Sizzling Qatar Boom Sparked By Foreign Money, Technology, And Gas

From left to right, a new mosque, mall, and really "fortified," upscale gated community are signs of surging residential and commercial construction in Qatar.

• These manifolds on tiny Halul Island are a key element in Qatar's rising oil exports (Fig. 5).
• Jack up rig is shown drilling cantilevered over Total Qatar's wellhead platform in Al-Khalij field (Fig. 6).

It's a world class oil industry boom that ranges from multilateral horizontal wells offshore to a metalocene catalyzed polyethylene plant onshore.

International oil companies have collected advanced upstream and downstream technology and focused it on the small Persian Gulf emirate of Qatar, a roughly 110 mile long by 50 mile wide, thumb-like peninsula that juts out from Saudi Arabia (see map[86,683 bytes]).

The emirate, in a burst of enlightened self interest, has opened its doors to international companies and is now riding a wave of foreign investment and new technology to major increases in oil, natural gas, and petrochemical production.

The largest natural gas reserve in the world is under Qatari waters and is the driver for the activity that includes two LNG plants. Qatar has proven that you don't need crude oil in the Persian Gulf to be important.

A veteran expatriate in the Gulf echoes the sentiments of many when he observes, "This place is like Abu Dhabi was 20 years ago." Shopping centers, villas, housing complexes, and infrastructure are springing up in and near the capital of Doha. To the north at Ras (Cape) Laffan, near the most modern tanker and LNG shipping port in the Gulf, surveyors have laid out on a sandy plain the boundaries of a planned hydrocarbon-based industrial city.

Most of this momentum and optimism is due to the more open business climate that followed the assumption of power by Sheik Hamad Bin Khalifa Al-Thani. He succeeded his father, now in Switzerland, as emir in 1995.

The emir is the head of state and enjoys both executive and legislative powers. He promulgates laws through the advice of the Council of Ministers made up of the heads of Qatar's 15 ministries. He also consults with the country's parliament. It is a semi-legislative body of 30 members appointed by the emir. They represent the leading families of Qatar.

Veteran foreign oil company executives give the emir credit for moving the country forward into a new business culture and era.

But the Asian financial crisis has put a cloud on the horizon.

Powerful player

A powerful participant in all upstream and downstream projects in Qatar is the state-owned company, Qatar General Petroleum Corp. (QGPC). It is responsible for all phases of the oil and gas industry in Qatar and abroad. This includes exploration, drilling, production, refining, transportation, distribution, and export. These major programs and ventures are under the aegis of the QGPC board of directors. Abdullah Bin Hamad Al-Attiyah, Minister of Energy & Industry chairs the board. This ministry is responsible for the planning, supervision, and implementation of the oil and gas sector's strategy.

QGPC owns 65% of Qatar Liquefied Gas Co. (QatarGas), the Emirate's first LNG company. Rest of the interest is divided among France's Total S.A. (10%), Mobil Qatar Gas Inc. (10%), Mitsui & Co. Ltd. (7.5%), and Marubeni Corp. (7.5%). QatarGas has signed an agreement with Japan's Chubu Electric Power Co. to export 4 million metric tons/year (mty) of LNG to Japan for 25 years. The first shipment went out late in December 1996. Subsequently, QatarGas signed agreements with seven Japanese utilities and gas companies to export 2 million mty of LNG. These 6 million tons will cover the output of the existing QatarGas trains plus the new one being built by Chiyoda Corp. at the Ras Laffan site.

QGPC is the operator for the gas production complex that feeds the QatarGas LNG. Also holding a stake in this unincorporated venture, simply called QatarGas Upstream, are Total, 20%, Mobil 10%, and Mitsui and Marubeni, 2.5% each.

Also, QGPC holds 66.5% of Ras Laffan LNG Co. (RasGas); Mobil 26.5%; the Japanese companies Itochu Corp. and Nissho Iwai, respectively, 4% and 3%. The two train RasGas plant of 5 million mty total capacity is to be completed next year. The RasGas North field offshore production system is not structured like QatarGas Upstream but integrated into the entire project.

