by manufacturing (22%); the domestic power segment (16%), which includes electricity and water generation; transport (7%); oil production and refining (6%); and construction (5%).

Over the long term, one of the ways Qatar is seeking to reduce the carbon footprint of its energy sector is through CCS technology. In 2019 Qatar opened the largest CCS facility in the MENA region at Ras Laffan. The plant, operated by Qatargas, has a capture capacity of 2.2m tpa of CO₂. Gas liquefaction processing is used to capture CO₂, which is then permanently sequestered underground. QE is aiming to develop and integrate CCS technologies across its operations. In 2021 the company announced plans to sequester more than 9m tpa of CO₂ by 2030.

Electricity & Water

Qatar has experienced growing demand for electricity and water in recent years due to ongoing industrial expansion, rapid urbanisation and 2022 FIFA World Cup infrastructure projects. A moderate dip in demand growth was seen in 2020 due to the Covid-19 pandemic. According to Kahramaa, electricity generation stood at 49,259 GWh in 2020, down 1.2% from 2019 levels. Peak electricity demand in 2020 reached 8600 MW, up 1.5% on the 8475 MW recorded in 2019. Electricity generation grew by an average of 4.7% per year between 2016 and 2019, rising from 42,307 GWh in 2016 to 49,873 GWh in 2019.

Water production, meanwhile, totalled 691m cu metres in 2020, up 3%. It grew by an average of 5.8% per year between 2016 and 2019, rising from 560m cu metres in 2016 to 671m cu metres in 2019. As of the end of 2020 the country’s electricity generation capacity was 10.6 GW and its water desalination capacity stood at 2.2m cu metres per day.

Energy Efficiency

In 2012 Kahramaa launched the National Programme for Conservation and Energy Efficiency (Tarsheed), aimed at reducing carbon emissions and lowering water and electricity consumption in all sectors. In 2020 the programme was reported to have reduced electricity consumption by 289 GWh, water consumption by 32m cu metres and natural gas consumption by 3207m cu feet that year.

Air conditioning accounts for a significant share of Qatar’s electricity consumption, estimated at approximately 36% of the annual total. As part of efforts to improve energy efficiency, the country has been significantly expanding district cooling, which is a more efficient system for cooling buildings compared to conventional air conditioning. According to Kahramaa, there were 49 operational district-cooling plants in 2020, a significant increase from 39 in 2019 and 22 in 2016. In 2020 the total capacity of district-cooling plants was 995,700 tonnes of refrigeration (TR), while peak district-cooling load stood at 530,000 TR. District cooling accounted for 19% of Qatar’s total cooling capacity in 2021, and this is set to increase to 24% by 2030.

Energy efficiency considerations have also been incorporated into the 2022 FIFA World Cup venues. Tournament infrastructure has been designed to consume 30% less energy and 40% less water during operations, with district-cooling facilities serving the stadia. Home to one of the event venues, the $45bn infrastructure development project Lusail City will also be equipped with district-cooling systems, which are expected to save 65m tonnes of CO₂ annually.

Renewables

Qatar aims to meet 20% of its electricity needs from renewable sources by 2030. To meet this target, the country has embarked on a number of projects to increase its renewable energy production capacity. In January 2020 Qatar signed an agreement with a consortium consisting of France’s Total and Japan’s Marubeni to develop its first large-scale solar power plant. The plant, located in Al Kharsaah, will have a capacity of 800 MW and the first phase is expected to be completed in the first half of 2022. It will account for 7.5% of the total power capacity in Qatar and be capable of producing one-tenth of the country’s peak energy demand.

Siraj Energy was established in 2017 as a joint venture between QE (51% ownership stake) and QEWC (49% ownership stake) to develop solar photovoltaic (PV) plants. The company is also part of the consortium to develop and operate the Al Kharsaah plant.

QE, for its part, is planning to install an additional 800-MW solar PV spread across Ras Laffan Industrial City and Mesaieed Industrial City. It is also working on leveraging future solar PV projects to supply power to new LNG and petrochemical facilities.

Outlook

Qatar’s natural gas segment is set to continue to expand significantly in the coming years, driven in large part by the anticipation of work at NFS. If the energy transition plays out according to Qatar’s expectations, the country is well placed to reap the benefits from its LNG expansion plans and maintain a large proportion of global market share. However, if countries continue to step up efforts to slow the effects of climate change, Qatar may have to contend with accelerating international plans to phase down the use of all fossil fuels over the next few decades. Nevertheless, the significant revenue generated from its gas capabilities place the country in a strong position to invest in innovation that could see it become a global leader of emerging energy-related technologies such as CCS and clean fuels.