Qatar to greatly expand production of liquefied natural gas

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As of early 2020 Qatar’s energy sector was on the threshold of major expansion plans that will allow it to benefit from growing global demand for cleaner sources of power generation. Although it is facing increasing competition from other suppliers, Qatar has been the world’s leading exporter of liquefied natural gas (LNG) for some time.

The country is gearing up for a significant 64% boost in production from its North Field, from 77m tonnes per annum (tpa) in 2019 to approximately 126m tpa by 2027. At the start of 2020 six of the world’s largest international oil companies were waiting to hear if they would have a chance to be involved in the next lucrative phase of production from the 6000-sq-km North Field – the world’s largest non-associated gas field. In November 2019 Saad Sherida Al Kaabi, minister of state for energy affairs, and president and CEO of state-owned Qatar Petroleum (QP), announced new expansion plans for the North Field and revealed a major company reevaluation of the field’s capacity.

Although other LNG producers are racing to boost output, Qatar’s leaders are confident that comparatively low production costs from the North Field, combined with the growing global demand for reliable and clean power sources, will allow the country to profit from its substantial investments in increased LNG production. While the North Field mega-project takes shape, Qatar is continuing to invest in oil exploration blocks throughout Africa and South America, in addition to boosting local oil output. However, dampening demand for gas amid the Covid-19 crisis in mid-2020 may cast doubts on the value of Qatar’s LNG exports.

History

QP, the country’s main energy producer, was formed in 1953 and was made the national oil company in 1972. It conducts both upstream and downstream oil and natural gas activities. Its board is appointed by the Amir and is accountable to the Supreme Council for Economic Affairs and Investment. Al Kaabi has been president and CEO of QP since 2014, and in 2018 was appointed minister of state for energy affairs. The board’s chairman, Sheikh Abdullah bin Hamad bin Khalifa Al Thani, is also the country’s deputy Amir.

Qatar’s first onshore oil well, Dukhan 1, is located 80 km west of Doha and was completed in 1940. The two most significant milestones in the country’s oil and gas history, however, occurred with the first shipments of crude oil from the onshore field in 1949 and the first international LNG shipments in 1997. While Qatar was a reasonably significant exporter of oil in the late 20th century, in the first two decades of the 21st century it became the world’s most prolific exporter of LNG.

QP’s upstream operations are focused on onshore and offshore oilfields, which have in recent years been somewhat overshadowed by the North Field. Oil and gas business resulting from operations in the North Field paved the way for partnerships with international oil companies and a number of midstream and downstream subsidiaries, many of which were established after the year 2000.

Performance & Size

According to QP’s “Annual Review 2018” report, the most recent report available, crude oil production from fields operated by QP amounted to 228,600 barrels per day (bpd) in 2018. Total oil production in Qatar, including fields not run by QP, came to 611,900 bpd in the same year.

In October 2016 combined output reached 648,000 bpd; however, in December of that year Qatar and 12 other members of the Organisation of the Petroleum Exporting Countries (OPEC), joined by 11 non-OPEC countries, agreed to decrease crude oil output in a bid to reduce global inventories and stabilise prices. The OPEC agreement saw Qatar cut crude oil output by 30,000 bpd to 618,000 bpd. In 2017 oil prices began to rise again, and with it, Qatar’s economic performance began to improve. In December 2018 Qatar announced it was leaving OPEC, an organisation it joined in 1961, in order to increase its focus on natural gas. Since then the country has also decided to stop supplying the Joint Organisations Data Initiative (JODI) with monthly information on its crude oil output or exports. However, Qatar has continued to give JODI monthly reports of its LNG and pipeline gas exports through the Dolphin pipeline to the UAE and Oman. According to JODI, in 2018 Qatar exported 135.8bn standard cu metres of LNG and 22.4bn standard cu metres of gas through the pipeline. In 2019 those numbers increased slightly, to 135.7bn and 22.5bn, respectively. This indicates that output remained relatively stable throughout 2019.

