Money might make the world go ‘round but the world wouldn’t get far without oil and gas. And that is good news for Qatar. William Maimer reports
While Qatar is spending a lot of time and effort diversifying its economy away from its dependence on hydrocarbons, one rather obvious fact is that for the present a huge proportion of the nation’s revenues still come from gas.
As long as Chinese industry continues to grow, even at reduced levels, the demand for oil and gas will remain high. At the start of November Chinese premier Li Keqiang held a symbolic meeting in Beijing with Sheikh Tamim bin Khalifa Al Thani. But there was real substance behind the meeting as Qatar and China made public their intention to deepen their relationship with a sharp focus on oil and gas cooperation.
This is no short-term quick fix and China is looking to build an enduring, strategic relationship involving a number of facets of energy cooperation with Qatar as well as in strengthening bilateral cooperation in oil and gas exploration and development, liquefied national gas production and integrated cooperation in the petrochemical industry. Sheikh Tamim, in turn, focused on the development of Qatar-China relations and stressed that Qatar intended to strengthen bilateral ties and cooperation as well as people-to-people exchanges. It seems certain that China will remain a long-term customer for Qatari gas.
Energy specialists from around the world have been attempting for some time to establish what effect US fracking will have on the oil and gas economies of the Gulf but it seems fairly certain that Qatar will remain a major gas exporter irrespective of developments in US shale. The emirate aims to trim exports of condensate and instead produce more naphtha and other higher-value products for sale to Asia, while the boom in US shale output continues and oil prices plummet.
Gas is here to stay, especially if the Pearl Gas-To-Liquids plant is anything to go by. Its scale is breathtaking. Wael Sawan, MD and chairman of Qatar Shell Companies says, “From a project perspective, Pearl GTL is of a scale and of a materiality that for both Qatar and Shell is huge. It is the largest single value asset in the Shell portfolio. Definitely the largest GTL plant in the world by a factor of four times. Given the production levels of this asset, it makes a lot of money for both stakeholders but more importantly, it really is a source of pride for the partnership… It is a very complex plant. We have a thousand people and a couple of thousand contractor partners who work on Pearl GTL on a daily basis. Our ability to make sure that everyone is safe every single day is a big challenge and something we are very focused on.”
It is easy to see that Shell is proud of its achievements in Qatar. “We are incredibly proud… It is an asset that is made up of technologies that involve 3,500 patents, all having to be put together at world-scale proportions. At peak we had 52,000 people building this plant. Thankfully all technologies worked as planned so over the past two to three years what we have had is a focus on seeing how can we continue to achieve the production levels that we have set for ourselves. More importantly, how do we keep raising the bar so that we can really achieve what our long term destination was going to be? On many, many fronts we are very proud,” says Sawan.
Qatar’s interest in working with global companies like Shell is driven by a complex series of reasons, but skills transfer and expertise transfer both lie at the core of the relationship. Sawan says, “Technology earned us the right to be partners with Qatar and Pearl GTL. We developed this technology as proprietary in house and we showed that it worked and this is what got us through to be chosen as the partner. From that point onwards there has been a whole stream of technologies from how we process gas, take out contaminants from the gas and so on. Having developed the technologies that we had, it allowed us to do these tasks a lot cheaper. It doesn’t just end at building the project. In terms of LNG, our partnership with Qatar has helped us achieve a lot of firsts. Of course the scale of the trains that we talk about, 7.8 million tonnes are the largest LNG trains in the world. This also goes all the way through the supply chain into shipping. The Q-Max and the Q-Flex vessels are the largest of their kind in the world and allow economies of scale to be deployed in order to ship large quantities of LNG all around the world. Technology is the bread and butter of how we drive our business.”
Safety and regulation have recently become bywords in the extractive industries and this has not passed Qatar by. Dr Mohammed bin Saleh Al-Sada, minister of Energy and Industry and chairman of Qatar Petroleum has made it clear that the nation is acutely aware of the health, safety and environmental (HSE) burden being placed on the oil and gas sector in Qatar. Opening the Petroleum Engineers Middle East Health, Safety, Environment and Sustainable Development conference in Doha recently Al-Sada said, “This year’s theme captures what the industry needs to do in the face of evolving global HSE trends and how to overcome the technical challenges at present. It is a theme that is brought to the front by the changing balance of priorities across a wide spectrum of global industries, foremost of which is oil and gas. Therefore, the question remains: How can we optimise our business performance and accommodate technological advances, yet at the same time manage to reduce the risks associated with our industry; protect the people, both our workers and the communities within which we operate; and preserve the local, regional, and global environment.”