Other enterprises

QGPC owns a majority interest in the other state enterprises shown in Table 1 [30,015 bytes]. Nodco runs Qatar's rather simple refinery at Messaieed. It will be upgraded with a fluid catalytic cracker, and a 27,000-b/d unit to refine condensate will also be added.

There are also plans to build a condensate refinery at Ras Laffan Industrial City that would process QatarGas and RasGas condensates. Product would be exported. Fluor Corp. was doing a preproject engineering study late last year.

QGPC, which says downstream investment could eventually reach $20 billion, entered into joint ventures with a number of foreign participants in several petrochemical projects.

These are Qatar Vinyl Co. (25.5% QGPC, 31.9% Qapco, 29.7% Norsk Hydro, and 12.9% Elf Atochem); Qatar Fuel Additives Co. (50% QGPC, 20% Chinese Petroleum Corp., 15% Lee Chang Yung Chemical Industry Corp., and 15% International Octane Ltd.). Qatar Vinyl will produce ethylene dichloride and vinyl chloride monomer. Qatar Fuels Additives will make methanol and methyl tertiary butyl ether (MTBE).

QGPC and Vancouver's Methanex Corp. have signed a memorandum of understanding to do a feasibility study for up to three methanol plants to be built sequentially for a total of 3 million mty capacity. Approximate cost would total $1 billion. QGPC says the start-up for the first train is expected by 2002. QGPC would hold 51% in the venture, Methanex the rest.

Also, QGPC has signed a joint venture with Phillips Petroleum Co. to build a 500,000 mty ethylene plant at the Mesaieed Industrial Area (Umm Said). The venture includes a 467,000 mty high-density polyethylene and linear low-density polyethylene plant. A 47,000 b/d hexene-1 plant will also go in. The $865 million project is expected to start production in 2002.

Qapco already operates a 525,000 mty ethylene plant there and an associated 360,000 ton/year low-density polyethylene plant.

Finally, the world should know soon whether a natural gas-to-liquids plant will be built in Qatar. Everybody with any version of the venerable Fischer-Tropsch process has claimed the inside track to it. But QGPC signed a memorandum of understanding with Phillips Petroleum Co. and South Africa's Sasol Ltd. in July last year to do a feasibility study. A 6-month deadline to come up with the economic and viability assessment was set, but no announcement has been made yet. The facility would use Sasol's Slurry Phase Distillate process, which has been operating successfully in South Africa.

The plant would produce about 20,000 b/d of fuel and naphtha that could be used as blending components in low-emission gasoline.

The process of an Exxon affiliate has gotten a lot of ink as a top contender, but observers in Qatar say the company is probably now out of the picture because it reportedly wanted the feed gas for less than Qatar now sells it to petrochemical producers, which is believed to be US$0.50/Mcf. The economics of gas-to-liquids production are difficult, particularly at low or falling oil prices. But the rewards of such processes are enticing because they could, like LNG, get isolated natural gas reserves to distant markets via tankers.

More industrial gas

This past November, QGPC and Mobil Oil Qatar signed a memo of understanding to evaluate a $1 billion project to ultimately move 1 bcfd of North field gas ashore for industrial purposes. This project would also produce 30,000 b/d of condensate.

QGPC says completion of front end engineering is targeted for the end of 1998. It is anticipated the project will be commissioned in the year 2002 at a rate of 500 MMcfd, gradually increasing to 1 bcfd by 2004. A similarly sized system for industrial gas (not for LNG) already exists and will be covered later.

Natural gas

Qatar has been patient. Its offshore North field, which taps the largest gas reservoir in the world-with 380 tcf or 10.64 trillion cu m of recoverable reserves-was discovered in 1971. This reserve is equivalent to almost 65 billion bbl of oil.

But only in the past few years has exploitation begun. As Fig. 1 [71,275 bytes] shows, the field covers an area of some 6,000 sq km and is nearly half the size of the emirate. In fact the field is no doubt even bigger than indicated because its reservoir extends across the political boundary in the gulf under Iranian waters. There, France's Total has risked the ire of the U.S. by ignoring U.S. sanction policy and plans development of the reserve.

