Natural gas in Qatar

Overview

According to OGJ, Qatar’s proven natural gas reserves stood at 910.5 trillion cubic feet (Tcf as of January 2007, about 15 percent of total world reserves and the third-largest in the world behind Russia and Iran (see the Russia and Iran Country Analysis Briefs for more information). Most of Qatar’s natural gas is located in the massive offshore North Field, which holds more than 900 Tcf of proven natural gas reserves and is the world’s largest non-associated natural gas field. The North Field is a geological extension of Iran’s South Pars field, which holds an additional 280 Tcf of recoverable natural gas reserves. Qatar’s natural gas production has grown significantly during the last decade. In 2005, preliminary data shows that Qatar produced 1,536 billion cubic feet (Bcf) of natural gas, or more than three times the 1995 output of 477 Bcf. Preliminary data puts Qatar’s natural gas consumption at 579 Bcf in 2005.

Energy Consumption of Qatar

While Qatar is a member of the Organization of the Oil Exporting Countries (OPEC) and is a significant oil producer, the government has devoted more resources to the development of natural gas in recent years, particularly for export as liquefied natural gas (LNG). In 2006, Qatar reportedly surpassed Indonesia to become the largest exporter of LNG in the world. Together, revenues from the oil and natural gas sectors amount to 60 percent of the country’s gross domestic product (GDP). Domestically, the vast majority of Qatar’s total energy consumption comes from natural gas (79 percent), while the balance is supplied by oil.

Exports

During 2005, the country exported 987 Bcf of natural gas, all of which was liquefied natural gas (LNG), making Qatar a leading world LNG supplier for the year. In the future, Qatar will also export natural gas via pipeline, as part of the Dolphin Project. Today, Qatar is the world’s largest exporter of liquefied natural gas. Most of the LNG is sold on 25-year contracts, which although renegotiable, aren’t subject to the same price volatility as oil. LNG prices paid by Japan, the biggest importer, have fallen 13 percent since July, compared with the 68 percent plunge in crude. With the world’s third-largest natural-gas reserves, after Russia and Iran, Qatar plans to more than double LNG output to 77 million tons a year in 2011. It will earn more than $153 billion in gas sales over the next three years, according to the International Monetary Fund. That means the government will continue to post budget surpluses and can finance 60 percent of the planned investments, according to the Doha-based unit of HSBC Holdings Plc.

Liquefied Natural Gas

In 1997, Qatar began exporting LNG when it sent small amounts (5.7 Bcf, or about 120,000 metric tons) of LNG to Spain. In 2005, Qatar exported 987 Bcf (20.1 million metric tons, or MMt) of LNG, or 14.5 percent of all globally traded LNG. Of this amount, 316 Bcf (6.5 MMt) went to Japan, 293 Bcf (6.0 MMt) to South Korea, 213 Bcf (4.4 MMt) to India, 161 Bcf (3.3 MMt) to Spain, and 3 Bcf (less than 0.1 MMt) to the United States. During 2006, industry reports suggest that Qatar surpassed Indonesia to become the world’s largest LNG exporter, partly as a result of problems Indonesia faced in obtaining natural gas feedstock (see the Indonesia Country Analysis Brief for more information). In March 2007, Qatar solidified its leading role in world LNG markets when RasGas completed its fifth LNG production train, giving the country 30.7 MMt (1.5 Tcf) of annual liquefaction capacity, the most in the world. Based on existing plans, Qatar is expected to increase its LNG production capacity to 77 MMt/y (3.8 Tcf/y) by 2012 (see table below).

Exploration and Production

Qatar plans to significantly expand natural gas production during the next five years. Qatari officials have stated that target production for 2012 is about 8.7 Tcf, or nearly six times greater than 2005 output levels. The expected increase in natural gas production will fuel the growing natural gas requirements of domestic industry, LNG export commitments, piped natural gas exports through the Dolphin pipeline, and several large-scale gas-to-liquids (GTL) projects.

