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Qatar’s future looks local, liquid

DOHA - Qatar’s energy revenue growth now that it has become the largest exporter of liquefied natural gas may depend on whether its gas-hungry neighbours accede to higher prices and on its associated development of other liquid fuels.

The tiny Middle Eastern country is preparing to celebrate reaching a long-term goal of being able to export 77 million tonnes of LNG a year to markets around the world, making Qatar one of the world’s richest countries.

Fourteen years after shipping its first tanker-load of super-cooled gas, Qatar’s future growth may lie in construction of sub-sea pipelines to oil-rich neighbours, which are desperate for gas for energy-intensive economies but reluctant to pay market rates for it.

“The region is screaming for gas. The Bahrainis are begging for it, Dubai wants more, Abu Dhabi needs some. The logical next move is to take on more pipeline deals - build a pipeline over to Bahrain,” one senior Doha-based industry source said.

Although the region sits on large gas reserves, Qatar’s neighbours have struggled to pump enough to keep pace with rising demand, largely because mandated low domestic gas prices offer scant incentive to oil majors to explore for it.

A solitary pipeline, called Dolphin, has supplied Qatari gas to the United Arab Emirates since 2007. But Dolphin has been running at less than two-thirds of capacity, because the price offered in UAE has not been high enough for Doha to fill it.

Qatar has instead exported ever-increasing quantities of LNG to more lucrative markets in Asia or Europe and seems unlikely to fill Dolphin - let alone build more export routes - until prospective buyers give in to its price demands.

Some Gulf states have even bought LNG re-exported from the United States and Europe over the past year or LNG directly from Qatar as a short-term expedient.

“I don’t think (agreeing on price) will be a smooth road. A lot of potential buyers in the region are putting out feelers but are not yet prepared to show their full hand,” the source said.

Global gas prices have weakened over the past two years along with a surge in U.S. shale gas production, but the revenue Qatar will reap from LNG sales is still enormous. Future output from the new Qatargas LNG trains 6 and 7 has already been sold, according to Qatari Energy Minister Abdullah al-Attiyah.

Other liquid fuels

Analysts, meanwhile, say Qatar can make a profit from selling gas at almost any price because of the lucrative condensate and liquid fuels such as propane and butane in the North Field that are produced along with it.

“The real emphasis for the Qataris is to make the most of liquids: crude and natural gas liquids,” said Bill Farren-Price, a consultant at Petroleum Policy Intelligence.

“They will want to sustain crude production for as long as possible at reasonable rates. And they need to be producing as much gas as they can, so they can get the liquids.”

Increased condensate production is another area of growth. The country’s plan to double the size of its condensate refinery at Ras Laffan will boost its capacity to pump diesel and other middle distillates and may give it an economic edge over other regional refineries.

“The good thing about condensate products is that they are not restricted by the OPEC quota,” said one Doha-based economist. “You’ll see a lot of condensate production in Qatar next year.”

The country will also ramp up supplies of middle distillates through its $19 billion Pearl gas-to-liquids (GTL) project with Royal Dutch Shell. Qatar, Shell and Petrochina are also looking at the viability of building a refining and petrochemical complex in China.

“The Qataris want to push on strongly with petrochemicals,” said Samuel Ciszuk, a Middle East energy analyst at IHS Global Insight. “That’s where they can find an additional growth opportunity.”

After years of supplying gas from Japan to Mexico, the Al Khaleej and Barzan gas projects also will provide fuel for Qatar to diversify its domestic industrial base.

Further oil field exploration is likely as production from Qatar’s two major fields, Dukhan and Al Shaheen, is in decline.

But many say a government moratorium on further development of the North Field, imposed in 2005 due to concerns about reserve depletion, will remain in place beyond 2014.

“Why would you lift it? You’ve got plenty of money in the country. And there are enough reserve doubts to keep it,” the Qatar energy industry source said.

“It is vital to them to be seen as a good supplier. That consciousness is why they don’t want to take risks with the North Field.”

An extension would also assuage fears about further saturating the global LNG market.

“The history in the Gulf is extreme conservatism in terms of production to reserve ratio, far more so than in the West,” the source said.

“There’s very little raping of reservoirs, partially because of a perception among rulers of historical legacy, but also because they don’t want to flood the market.”