The Qatari reserves may also be even larger. Oil Minister Al-Attiyah tells the Journal that although the current productive area has been fully delineated, there are efforts to evaluate extensions of the field in Qatari waters, especially to the east and southeast of the productive area. He says there is a 90% probability that current reserves in the North field will increase as a result of such work.

While evaluating these areas, deeper formations could be evaluated as well, he says. Current gas production is from the Khuff formation, which is at a depth of some 9,500 ft subsea.

In limbo now are all activities in the waters off western Qatar. There, Qatar and the tiny emirate of Bahrain dispute the ownership of a small island. The land area associated with this island is minor. What is important is the major offshore area that would accrue to the emirate winning sovereignty.

The North field is not the only source of natural gas in Qatar. There are some 6 tcf of associated gas reserves in the onshore Dukhan field and 5 tcf in marine fields. Two gas-processing plants extract LPG from these streams. Table 2 [50,919 bytes] shows the NGL production from all gas produced in Qatar. The figure for 1997 is considerably high since it shows a full year's production from the gas sent to the QatarGas LNG plant.

The North field condensate shown in Table 2 is that extracted from the first offshore production from this area. The gas is dedicated to industrial use. The condensate level will increase dramatically as more North field gas goes to the LNG plants.

This liquid is seen as the feedstock for a major refinery in the Ras Laffan industrial complex near the LNG complexes and shipping facilities in the northern part of the emirate (Fig. 1 above). Fig. 2 [7,728 bytes] shows the entrance for this huge, planned natural-gas-based petrochemical center on the Persian Gulf.

Offshore production complexes

Qatar will reach an historic milestone some time next year when the completion of its third offshore gas production complex goes on stream, giving the small state the capability of exporting 11 million mty of LNG. Following are technical sketches of these facilities.

North field Alpha

QGPC kicked off natural gas production in mid-1991 from the North field Alpha (NFA) offshore platform complex (Fig. 1). This complex, designated Stage 1 of North field development, is 80 km off Qatar in 52 m of water. It has nothing to do with the LNG projects. Designed to produce 800 MMscfd of wellhead gas, NFA now yields about 750 MMscfd of lean gas and 5,000 metric tons/day, or 50,000 b/d, of condensate and LPG. NFA consists of six platforms, two bridge supports, and seven connecting bridges.

The platforms are living quarters, utilities, process (riser/treatment), and flare. There are two well head platforms. The processing of North field gas begins at the NFA complex. There, the wellhead fluid is processed through two 400 MMscf process trains into dry gas and condensate streams.

The gas and condensate are sent to shore at Ras Laffan through, respectively, 34-in. and 12-in. subsea pipelines. As Fig. 1 shows, the gas and condensate are piped 130 km farther to Umm Said (Mesaieed Industrial Area) and treated in natural gas liquids plant No. 3. This plant is adjacent to two existing plants (NGL 1 and 2) that process onshore and offshore associated gas.

At plant No. 3, the condensate is stabilized and stored in tanks for shipment to international markets or to the adjacent Nodco refinery for processing.

The gas stream is processed into propane, butane, and gasoline components, and then treated and marketed with products from the other gas processing plants.

The remaining lean gas is used mainly to supply Qatar's industrial and power generation requirements. Surplus gas is transported to Dukhan and injected into the Khuff reservoir for future use.

North field QatarGas complex

Stage 2 development began with the North field Bravo complex that now produces the peak feedstock flow of 919 MMscfd of gas for liquefaction at the QatarGas LNG plant. It is located about 10 km southeast of NFA ( Fig. 1).

The dehydrated gas and dewatered condensate are transported 80 km to onshore reception facilities at Ras Laffan in a 32-in. pipeline operated in the two-phase mode. Some 1.3 million ton/year of condensate for export will be extracted at the shore facilities.

