Qatar To Break New Ground As Regional Gas Supplier And New Technology Developer
The Doha conference provided a springboard for Qatar’s natural gas industry to launch itself in two fresh directions: as the future supplier for the first planned intra-Gulf gas pipeline network (Dolphin) and the joint developer of a new gas technology project.
Against the background of continued expansion of liquefied natural gas (LNG) production both from the Qatar Liquefied Gas Company (Qatargas) and Ras Laffan Liquefied Natural Gas Company ( RasGas ), Qatar Petroleum (QP) has signed a term sheet agreement with the UAE Offsets Group (UOG) for the upstream section of the Dolphin project, under which natural gas from the offshore North Field will be piped under the sea to Abu Dhabi, with an option of later extending the pipeline to Oman.
At the same time, QP initialed a joint venture agreement with South Africa’s Sasol for the development of a gas-to-liquids (GTL) project.
The conference also assessed the challenges posed to gas exporters by emerging markets and by deregulation and privatization in markets as a whole.
Dolphin: First Intra-Gulf Gas Project Takes A Step Forward:
In his opening speech to the conference on 12 March, Qatar’s Minister of Energy and Industry, 'Abd Allah al-'Attiyah, spoke of how his country had become the leading gas exporter in the Gulf, having delivered over the past four years more than 20mn tons of LNG to the Far East, Europe, the US and other destinations.
“Despite the far reach of Qatar’s LNG exports,” he said, “we are hoping to be able soon to realize the dream of the Gulf region of building a pipeline network to secure the needs of our neighbors of gas and promote economic integration among its countries.”
As he was speaking, representatives of QP and Dolphin Energy Ltd (DEL, the company set up last June to manage Dolphin on behalf of UOG) were, behind the scenes at the conference, negotiating the final details of a term sheet agreement for what looks like being the first link in a future Gulf gas network – that between Qatar’s North Field and the UAE, with the option of an extension at a later stage to Oman.
Negotiations were concluded in time for the term sheet to be signed at the conference in Doha on 14 March by Mr 'Attiyah for QP and Ahmad al-Sayegh, a member of the UOG board.
One senior official involved in Dolphin characterized the Doha signing as “the firing of the starting pistol” for the project, which envisages first gas supplies to the UAE early in 2005.
The term sheet sets out the mutual understanding of QP and Dolphin on certain matters relating to the commercial terms of the development and production-sharing agreement (PSA).
Once initial engineering work is complete and costs have been calculated, this will be followed by a gas transportation and a gas sales agreement for the delivery of 2bn cu ft/day of gas to the UAE in the first stage.
Agreement has been reached on all the main issues, including the BTU value of the total volume of the produced gas, the take-or-pay clause and the maximum/minimum volumes of gas to be lifted in accordance with seasonal demand.
The supply of gas will increase in stages up to 2bn cfd, after which, MEES understands, the take-or-pay rate has been agreed at 85% of the annual contracted volume.
No details have been given about the terms of the PSA or the price. The basic price for dry gas sold by QP to Dolphin was agreed on after high-level political intervention from Abu Dhabi and Qatar.
MEES learns that a final agreement acceptable to both sides, to run for 25 years, emerged after upward adjustments were made to the quantities of liquids stripped from the gas to be taken by QP under the PSA, thereby increasing Qatar’s revenue from the deal.
The term sheet also contains details of an area in the North Field concession where two blocks are to be assigned as gas sources for Dolphin.
The first delineation wells are scheduled to be drilled in the second half of 2001, coming on stream in 2005. All four layers in the Khuff formation are being targeted.
Under the upstream part of the project, offshore platforms and gas gathering facilities will be installed and a gas processing plant will be built at Ras Laffan to strip out condensate, ethane, sulfur and liquefied petroleum gas (LPG) from the wet gas.
France’s Elf (a subsidiary of TotalFinaElf and a strategic partner in the project) will be the operator for the upstream part of the project.
The other strategic partner, Enron of the US, will be the operator for the midstream – operating the 350km pipeline which will carry the gas to Abu Dhabi.
