Samira Kawar
Special to The Daily Star

LONDON: Qatar is looking to its 11 trillion cubic meters of natural gas reserves, which are the world’s third-largest after Russia and Iran, as its main engine of economic growth. Rising natural gas production and exports are expected to sustain real growth in gross domestic product at an annual rate of around 5.9 percent for several years to come.
Qatar currently exports liquefied natural gas (LNG) and plans to boost its LNG sales to 40 million tons per year by 2010. By then, Qatar expects half of its LNG exports to go to Asia-Pacific markets, with the other half going to Europe. If it achieves its goal, it may become the world’s largest producer.
Since launching its first plant in 1996, Qatar has become the fourth-largest producer of LNG, producing 12.5 million tons in 2001. In the same year, Indonesia was the top manufacturer with 24 million tons, Algeria came in second with 19.3 million tons and Malaysia produced 15.4 million tons.
Although few doubt Qatar’s capacity to boost its output to 40 million tons per year given its huge supply of low-cost gas from the giant offshore North Field, there are doubts over the extent to which markets can absorb the increase. Nevertheless, Qatar is pressing ahead with expansion of both its QatarGas and RasGas LNG complexes. The country, which also produces 600,000 barrels a day of oil, is targeting markets in Asia and Europe to take its additional LNG output.
QatarGas managing director Faisal al-Suwaidi says China will emerge as the “most promising LNG market” in Asia in the next few years. Sales from QatarGas are expected to increase from 6.5 million tons a year to 9.5 million tons a year in 2007 and to 20 million tons a year by 2010. QatarGas already supplies Japan with 6 million tons a year.
RasGas, along with Australia’s NorthWest Shelf and British Petroleum, representing Indonesia’s yet-to-be built Tangguh plant, are the shortlisted bidders for China’s first LNG imports, planned for Guangdong in 2005.
“We are ready to supply China with LNG today, but it is a new market and needs to develop its infrastructure,” Suwaidi said. Qatar also expects demand from Japan to grow by 2010. But until then, “Europe is a hot market,” says Suwaidi.
Sales from the RasGas complex at Ras Laffan are expected to increase from 5 million tons a year to 12 million tons a year in 2005 and to 20 million tons a year in 2010.
Most output from the two existing trains at RasGas goes to South Korea. De-bottlenecking these two trains will increase capacity to 6.4 million tons a year, allowing exports to India to begin in December of next year. These are set to rise to 7.5 million tons a year in 2007, under contract to Petronet LNG for supply to Dahej in Gujarat and Cochin in Kerala.
Work is under way on a third train with a capacity of 4.7 million tons a year ­ the largest in the world ­ to provide further supplies to India, which has a 25-year contract to buy 7.5 million tons a year of RasGas LNG. The $1.4 billion train is due onstream in 2004, and India’s Petronet is considering taking a stake in it.
A fourth train is planned to supply Italy’s Edison with 3.5 million tons a year as of 2005. Italy and Qatar signed a 25-year contract last year, making Qatar the first Middle East supplier to conclude a major long-term LNG sale to Europe.
Under a 20-year contract with Spain’s Gas Natural, Qatar’s second long-term contract in Europe, sales to Spain will increase to 1.5 million tons a year by next year. Qatar is negotiating further LNG sales of 10 million tons a year to other European companies.
Installed LNG capacity may not meet contractual commitments, but this is not a concern, Suwaidi said. “Trains were built to match contracts 15 to 20 years ago, but now we go for maximum capacity because this is the best way to reduce unit cost.”
The prices at which gas is being sold ­ whether as LNG or piped dry gas ­ remain a commercially-sensitive secret. According to Suwaidi, the price of Qatari LNG is not affecting demand. “There is a misconception about the price, when, in actual fact, it is not as high as it used to be,” he says. “Prices have come down by 50¢-$1 per million btu because deregulation (of markets) has forced sellers to be competitive.”
Production accounts for 40 percent of LNG costs, and advances in technology and cheaper shipping have helped reduce prices,  Suwaidi said. The cost of an LNG ship has fallen from $290 million to $150 million since 1991.