Offshore gas production will peak at 1,378 MMscfd when the third LNG train at QatarGas is completed. This will up the condensate available for export to 1.9 million ton/year. Late last year, Chiyoda Corp., which finished the first two trains one month early, was again running well ahead of schedule in construction of the third train.

Construction could be complete early this summer rather than in the autumn of 1998 as originally planned. But one participant in QatarGas says there have been plans since "day one" to build six trains. Timing was not given.

There are now five platforms in the Bravo complex with six connecting bridges. The process and utilities were combined on one platform. However, a third wellhead platform is being added to provide feedstock for the third LNG train.

This free standing wellhead platform, located southeast of the Bravo complex, will be connected by a single subsea trunkline 6.4 km long and 20 in. in diameter to an additional process platform. It will be connected by a bridge to the existing process/utilities platform. The conceptual and basic design for the complex was done in 1992/93 in Technip's Paris office.

The plan is to drill 15 wells to an average depth of 2,700 m with an average deviation of 40° from the first two platforms. The third wellhead platform will have 5 wells. The jack up rigs Hakuryu 8 and Hakuryu 9 drilled the first wells.

RasGas complex

The third complex (RG in Fig. 1) to exploit the massive North field gets its designation from the Ras Laffan LNG Co., which is building Qatar's second LNG plant. It will be over a year before this facility goes into production. It will consist of a central complex of bridge-linked platforms and three nine-slot wellhead platforms that will cover a developmental area of 10 km by 10 km.

Wells will be drilled to 9,500 ft. The sour gas/condensate stream will go ashore in a 92 km long, 32-in. diameter, two-phase pipeline. Fig. 3 [93,269 bytes] is a diagram of the offshore complex now being developed.

RasGas says only that the natural gas needed to supply its two train, 5 million mty LNG plant will be produced. Based on QatarGas requirements, that will amount to about 1,500 MMcfd of natural gas. The scheme will also produce 45,000 b/d of stabilized condensate.

According to initial plans, the first gas will move to shore in March 1999 with first LNG being produced in July 1999.

Qatari crude oil

Somewhat overlooked in the excitement of huge gas reserves and LNG projects is the fact that oil production capacity in Qatar is making major moves upward. QGPC says production capacity is now 670,000 b/d. The state company says offshore and onshore production capacity is expected to exceed 700,000 b/d in 2 years.

QGPC would not directly report recent production figures but speaks in terms of capacity and handling capability, perhaps in deference to the touchy Organization of Petroleum Exporting Country quota issue. Fig. 4 [167,914] shows existing fields, new and open concessions, and the companies involved as of early this year.

QGPC's venerable Dukhan field, which started production in 1949, is the largest. QGPC says the field's processing facilities "can handle" up to 280,000 b/d of crude oil. An upgrade of facilities which started last year will, by mid-1998, permit production of 335,000 b/d, the peak planned in 1999.

QGPC also operates the Maydan Mahzam (50,000 b/d) and Bul Hanine (90,000 b/d) fields. Production from the latter two is expected to peak at 65,000 b/d and 95,000 b/d, respectively, by the year 2000. Qatar splits the 30,000 b/d production from the Al-Bunduq field with Abu Dhabi.

QGPC plans to employ five onshore rigs and four offshore rigs this year. The company says it will drill 147 new wells in the Dukhan field and sidetrack 70 existing wells to sustain production.

Gas production, injection, and enhanced oil recovery wells are also being drilled. Offshore over the next 10 years, 47 development wells will be drilled in Maydan Mahzam; 86 in Bul Hanine.

QGPC is pleased with the results of its strategy to conduct exploration and production in cooperation with major international companies by production-sharing agreements (PSAs) and development and production-sharing agreements (DPSAs). QGPC asks for bids from the foreign companies on designated areas. The key element in the bid is how much the would-be foreign operator offers to give Qatar from the sale of the oil.

One operator tells the Journal, "We get along well with QGPC. We don't make unilateral decisions. There are some who never wanted a foreign company here and still don't, but that is just on general principles. We are happy with their operation but it takes a lot more time to get something done because there are so many committees and joint meetings.