According to the latest available QP data, it produced approximately 19.8m standard cu metres per day of natural gas in 2018. QP’s refinery throughput in that year was 101,660 bpd and the total exported volume of petroleum products was 57.4m tonnes.

In 2018 the average price of QP’s crude oil was $70.10 per barrel. According to BP’s “Statistical Review of World Energy 2019”, Qatar had 25.2bn barrels of proven crude oil reserves – representing around 1.5% of the world’s total – as of the end of 2018. The country’s proven natural gas reserves that year stood at around 872.1trn standard cu feet (scf), behind Iran with 1127.7trn scf and Russia with 1375trn scf. According to Al Kaabi, however, in 2019 the North Field’s confirmed gas reserves exceeded 1760trn scf, with a further 70bn barrels of condensates, and large quantities of liquefied petroleum gas (LPG), ethane and helium. This figure represents a 96% increase in the field’s reserves and would give Qatar the world’s biggest share of natural gas. According to BP’s earlier estimates, in 2018 Qatar held 12.5% of the world’s reserves, while Russia had 19.8% and Iran had 16.2%.

In 2018 QP’s revenue grew by 14.3% from QR95.2bn ($26.1bn) to QR108.8bn ($29.9bn), while its net profits increased by 38% from QR58.4bn ($16bn) to QR80.4bn ($22.1bn). When 2018 figures are compared to 2014, when revenue was QR168.7bn ($46.3bn) and net profits were QR112.6bn (30.9bn, the impact the downturn in global oil prices had on Qatar’s economy becomes clear.

Revenue is expected to fall again in 2020 as a result of the decline in global oil prices amid the Covid-19 pandemic in the first half of the year. Brent crude was trading at approximately $23 as of late March 2020, marking an 18-year low. Although this is likely to have adverse effects on Qatar’s economy, the country’s fiscal surplus and reliance on LNG exports should provide some relief.

Production

Although Qatar has been a leading exporter of LNG for a number of years, in 2018 some 44.5% of all natural gas production occurred in North America (27.2%) and Russia (17.3%). In the same year, before US sanctions were fully reimposed, Iran produced 6.2% of the world’s natural gas and Canada produced 4.8%. Qatar’s production of 175.5bn cu metres marked a 10.2% increase from the 172.4bn cu metres seen 2017 and accounted for around 4.5% of the global total.

Upstream

Qatar has 10 oil and gas fields, which had a combined daily average output of approximately 611,900 bpd of oil and 549.9m scf of associated gas at the end of 2018.

In 2018 QP operated four of the country’s oilfields: the onshore Dukhan field, and the offshore Maydan Mahzam, Bul Hanine and Al Rayyan fields. The fields operated by other companies include the Al Shaheen field, Al Khalij, Al Karkara and A-Structures, the Idd Al Shargi North Dome and South Dome fields, and Al Bunduq. In October 2019 QP took over operations for the two Idd Al Shargi fields from Occidental Petroleum of Qatar, when the existing 20 year production-sharing agreement (PSA) came to an end.

The six fields under QP control in 2020 produced a combined 312,770 bpd as well as 332.7m standard cu feet per day (scfd) of natural gas in 2018. The four fields managed in partnerships with international oil companies had a combined daily output of 299,170 bpd and produced 216m scfd of natural gas.

The largest of these fields is Al Shaheen, which produces some 45% of Qatar’s total crude oil. In June 2017 Maersk Oil Qatar’s PSA for the field expired and Total won the bid to take it over as part of a new joint venture – North Oil Company – with QP owning a 70% stake and Total holding 30% over a contract period of 25 years. Al Shaheen is estimated to contain 43bn barrels of oil, and as of 2018 produced around 300,000 bpd through its nine platforms.

The Al Khalij oilfield was first discovered in 1991 and has been producing since 1997. It has eight platforms and 52 wells, 40 of which are oil producing. In 2014 QP and Total entered into an agreement to operate the field in a joint venture, with QP holding a 60% stake and Total holding the remaining 40%.

