Gas Deal Bonanza

Qatar

Economic News

22 Jul 2010
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After the recent gathering in Doha of global gas players left a series of freshly inked contracts and important announcements, Qatar's bid to become the world gas sector capital took a major step forwards.



The Fifth Doha Conference on Natural Gas saw five announcements in quick succession on the liquefied natural gas (LNG) and gas-to-liquids (GTL) fronts. Yet before the conference had even started, the momentum had been gathering as on February 27, Crown Prince Sheikh Tamim bin Hamad Al Thani laid the foundation stone for the Qatargas II project at Ras Laffan. The facility will produce 15.6m tonnes per annum (mta) of LNG, 6mta of condensate and 1.7mta of propane and butane.



By that evening, the focus had shifted to the Doha Sheraton, where a press conference was held for the signing of a heads of agreement (HoA) for the development of Qatargas 4. The papers were signed by Abdullah bin Hamad al-Attiyah, minister of energy and industry, and Jeroen van der Veer, chief executive of the Royal Dutch/Shell Group of Companies.



The project will see the integrated development of upstream gas production facilities to produce 1.4bn cu feet per day (0.039bn cu metres per day) as well as substantial quantities of associated liquids from Qatar's North Field. The project also includes a single LNG train producing around 7.8mta over a 25-year period with deliveries expected to commence between 2010 and 2012. The intended destination of the LNG is markets in Europe and North America.



The first day of the conference opened with speeches from the Emir and the minister of energy and industry, but by the evening further signing ceremonies were confirmed and took place in rapid succession.



French hydrocarbon giant Total signed an HoA for the acquisition of a 16.7% equity participation in train II of Qatargas 2 and for purchase of LNG. Whilst subject to the approval of the regulatory authorities, Total plans to purchase up to 5.2mta over a 25-period.



Total has a strong presence in Qatar, with participation in various projects - including 10% of Qatargas. The HoA angered Qatargas 2 partner Exxonmobil to some degree, causing delays in the announcement. Despite Total's stake in the project, Exxonmobil still remains the principle partner.



"When the idea for expanding Qatargas 2 came along, we invited all existing partners to discussions," Faisal bin Mohammed al-Suwaidi, vice chairman and CEO of Qatargas, told OBG soon afterwards. "Business being business, everyone wanted to join, but we wanted to ensure they added value to the project. We look at the economics of these projects; you bring in an offer and we will investigate that against the original plan and if there is a positive impact then you are welcome to come in. But if we see there is any dilution of the original economics, we will not take it. We had a couple of offers, one of them from Total which made sense, so we invited them to join the project."



Simultaneous with that signing, RASGAS and Belgium's Distrigas were inking paper in the next room with a 2mta, 20-year sale of LNH from Rasgas 2 to be delivered to Fluxys's Zeebrugge terminal.



Whilst the timing of the announcement meant did get a little lost in the fray, the deal was seen by some analysts as innovative. The price of the gas will not be indexed to existing Zeebrugge terminal pricing, Britain's National Balancing Point or oil indexes; it will be gas indexed.



Soon afterwards the same evening, Shell was signing paper with the minister of energy. This time a petrochemical complex was the subject of a letter of intent. This world scale ethane cracker and derivatives complex will also be based in Ras Laffan industrial city.



"We are pleased to have Shell, one of the leaders in the field, enter the petrochemical industry in Qatar, and to witness our relationship take another important step forward," said the minister of energy and industry at the signing. "This project represents an alignment of interests and objectives between the two parties and we are confident [of] its success."



Moving downstream and diversifying was a theme that carried on into Tuesday as well with the signing of a memorandum of understanding between Qatar Petroleum (QP) and Sasol Chevron for a GTL base oils project. The oils will be used for blending high quality lubricants, although the agreement is at too early a stage to say where the blending will take place and who the customers will be.



The base oils will come as a result of the Oryx GTL project, a joint venture between QP and Sasol. The plant will be the first and largest commercial GTL facility outside South Africa when it comes online in the first half of 2006. The move represents a value-added downstream development to Oryx GTL, pleasing Qatari interests as they aim to diversify and boost value-added processes on Qatari soil.



With all the new initiatives adding to a string of projects already underway, there are some concerns about the supply of construction materials - particularly steel for pipes and cement. The engineering, procurement and construction contracts for Qatargas 2 already mean the planned debt package has had to be increased after contracts worth $5bn were made in December. Questions were being raised at the conference about how many more projects could feasibly be started.



"There are three or four proposals we are currently looking at," al-Suwaidi told OBG, "but we... won't pursue those aggressively in the short-term simply because of the demand that is on suppliers, vendors, and the technology. We'll probably use the next three to four years to look at how things go and absorb the growth."



Worries about the demand for LNG tankers have also been heard, since current orders from Qatar absorb around 65% of the main supplier's capacity and will do so until 2010. However, Shell will be involved in a new joint venture for LNG transportation from Qatargas 4, and is confident the shipyards will supply.



"[There] will be new LNG ships, but it's too early to say where we will be sourcing them," Linda Cook, executive director for gas and power at Shell, told OBG. "But I'm comfortable that the capacity of the shipyards won't be an issue."



As the conference closed, the last word went, as always, to the minister of energy. "Nobody tires of signing good deals with good partners," he told the conference.

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