"They haven't been much of an obstruction at all. They are getting a lot out of this agreement. We put up all the money, and capital and operating costs. They don't invest one cent. Of course, we get cost recovery and a profit share. We are still in the hole and will probably be for several more years. We are not complaining. It's a good deal."

Following are descriptions of the programs and progress in offshore areas.

Occidental

Occidental Petroleum of Qatar Ltd. has applied state-of-the art technology to its Idd El-Shargi North Dome DPSA. (Dome is a favorite field name word in Qatar, but none of the oil there is associated with salt domes.) Last year Oxy's production in Qatar was running at 96,300 b/d and is expected to hit 150,000 b/d next year.

The 1997 figure represents some 25% of the company's worldwide production on an oil-equivalent basis.

An affiliate of Royal Dutch Shell discovered Idd-El Shargi and produced it until it was nationalized in 1976. Shell stayed on under a technical service agreement until 1991 when QGPC became dissatisfied with the arrangement.

Oxy assumed the operatorship of the Idd El-Shargi North Dome (ISDN) field in January 1995. The field has four productive reservoirs and two prospective zones. Oxy has applied a remarkable mix of technology to this old field to get the outstanding increase in production.

It will now have a chance to produce even more oil in Qatar. It was awarded a new DPSA covering the Idd El-Shargi South Dome field this past December. QGPC says the agreement calls for Oxy to spend about $440 million. Within a few years production is expected to plateau at 50,000 b/d.

The Shuaiba reservoir is multilayerd with low-permeability zones between some of the productive layers. It is extensively fractured with variable degrees of fracture sealing. The permeability of the layers in this reservoir vary greatly. The Shuaiba does not give up its oil easily, Oxy says.

The company has completed the installation of Shuaiba water and gas injection pilot projects. The gas injection pilot which includes one gas injector and three surrounding producers relies on gas from the Arab A zone (7,000 ft in depth) flowing into the upper Shuaib layers (4,500 ft) via natural flow within the same producer/injector well. The producers are one deviated well and two short-reach horizontal wells.

Oxy's IS 75 well was the first to be drilled through a multilateral window exit into the Shuaiba A. It will be used as a powered-water injector. The IS 76 was the first well to be drilled and completed as a dual-lateral producer.

The Arab C reservoir's production mechanism is gas cap expansion and solution gas drive. Horizontal producers are drilled to optimize gas recovery from this reservoir.

The Arab D reservoir's primary productive mechanism is gas-cap expansion and solution-gas drive. The mechanism is being supplemented with water injection by dump flooding.

The Araej/Uwainat reservoir has recovery potential, Oxy says. To optimize oil recovery from all these reservoirs, a 5 year development plan will involve adding 80 new wells. This will require three drilling rigs plus a jack up well service barge during the period 1997-1999.

This work started when Oxy reprocessed 3D seismic data from a 1987 program initiated by QGPC. Remapping with the latest analytical techniques yielded a much more detailed definition of the reservoir fractures. Core studies have also helped select optimum well locations that will be drilled with real time geosteering.

Elf

Elf Petroleum Qatar gets credit for finding the first oil field in Qatar in 20 years with its 1991 discovery of the Al-Khalij field. As the map shows, it is right next to Iranian waters. Italy's Agip Qatar BV also has a stake in the field. Earlier this year, Elf was expecting to have production up to 30,000 b/d from 27,000 b/d in mid-1997.

The field is a stratigraphic trap in waters 58 m deep. The producing formation is about 1,200 m deep and, by Middle East standards, has a relatively thin pay zone of 40 m thickness.

Eric Traonmilin, Elf Petroleum Qatar production manager, has done a tour for Elf in Norway and is familiar with the big stuff in the North Sea. He says the principal impression of Al-Khalij is that of just a modest platform with wells. Fig. 6 [8,953 bytes] shows how development drilling was done. There is no processing done on the platform. That is done on Halul Island, QGPC's export terminal, 40 km away. All the oil, gas, and water is sent there for separation through a 12-in. line.