A 48in undersea pipeline (with sufficient capacity for expansion of exports to $3.2bn cfd at a later stage, if markets justify this) will be laid under the sea to al-Taweelah in Abu Dhabi’s al-Maqta' district. TotalFinaElf says the cost of the initial phase of the Dolphin project is put at $3.5bn.
Most of the initial 2bn cfd supply of gas from the North Field will be consumed by utilities in Abu Dhabi, including the al-Taweelah electricity generating/water desalination plant.
The remainder will be supplied to Dubai via a pipeline under construction from al-Taweelah to Jebel Ali (MEES, 28 February 2000) and to industrial projects in the northern emirates, including a $1bn desalination plant planned by UOG in Fujairah (MEES, 5 February 2000).
MEES learns that the Taweelah-Jebel Ali pipeline will be completed in April and will be ready to carry gas in June.
The Abu Dhabi National Oil Company (ADNOC) agreed in February 1998 to provide Dubai with 500mn cfd from the Thamama C gas reservoirs in the onshore Bab field.
MEES learns that Abu Dhabi and Dubai have agreed on a CIF price of $1.00 mn/BTU for an annual supply of 500,000 cfd, to be increased to 800,000 cfd in 2004.
The supply of gas via the Dolphin project will enable ADNOC to free up more of its own gas for oil well reinjection.
Now that the term sheet has been agreed, Enron says it will begin engineering and sea-bed studies in preparation for laying the pipeline. DEL is owned 51 percent by UOG and 24.5 percent each by Enron and Elf.
The Chairman of DEL is Ahmad al-Sayegh (UOG), and the other three board members are Muhammad al-Bawardi (UOG), Michael McConnell (Enron) and Patrick Rambaud (TotalFinaElf).
Mr Rambaud, TotalFinaElf’s President for the Middle East, in a presentation to the conference on 12 March, spoke of the success of projects involving what he called “good old gas pipelines” in three regions of the world where more than one country was involved: the North Sea, Asia and South America.
The challenges in all three projects, he said, had been contractual and political rather than technical.
He listed the ingredients required for a long-term gas supply commitment of this kind as: sufficient gas demand and reserves; reliable customers and suppliers; and stable and friendly relations between the countries involved.
Qatar-Kuwait Talks On Gas Pipeline Project Continue:
On the sidelines of the Doha conference representatives of Qatar and Kuwait held further talks on the plan to build a pipeline to supply the latter with natural gas from the North Field.
Qatar and Kuwait last year signed an MOU under which around 1bn cfd of gas would be sourced from ExxonMobil’s Enhanced Gas Utilization (EGU) project.
Addressing the Doha conference on 12 March, Nader Sultan, Deputy Chairman and CEO of Kuwait Petroleum Corporation (KPC), said negotiations would lead to a heads of agreement.
Kuwait, Qatar and ExxonMobil were “finalizing several studies, some jointly and some separately, such as the final volumes, how to manage the swing demand, the pipeline capacity and pressure, and the receiving facilities needed in Kuwait.”
While options for the routing of the 590km pipeline are under study, the likelihood is that it will run under the sea outside the 12-mile territorial waters of Bahrain and Saudi Arabia, but in the economic interest zones of the two states.
Mr Sultan said the sub-sea route was “the most appropriate choice,” but there would be a need to obtain inter-government and host government agreements from Saudi Arabia and Bahrain, as well as Qatar and Kuwait, for the pipeline routing.
”ExxonMobil is responsible for the pipeline and the transportation of gas, and MEES learns that the company plans to contract an international company to operate the pipeline and will invite state and private investment in the project from the Gulf region. ExxonMobil will supply the gas from North Field CIF to Mina al-Ahmadi in Kuwait.
MEES further learns that there are no technological problems to be overcome in laying the pipeline, given that the waters of the Gulf are shallow.
It is envisaged that only one compressor will be needed to pump the gas all the way to Kuwait. Linking Bahrain to the pipeline remains an option.
QP And Sasol Initial $800Mn GTL Joint Venture Agreement:
QP and South Africa’s Sasol Synfuels International (Sasol) on 12 March initialed a joint venture agreement to develop an $800mn gas-to-liquids (GTL) project at Ras Laffan Industrial City, next to the two LNG plants, which will convert natural gas into 33,750 b/d of high grade fuels from two trains.