The Al Karkara and A-Structures consist of three smaller fields: Al Karkara, which was discovered in 1988; and the A-North and A-South structures, which were discovered in 1971. In 1997 QP took over the concession block under an agreement that is set to run until December 2022.

The Al Bunduq oilfield lies along the maritime border between Qatar and the UAE, and is jointly operated by the two countries. The field is currently being developed by Bunduq Company and its main shareholders are Japan’s United Petroleum Development and BP. In 2018 Qatar and Abu Dhabi agreed to a new 20-year agreement with Bunduq.

Projects

QP is making significant ongoing investments in its oilfields. The onshore field Dukhan has three oil reservoirs consisting of the Upper Jurassic Arab-C, Upper Jurassic Arab-D and the Middle Jurassic Uwainat, as well as a gas reservoir called the Permian Khuff. In 2018 Dukhan had 296 wells producing oil, gas and condensate, and 58 producing gas. QP is also working on two major redevelopment projects on the Dukhan field. The company’s Enhanced Water Flood Project, which is expected to reach completion in 2028, was put into motion in 2016 in an attempt to more easily extrude crude from the field’s three oil reservoirs. Meanwhile, the water-alternating-gas pilot project uses injections of water and CO to enhance oil recovery.

In 2018 the three offshore fields that were wholly operated by QP were the Maydan Mahzam, Bul Hanine and Al Rayyan fields, which produced 37%, 54% and 9%, respectively, of QP’s offshore oil. Major investments are being made to enhance oil recovery in Maydan Mahzam and Bul Hanine, with 30 wells due to be drilled or redrilled at Maydan Mahzam, alongside the construction of a new wellhead platform, while 33 new wells are to be drilled at Bul Hanine.

Expansion Plans

Much of QP’s focus in the coming years will be on its ambitious North Field expansion (NFE) project. After revoking its 12-year self-imposed ban on field development, in April 2017 QP made the decision to monetise the field’s remaining reserves. However, in February 2020 international media reported that the project had been officially postponed on the back of several months of low gas prices and the steadily increasing supply from the US and a number of other countries. As of March 2020 the delay was expected to push the project back until at least 2021, and deadlines have been changed accordingly.

According to QP, average production from the North Field was 786m scfd plus 29,000 bpd of condensate in 2018. The NFE aims to boost LNG production capacity from 77m tonnes a year to 110m tonnes, thus reinforcing Qatar’s standing as a top global LNG producer and a major player in the worldwide gas industry. Before the project was postponed, oil and engineering companies were competing for a number of NFE tenders (see analysis). The commercial bid deadline for liquefaction facilities has since been extended to the second quarter of 2020.

In addition to LNG, natural gas from the North Field is piped to the UAE and Oman via the Dolphin pipeline. It is also used for two gas-to-liquids (GTL) plants, Pearl GTL and Oryx GTL. The Pearl GTL plant is operated by Shell, and is the largest of its kind, with capacity of 140,000 bpd of GTL products including gasoil, kerosene, naphtha, paraffin and base oils for lubricants. The Oryx GTL plant, a joint venture between QP (51%) and Sasol of South Africa (49%), began production in 2006 and uses natural gas treated at Ras Laffan Industrial City, converting it into low-sulphur diesel, naphtha and LPG. It has a capacity of around 32,440 bpd.

Downstream

The NFE is also expected to have implications for Qatar’s downstream industries. QP estimates that its LNG target of 110m tonnes per year is also likely to produce approximately 5000 tonnes per day of ethane, 260,000 bpd of condensate, 12,000 tonnes per day of LPG, 1800 tonnes per day of sulphur and 20 tonnes per day of pure helium.

In June 2019 QP selected Chevron Phillips Chemical as its partner in the development of a new petrochemicals complex in Ras Laffan Industrial City. The complex will take advantage of the increased output brought about by the NFE, and will include an ethane cracker with a capacity of 1.9m tpa – the largest in the Middle East – and two polyethylene derivatives units. It is expected to boost the country’s total polyethylene output by around 84% by the end of 2025. The new complex will be operated via a joint venture, with the equity divided between QP (70%) and Chevron (30%).