Coming back from Halul Island is a subsea cable carrying 3 million watts of power from a generator Elf built there. It powers electric submersible pumps in all the wells.

The most recent development in this program is that QGPC has agreed to partially operate Al-Khalij field. It will operate Elf's Halul facilities on a tariff basis and perform some maintenance. QGPC will operate the offshore facilities on an agreed cost basis and handle crude oil receipts and exports.

Elf will maintain the offshore structures, wells, and pumps and handle workovers. The agreement, QGPC says, provides cost benefits for the parties.

The oil from ISND, Al-Khalij, Al-Shaheen, and Bul Hanine is piped to Halul Island for blending, storage, and export. The blend is a crude of 34° API with 1.5% sulfur. The 1 km by 1.5 km island has 3.4 million bbl of storage. Fig. 5 [16,090 bytes] shows the crude oil manifold on Halul Island.

ARCO

ARCO Qatar Inc., as operator for a consortium of Germany's Wintershall A.G. and Preussag A.G., British Gas Co., and Gulfstream Resources Canada Ltd. of Calgary, has done the next best thing to making a discovery. It has taken to commercial status a hydrocarbon accumulation discovered by Wintershall in 1976 and evaluated as being noncommercial at the time. This is another example of the benefits of new technology.

Using horizontal well technology and low invasion fluids, ARCO drilled the QMB-4 well. It tested at 10,000 b/d. The structure is now designated economic and called the Al-Rayan field. It is in Block 12 on the map.

As a result, ARCO launched a pilot program with an early production and appraisal facility. The water depth is some 90 ft and jack up rigs can be used to reach the producing formation at about 5,000 ft. Wells are drilled deviated, then go to horizontal in the pay zone.

Simply said, the production facility is a jack up rig with the drilling equipment removed and replaced by production equipment. The crude is then sent through a buoy to a storage ship. A market ship calls periodically to take off the crude. QGPC says that production would reach 30,000 b/d by the beginning of this year and that a full field development plan is expected to be issued. Gulfstream says the Qatar consortium is committed to a larger scale development.

The crude is essentially a dead oil, heavy and sour, with a low gas-to-oil ratio. The gas produced is flared. Other Qatari crudes are of higher quality.

As Fig. 4 shows, Al-Rayan posed a bit of a contractual language problem, because it was found so many years ago with a different consortium under other terms. This was solved by drawing a line that created Block 12.

ARCO holds a concession under an EPSA to explore Block 11 for oil only. Because it overlays the North field, there is no exploration risk for finding gas. ARCO and its partners have an amendment to the EPSA to take out gas from this area if the group can find a market for it in the Gulf area. It is understood that only QGPC will manage all the gas going to existing or future LNG plants.

A pipeline to Dubai in the United Arab Emirates is a possibility. To do this, ARCO and its partners would have to develop a complete offshore production complex and lay the line.

The ARCO group also holds a concession in Block 12, but this is the area in dispute with Bahrain and activity is in limbo until the issue is resolved.

Maersk

Maersk Oil Qatar Co. is producing the Al-Shaheen field in Block 5. It signed the EPSA for this area in mid-1992 and had drilled and completed 11 successful wells by mid-1997. Production then was running at 60,000 b/d. Maersk has drilled long horizontal wells to produce the field, which, according to QGPC, had not reached full development last year.

Chevron

An unusual couple, Chevron Overseas Petroleum (Qatar) Ltd. and its partner Magyar Olaj Gazi (MOL), the Hungarian Oil & Gas Co. Ltd., are the newcomers to Qatar. The joint venture, 60% held by Chevron, has an EPSA for Block 1 NW. Exploration studies have been conducted and the company plans to drill two prospects.

Pennzoil Qatar Oil Co. has an EPSA for Block 8. It has done a 2D seismic survey and drilled one hole with minor oil and gas shows. Further drilling is planned this year.