PRODUCTION IN THE NORTH FIELD

The bulk of Qatar’s expected future increases in natural gas production will come from projects related to the massive North Field. In 2005, Qatari government officials became worried that the North Field’s natural gas reserves were being developed too quickly, which could reduce pressure in the field’s reservoirs and possibly damage its long-term production potential. In early 2005, the government placed a moratorium on additional natural gas development projects at the North Field pending the results of a study of the field’s reservoirs. This assessment is not expected to be completed until after 2009, which means that no new projects are likely to be signed before 2010. However, this freeze did not affect projects that were approved or underway before the moratorium, which are expected to add significantly to Qatar’s natural gas supply in the next five years. In November 2005, ExxonMobil started production at the Al Khaleej block in the North Field at a rate of 750 million cubic feet per day (MMcf/d). In July 2006, the company announced a $3-billion plan to expand this output to 1.6 Bcf/d by 2009, which will be used to fuel power plants and industrial customers in Ras Laffan, the RasGas LNG project, and as feedstock at the Oryx Gas-to-Liquids (GTL) Project. ExxonMobil is the largest foreign investor in development projects at Qatar’s North Field. Aside from Al Khaleej, the company is also involved in increasing natural gas supplies for the RasGas and Qatargas LNG projects, each of which will rely on significant increases in output from the North Field over the next several years (see the LNG Section below for additional details). Qatar required foreign expertise to develop the North Field and initiate LNG production. Even though Qatar had expropriated the North Field in the late 1970s, pundits viewed it as "expropriation-lite," since Royal Dutch Shell continued to act as adviser and expert consultant. The emirate was actually anxious to grant equity stakes to international oil companies in any venture because Qatar General Petroleum Company (QGPC, now QP) lacked the financial and technical expertise to efficiently develop the fields. Shell, previously one of Qatar's major partners, abandoned all ongoing discussions, ostensibly lured by the promise of more profitable gas ventures in Australia.6 The emirate, however, forged ahead with its plans through collaboration with QGPC, BP and CFP and formed Qatar Liquefied Natural Gas Company Ltd (Qatargas). Moved in part by intense Japanese interest in LNG imports, the emirate tasked Qatargas with North Field development. Yet intermittent foreign and domestic issues impeded this project for another decade.

Gas-to-Liquids

Gas-to-liquids technology uses a refining process to turn natural gas into liquid fuels such as low-sulfur diesel and naphtha, among other products. GTL projects have received significant attention in Qatar over the last several years, and Qatar’s government had originally set a target of developing 400,000 bbl/d of GTL capacity by 2012. However, project cancellations and delays since the North Field reserve assessment has substantially lowered this target. In February 2007, ExxonMobil announced that it had cancelled its planned Palm GTL project due to rising costs. The Palm project was originally slated to produce 154,000 bbl/d of liquids for export, although estimated costs spiraled from $7 billion to $15 billion according to industry estimates. The company will instead develop the Barzan Gas Project in the North Field, which is scheduled to supply 1.5 Bcf/d of natural gas to Qatar’s domestic market beginning in 2012, when the Barzan field comes online. By 2012, Qatar is likely to have 177,000 bbl/d of GTL capacity at two facilities: the Oryx GTL plant and the Pearl GTL project. Oryx GTL is a joint-venture of QP (51 percent) and Sasol-Chevron GTL (49 percent), and has the capacity to produce 34,000 bbl/d of liquid fuels. The plant was formally commissioned in June 2006, but technical problems prevented the consortium from loading the first export cargo until April 2007. The Oryx project uses about 330 MMcf/d of natural gas feedstock from the Al Khaleej field. Depending on the outcome of the North Field reservoir study, Oryx GTL may choose to expand production capacity of the plant in the future. In February 2007, the same week that ExxonMobil decided to cancel its GTL plans, Shell held a groundbreaking ceremony for its Pearl GTL Project. The Pearl plant will be 51 percent-owned by QP, though Shell will act as the operator of the project with a 49 percent stake. The facility is expected to use 1.6 Bcf/d of natural gas feedstock to produce 140,000 bbl/d of GTL products as well as 120,000 bbl/d of associated condensate and LPG. The Pearl GTL project will be developed in phases, with 70,000 bbl/d of GTL product capacity expected by 2010 and a second phase expected in 2011. Like the Palm project, Shell’s Pearl GTL initiative has experienced significant cost escalation. Originally estimated at $4 billion, industry sources believe the Pearl facility will now cost between $12 and $18 billion. The Pearl project will be the first integrated GTL operation in the world, meaning it will have upstream natural gas production integrated with the onshore conversion plant.