Qatar also has plans to monetize its gas reserves through pipeline sales of natural gas to the UAE, Kuwait, Bahrain, Pakistan and India. The UAE-based Dolphin Energy project will supply 56.5 million cubic meters a day to Abu Dhabi’s power plants in Taweelah and to Dubai’s Jebel Ali industrial area through a 440 kilometer underwater pipeline as of 2005. Dolphin has signed a development and production sharing agreement with state-owned Qatar Petroleum to develop upstream facilities and produce natural gas from the North Field’s Khuff formation.
The gas will be transported to gathering and processing facilities at Ras Laffan, then piped on to Abu Dhabi and Dubai. State-owned UAE Offsets Group owns a 51 percent stake in Dolphin, while France’s TotalFinaElf and independent US Occidental each own a 24.5 percent stake. Occidental was recently chosen to replace Enron, which withdrew from the $3.5 billion venture last year.
Dolphin hopes to finalize gas sales agreements with the Abu Dhabi Water and Electricity Authority, Dubai Supply Authority and Fujairah’s Union Water and Electricity Company by September. Work on the upstream and midstream front-engineering and design and survey contracts is already under way.
Qatar is also negotiating pipeline gas sales to Kuwait and Bahrain. Kuwait plans to buy up to 2.8 million cubic meters a day of dry gas from ExxonMobil’s 5 million cubic meter a day Enhanced Gas Utilization project in Qatar’s North Field. ExxonMobil will build and manage the 680 kilometer underwater pipeline delivering the gas to Kuwait. Qatar hopes to finalize a 25-year gas sales agreement with Kuwait by the end of the year, and to start sales to Kuwait towards the end of 2005.
In addition, a plan to sell piped gas to Pakistan has been revived. Independent UAE-based firm Crescent Petroleum is finalizing an upstream agreement with Qatar and a sales agreement with Pakistan to supply the latter with up to 4.5 million cubic meters a day of gas through an underwater pipeline.
“There is a resurgence of the idea of Mideast Gulf gas to Pakistan ­ we all thought it was dead,” says one observer.
Few question the potential for gas demand growth in Pakistan. If imports are needed, some argue that LNG is a more flexible and politically realistic solution than international pipelines. Long-distance pipelines require large volumes to be economical, and cross-border pipelines need lengthy negotiation to overcome political obstacles. Crescent is optimistic, however, and its $4.5 billion undertaking, the Gulf-South Asia Gas Project (Gusa), involves a 25-year concession to produce a maximum 4.5 million cubic meters a day from Qatar’s North Field.
The gas will be piped to Qatar’s Ras Laffan processing facility. Liquefied petroleum gas and ethane will be stripped from methane. The dry methane will then go to the Jiwani and Gadani terminals in Pakistan through a 1,650 kilometer pipeline. Both gas and liquids will be owned and sold by Crescent. The liquids will be sold on the spot market.
The proposed pipeline’s route runs parallel to the Iranian coast, either close to the shore at a depth of 150 meters or further offshore within Iran’s territorial waters, some 1,800 meters at the deepest point.
“The pipeline is being offered as a common user, open access highway” for regional gas sellers, said Crescent project director Mohammad Makkawi. Negotiations are under way with Iran to inject an additional 5 million cubic meters a day to provide extra gas for Pakistan and India. Added compression facilities will increase capacity to 9.6 million cubic meters a day.
If an agreement can be reached with India, the pipeline will enter the country overland from Pakistan. But India is nervous. “Private-sector foreign ownership of the project will dilute its political color,” and may serve to defuse India’s anxiety, says Makkawi. But India is withholding its agreement pending results of a feasibility study to investigate the possibility of receiving gas through a pipeline skirting Pakistan.
Construction of Gusa’s upstream facilities is scheduled to start by the end of 2003, and the first gas to Pakistan is scheduled for 2007. Pakistan is a “huge market,” Makkawi said.

Samira Kawar is Middle East Editor at Petroleum Argus

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