Late last month, Chevron added dramatically to its stake in Qatar by winning an EPSA for practically the entire peninsula. The 10,900 sq km or 4,207 sq m of land covered in the agreement are shown in Fig. 4 as blocks 2N and 2S. It does not include the Dukhan field. Chevron holds 100% in the blocks. The company says it intends to conduct 2D and 3D seismic surveys by the end of the year and do exploratory drilling in 1999.

Offshore base

The result of all this activity is a drilling boom with nearly 20 rigs at work, the majority offshore. Table 3 [102,501 bytes] shows which ones are there.

The rig situation was tight earlier this year, but paradoxically there is a chance that additional rigs could not be effectively used because of bottlenecks at an inadequate offshore base at Doha. The base in Doha is owned and operated by QGPC. A subsidiary of QGPC runs the workboats.

Some 14 offshore rigs are serviced from the facility (see cover picture) which has limited space to store drilling fluid, tubulars, or other stocks or equipment needed to support a drilling operation. Tubulars, for example, must be trucked to the base from pipeyards an hour or so away. But once the pipe gets there, the boat may not load it because it is full with another item.

This confusion can lead to both rigs waiting for supplies and inefficiency onshore. Several offshore rigs working the North field are supplied from Ras Laffan.

However, contractors rate the offshore helicopter service high. A new heliport has been built and the fleet expanded from three or four aircraft to a dozen, but a big helicopter to transport entire crews of 16 men is needed.

Service company support is adequate, though expensive in some cases. One contractor says that a directional-drilling specialist costs $1,000/day.

Another says that maintaining stock levels and getting parts from local suppliers can be a problem. He tries to support them to a certain extent and they are improving.

"But," he said, "we spend a lot of money on air freighting spares in from the States."

Based on the speed with which Chiyoda completed the first QatarGas trains and its excellent progress on the third, downstream projects haven't faced any serious or insurmountable bottlenecks.

Asian slump and cheap oil dampen LNG outlook

BECAUSE OF THE FINANCIAL crisis in Southeast Asia, the outlook for LNG demand in that key market is not as bright as it was. In a new, $10,000 multiclient study on Southeast Asian nations, Chem Systems Inc. says the current financial turmoil in the region is the most dramatic macroeconomic reversal in the past 25 years. Chem Systems forecasts there will be virtually no increase in demand for polymers there from 1997 through the year 2000. An earlier forecast had the region's demand increasing from 5 million metric tons (mt) to about 7 million mt over that period.

Soaring fuel and electricity demand, current and anticipated, there and in Japan, were the major reasons for constructing the LNG plants in Qatar. Paradoxically though, the condensate produced with the natural gas for liquefaction can make the LNG projects viable even at low LNG prices (see analysis of this in accompanying article). Qatar Liquefied Gas Co. (QatarGas) is now adding a third train that will be completed this year. Ras Laffan Liquefied Natural Gas Co. Ltd. (RasGas) is well into its project to build two trains at its site near that of QatarGas in the emirate. Fuel users in Japan and Korea are participants in the LNG projects.

As a result of the prospects for a slump in demand for LNG, the financial world is scrutinizing RasGas closely. According to a U.S. Department of Commerce report, it would take under normal circumstance until the years 2002 or 2003 before the revenues from LNG paid off a large portion of the capital loans associated with the development of QatarGas.

Pricing LNG

When asked late last year at what price Qatar LNG was currently being sold, Abdullah Bin Hamad Al-Attiyah, Qatar's Minister of Energy & Industry and chairman and managing director of QGPC, responded:

"Qatar LNG is currently being sold at the Far East prevailing delivered LNG prices."

Sheikh Ahmed Zaki Yamani, former Saudi Arabian oil minister and now chairman of the Centre for Global Energy Studies in London, dealt with this question in more detail in a keynote address at the second Doha gas conference last year. His analysis is presented in the accompanying article. Another analysis of LNG costs appears in OGJ, Apr. 6, 1998, p. 55.