Qatar Natural Gas Project

The Qatari government celebrated twenty years of independence in September 1991 with the inauguration of Phase One of the North Field development project. The gas project, in a 6,000-squarekilometer field off Qatar's northeast coast, is supervised by Bechtel of the United States and by Technip Geoproduction of France. The project marks a major step in Qatar's switch from a reliance on oil to gas for most of its revenues. The North Field is the world's largest natural gas field, and its exploitation will place Qatar in the top ranks of the world's gas producers. Natural gas from other fields provides fuel for power generation and raw materials for fertilizers, petrochemicals, and steel plants. With the expected depletion of oil reserves by about 2023, planners hope natural gas from the North Field will provide a significant underpinning for the country's economic development. In the early 1970s, Qatar flared about 80 percent of the 16.8 million cubic meters of natural gas produced daily in association with crude oil liftings. In that decade, the country made progress in using its natural gas resources despite several setbacks. Whereas nearly 66 percent of onshore gas was flared in 1974, by 1979 that proportion had fallen to less than 5 percent. Two natural gas liquids (NGL) plants began operation in Umm Said in 1981. NGL-1 used gas produced from the Dukhan field, and NGL-2 processed gas associated with offshore fields. The combined daily capacities were 2,378 tons of propane, 1,840 tons of butane, 1,480 tons of condensate, and 2,495 tons of ethane-rich gas. However, repeated difficulties prevented the plants from coming on-line as scheduled and operating at full capacity. A massive explosion at the precursor of NGL-1 in 1977 killed six people and caused US$500 million in damage. NGL-2 had problems with the pipelines that connected the plant with offshore fields. The sharp drop in oil production in the 1980s meant that lack of feedstock caused plant shutdowns and underproduction. As a result, downstream (see Glossary) users suffered as well. In 1982 the two plants produced 500,000 tons of propane and butane-- slightly more than one-half of plant capacity. Condensate production lagged even further at 138,000 tons, or 40 percent of capacity. This gloomy outlook is mitigated to some degree by hope for development of the massive natural gas reserves in the North Field. Discovered in 1972 by SCQ, its proven reserves of 4.6 million cubic meters (as of 1989) will be productive well into the twenty-first century. The Qatar Liquefied Gas Company (Qatargas) was established in 1984 as a joint venture with QGPC and foreign partners to market and export liquefied natural gas (LNG) from the North Field. Phase One of the US$1.3 billion project was officially inaugurated on September 3, 1991. By the end of the month, it was pumping 23 million cubic meters of gas per day from sixteen wells. This is expected to meet an estimated 17 million cubic meters per day of domestic demand. QGPC plans a massive development at Ras Laffan in association with the North Field project. In addition to a new port with LNG, petroleum products, and container loading berths, project plans include a 2,500-ton per year methanol plant and a 450,000-ton per year petrochemical complex. The development is scheduled for completion in the late 1990s. In line with its desire to diversify the firms engaged in developing its resources, Qatar signed a letter of intent in February 1991 with Chubu Electrical Power Company of Japan to supply 4 million tons per year of North Field gas for twenty-five years, starting in 1997. This amount represents two-thirds of Qatargas's expected capacity of about 6 million tons per year.