QP’s downstream activities, subsidiary units and businesses are clustered in two industrial cities located at Mesaieed and Ras Laffan. QP’s refinery at Mesaieed has a 137,000 bpd capacity and is fed by oil from the onshore Dukhan field as well as condensate from the North Field. In 2018 the QP refinery processed 38.4m barrels of feedstock to produce gasoline, diesel, LPG, petrochemical naphtha, light gas oil and A-1 jet fuel for the Qatar market. Quantities of naphtha, decant oil, gasoline and fuel oil are also exported.

In April 2019 QP’s sales arm signed an agreement to supply Thailand’s SCG Chemicals with 3m tpa of naphtha for 10 years. As of the start of 2020 QP was expecting to invite front-end engineering and design tenders for upgrades to the refinery in order to produce cleaner grades of petrol.

Midstream

Qatar’s investment in the NFE has also fed through into increased demand for storage and distribution. In May 2019 QP issued an invitation to tender package for engineering, procurement and construction in order to increase LNG storage to support the NFE. The contract was for three LNG storage tanks, in addition to compressors, rundown lines, two LNG berths, and loading and return lines from the LNG berths to the tanks.

Furthermore, in April 2019 QP announced that it would need a huge new fleet of LNG carriers. Some 60 new vessels are expected to be required to support the expansion project, with potential demand rising to more than 100 before the year 2029. QP handed the procurement project to its subsidiary Qatargas, which oversaw the successful commissioning and delivery of the country’s current fleet of 31 Q-Flex and 14 Q-Max vessels.

Investment

QP has invested substantial funds towards ensuring that the environmental impact of its projects is minimised. As such, the company has commissioned a carbon capture and storage project at Ras Laffan Industrial City, which will have the capacity to capture up to 2.1m of tonnes of CO . It plans to capture and store approximately 5m tonnes of CO by 2025, in addition to using the gas in its enhanced recovery processes.

In 2019 QP expanded its oil and gas exploration footprint to a further 12 countries by participating in consortia that won exploration rights to blocks in Morocco, Kenya, Guyana and Namibia. Closer to home, QP has developed an in-country value scheme called TAWTEEN in order to ensure that Qatari businesses benefit from the commercial opportunities created by the rapid expansion of the oil and gas sector. TAWTEEN estimates that QP’s subsurface cluster of work in onshore and offshore drilling, and workover operations will spend approximately QR4.6bn ($1.3bn) between 2019 and 2023.

Renewable Energy

In addition to increasing its focus on gas, Qatar is looking to further develop its solar power generation. A new joint venture, Siraj Energy, which is 40% controlled by QP and 60% controlled by Qatar Electricity and Water (QEWC), has been created to generate electricity from solar energy. QEWC is a listed company, with the government holding a 52% stake, and currently supplies 62% of the country’s electricity and 79% of its water.

In January 2020 Siraj Energy was part of a consortium granted the QR1.7bn ($466.6m) contract to build the country’s first photovoltaic solar power plant, located in Al Kharsaah, which will have an estimated capacity of 800 MW. The 25-year build-own-operate-transfer contract is held by Qatar General Electricity and Water Corporation, also known as Kahramaa, with the power-purchase agreement based on an equivalent levelised energy cost of QR0.057 ($0.02) per KWh.

Outlook

Although in early 2020 operations surrounding the NFE were postponed until at least 2021, QP is set to swiftly ramp up extraction of its most valuable asset when those plans are put back into motion. Upon commencement of the project the country’s total output of LNG and polyethylene is predicted to increase by approximately 64% and 82%, respectively, over a period of around seven years. Although this is likely to provide a major boost for international oil companies, as well as engineering firms, shipbuilders and local Qatari businesses, it is yet to be seen how the sector will cope with the effects of the drop in global oil prices in early 2020.

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