Nevertheless, optimism still prevails in Qatar, and oilmen there believe the problems in Southeast Asia will pose only a temporary delay in the growth in energy demand. China, one observer points out, has yet to get aboard the LNG train. It represents a huge industrial market.

Jacques de Boisséson, vice-president and group representative for Total in Qatar, is still bullish on Southeast Asia and believes there will be major growth there, although it may now be postponed 1 or 2 years. His company's target is to get 5-7% of its net revenue from that region in the year 2000.

Also, Enron Corp. was still negotiating last month with Qatar about building the third LNG plant there. The company, which has been talking about this plant since 1995, wants to build 5 million mty of capacity. Of this, 2 million mt would go to its Diboll, India, power plant. The remainder would be sold to other users in India. Enron stressed, however, that none of it would go to a power project in the Indian state of Kerala. Enron has bought an interest in a venture there.

Lost luster

Government officials, technical specialists, bankers, and oil industry executives just over a year ago waxed almost euphorically about the future of LNG at the prestigious Doha conference on natural gas. With the awesome North field reserves as a nearby backdrop, speakers detailed technical aspects of the Qatari projects, lauded the breakthrough financing, and predicted soaring demand for LNG, particularly in Southeast Asia.

Chaichaream Atibaedya Sr., vice-president of Thai LNG Power Corp. Ltd., said that natural-gas demand in Thailand, spurred by electricity generation, would increase from some 1,500 MMscfd in 1997 to 3,000 MMscfd in the year 2000 and go on to 4,000 MMscfd in 2005. By then, part of the demand would be covered by 2.2 million mt of LNG (some 235 MMcfd) according to the executive.

The Petroleum Authority of Thailand (PTT) flirted with Ras Laffan for awhile for the gas but decided to go with LNG from a plant being built in Oman. Now, because of the economic crisis in Thailand, PTT may delay deliveries of Omani LNG. Forecast gas demand has been reduced by 20% for the next 10 years (OGJ, Dec. 29, 1997, p. 79).

Korea has a much more worrisome stake in LNG and RasGas gas. At the same Doha gas conference in March 1997, Y.J. Kwon, executive vice-president of Korea Gas Corp., said LNG demand in Korea was forecast to increase from 9 million tons/year in 1996 to 20.2 million mty in 2001, to 28.5 million mty in 2010. According to his scenarios, between 11% and 12% of Korea's energy needs would be covered by LNG, rising from 24.8 million tons oil equivalent (mtoe) in the year 2001 to 30.3 mtoe in 2006. That latter figure represents about 24 million tons of LNG. It would take five LNG complexes the size of Ras Laffan to cover that demand.

In contrast to other Asian purchasers who use LNG primarily for electricity generation, Korea is directing part of its LNG to a 1,300-km pipeline serving over 4.5 million residential, commercial, and industrial customers. The country has built additional and costly LNG storage, a second receiving terminal at Inchon, and is constructing seven LNG ships.

Close watch

The international financial world is keeping a close watch on such developments because $1.2 billion of the $2.55 billion needed to build the RasGas plant came from issuance of bonds. The project got a high A3 rating from Moody's Investors Service and a BBB+ from Standard & Poor's.

Korea Gas Corp. is to be the major purchaser (4.8 million mty) of RasGas LNG. KGC's presence in the deal has caused Moody's to downgrade the RasGas secured debentures to Baa1 because it had lowered Korea's foreign currency country ceiling.

KGC is 85% owned by the government. Moody's said any further downgrade pressure on RasGas is likely to be mitigated by the project's fundamental strength. Standard & Poor's said early in March that it has its rating of RasGas on a credit watch with negative implications. It listed a variety of reasons for the credit watch.

However, even though these long term Asian sales deals are now clouded, QatarGas is selling gas elsewhere. It has been supplying Spain's Enagas with a monthly cargo for a limited period. QatarGas signed a deal with Turkey's Petroleum Pipeline Corp. in February to furnish 400,000 tons over the next 9 months.

In January, the oil ministers of India and Qatar signed memos of understanding to study "the necessary steps" to supply India with Qatari LNG.

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