Following the completion of a feasibility study, QP and Sasol have budgeted $30mn for front-end engineering and design (FEED), which will begin shortly and take nine months.
Bid evaluation will need another five months, with 27 months for construction and four for start-up – scheduled for 2005.
A statement from Sasol said that infrastructure and project integration benefits offered by the Ras Laffan site, as well as improvements made to Sasol’s Slurry Phase Distillate technology since discussions between the two sides began in 1995, have cut costs substantially.
Sasol’s Business Manager Peter Cook told the Doha conference that when oil prices fell in 1998, Sasol engineers strove to bring down GTL costs.
“This gave us the edge,” he said. “Thermal – power – efficiency was important, and efficiency was improved by 18 percent.” QP (with a 51 percent stake) and Sasol (49 percent) will seek project finance for a significant portion of the project’s capital requirements.
The GTL plant will consume about 330mn cfd of gas supplied by ExxonMobil’s EGU project to produce around 24,000 b/d of transport fuel, 9,000 b/d of naphtha and 1,000 b/d of LPG – meaning that 75 percent of products will be high quality transport fuel, and 25 percent naphtha.
The envisaged markets are India, the Far East and Europe. At the end of this decade the plant could be expanded to raise output capacity to 120,000 b/d.
The liquid fuels will have virtually no sulfur, a high cetane number and a very low aromatic content, enabling significant reductions in noxious emissions such as particulates, nitrous and sulfur oxide, carbon monoxide and hydrocarbons. Mr 'Attiyah said the GTL project was “of strategic importance to the state of Qatar.
The project will allow QP to participate in the development of high quality environment-friendly fuels. We have confidence in this project which will be the pioneering GTL venture in the Middle East.”
Negotiations on the GTL project began in 1995 with a view to setting up a 10,000 b/d plant. An initial MOU for 20,000 b/d was signed in 1997, with a feasibility study completed in March 1998 and a value engineering study in December the same year. In July 2000 a new MOU was signed – for two trains, each with capacity of 15,000 b/d.
In the early stages of negotiations, Phillips Petroleum was a partner in the project, but later dropped out as a result of a company decision to focus on petrochemicals.
Future Challenges For Qatar’s Gas Industry:
In his inaugural address to the Doha conference on 12 March, the Amir, Shaikh Hamad bin Khalifa Al Thani, spoke of some of the challenges facing the gas industry in the years ahead.
The world market, he said, “is currently undergoing a new development which must be seriously dealt with before it becomes an obstacle limiting the growth of global gas demand.
This is the trend of importing countries to privatize the import and distribution of natural gas.
This obviously means that exporting countries and companies will find themselves forced to deal with a greater number of smaller sized and less experienced companies than those formerly responsible for gas importation in the past, a fact that will create new difficulties for the exporters.”
This theme was taken up on 13 March by Ibrahim al-Ibrahim, Advisor to the Amiri Diwan, who said that gas exporters were facing the reality of selling to more and more emerging markets, as well as having to cope with the effects of deregulation and privatization in markets as a whole.
There were now question marks over the creditworthiness of some buyers, the decision-making process in certain countries and the size of the firms willing to buy.
The impact of these factors, Dr Ibrahim continued, was still not known.
ExxonMobil’s Raymond Says Gas Demand To Grow 50 percent Faster Than Oil:
In a keynote address to the Doha conference on 12 March, Lee Raymond, Chairman and CEO of ExxonMobil, said that while his company saw oil demand growing substantially over the next 20 years, “demand for gas will grow even faster.
In fact, we expect gas demand to grow about 50 percent faster than oil.
Such growth, in both oil and natural gas demand, is all the more significant when you consider that fields currently in production around the world experience natural depletion.”
Mr Raymond said that “the compounding effect” of depletion and demand growth “means that to meet the energy needs of 2010, the world must replace about half its current oil and gas production in this decade.
And because gas demand is growing more rapidly, the supply challenge for gas is possibly even greater than that for oil.”
MEES Gulf Editor Gerald Butt reports on the 4th Doha Conference on Natural Gas, 12-14 March 2001.
© 2001 Mena Report (www.menareport.com)