Oil prices have plunged lately in part because of US shale oil production and in part because of weaker global demand and market oversupply but the reality is that economic growth in China and the rest of Asia are set to absorb any spike in supply caused by US shale gas volumes. There is no denying that Qatar has felt its gas prices being squeezed. Three years ago, Qatar could sell its liquefied gas to the US for $5.82 per thousand cubic feet. In 2013 the price had fallen to $3.40 but there is no sign that Qatar will cut supply to lift prices. Qatar simply has too much invested in the industry and this is nowhere more evident than in the Laffan Refinery’s role in the diversification process.
At the 18th Annual Condesate and Naphtha Doha Forum in November , Qatargas CEO Sheikh Khalid bin Khalifa al-Thani said, “The Laffan Refinery is of strategic importance as it will contribute to diversifying Qatar’s energy mix and further strengthens the capacity to respond to the country’s changing needs and future challenges.”
It is impossible to go very far in the Qatari business landscape without running into the Qatar National Vision 2030 and the Laffan Refinery is no exception. The refinery is, “yet another step in realising the Qatar National Vision 2030 through achieving sustainable development by ensuring the optimisation of Qatar’s natural resources,” according to the Qatargas CEO.
Laffan Refinery 1 and Laffan Refinery 2 projects are set to double their current condensate refining capacity to 300,000 bpd but with greater attention paid to environmental concerns. The design of the Laffan Refinery is said to meet stringent environmental standards while its refined products undergo treatment to produce an ultra-low sulphur content. Producing such refined products from condensate lets Qatar assume the position of a leading producer of cleaner fuels and helps to position the emirate as the biggest condensate processor in the world.
Qatar National Vision 2030 is underpinned by environmental concerns and this tends to colour the way that projects are undertaken, particularly in the oil and gas space. Qatargas, for instance, recently inaugurated the Jetty Boil-off Gas Recovery Project in Ras Laffan Industrial City, which is a $1bn environmental project designed to eliminate flaring at the LNG terminal. The project is owned by Qatar Petroleum, ExxonMobil, Total, ConocoPhillips and Shell, the facilities are operated by Qatargas and RasGas and form the largest LNG boil-off recovery project in the world.
The Jetty Boil-off Gas Recovery Project facilities kicked off in October and projections suggest that 100 million standard cubic feet per day of natural gas previously wasted during the loading of LNG containers for shipping will be recovered and used in the LNG production plants as fuel. Over 30 years, the project could save up to 1 trillion cubic feet of gas. Along the way, greenhouse gas emissions are slashed and help maintain a clean environment.
Barzan going strong
The Barzan natural gas field should begin producing early next year and contribute about 50,000 bpd of condensate. Qatar already exports 500,000 bpd of condensate but will reduce shipments to 350,000 barrels daily as it uses more at home. Additional condensate from Barzan will help to offset some of that drop. Some of the condensate will be processed into naphtha and lift exports of naphtha by three million metric tons a year, once the Ras Laffan refinery starts operating. Qatar presently ships seven million tons of naphtha annually.
Both the oil and gas industry have come under increasing scrutiny over recent years in terms of sustainability. Sustainability developments have become apparent in the sector driven in large part by shareholder concerns. “At the Royal Dutch Shell level, we were one of the first companies to
start talking about sustainability publicly. Over the past decade what we have been able to do is shift from a generic concept of sustainability to matching that sustainability with our core fundamental values and what the countries themselves need. There are some basic values that we hold as Shell, now let us take those basic values and see what Qatar is trying to do and then match the elements of sustainability in a way that meets Qatar’s requirements,” says Sawan.
Qatar’s requirements are likely to increase in the coming years rather than decrease as business grows and tourism, including sports tourism, becomes a defining factor in the growing integration of the economies of the Gulf and those of Europe.