Thursday, October 20, 2011

LNG Hub of the World

Qatar's swelling coffers are filled by fuels but are investing in a diversified future

Bankrolling the 2022 World Cup, the $36 billion railway and metro system, the infrastructure projects and the television empire Al Jazeera is Qatars hydrocarbon wealth. The countrys recent rise to become the worlds largest exporter of liquefied natural gas (LNG) has dominated energy publication headlines and helped Qatar increase its influence in foreign policy.

Through rolling out an integrated LNG value chain, in conjunction with international oil companies (IOCs), from production, liquefaction and shipping to receiving and re-gasification terminals throughout the world, Qatar is guaranteeing itself steady income for decades to come. Notably this year Qatar bolstered annual gas exports by more than 60 percent to Japan, from 6 million metric tons (m/t) to 10 million m/t, in response to Tokyos spike in demand following the damage to the Fukushima nuclear power plant.

Enabling Qatar to meet such demand has been their surge in production capacity. With two new LNG production plants opening over the past year, and with the latest, Qatargas Train 7 LNG plant ramping up to optimal capacity, production will hit 77 million m/t annually this year. Qatar is also set to fully open the worlds largest gas-to-liquids (GTL) facility later this year: the estimated QR69 billion [$19 billion] Pearl Plant, a joint venture between Shell and Qatar Petroleum that will produce 140,000 barrels per day (bpd).

Receiving less focus than the LNG and GTL drive is the oil sector. Holding 25.4 billion barrels of proven reserves, according to Oil & Gas Journal, Qatar is the eleventh largest oil producer in the Organization of Petroleum Exporting Countries (OPEC) and sixteenth in the world with crude oil capacity of 850,000 bpd and 590,000 bpd of non-crude in 2010.

Varying the options

Although often thought of as a secondary hydrocarbon export market for the country, revenues from LNG in 2010 were QR76 billion [$21 billion] while Qatar earned QR138 billion [$38 billion] from oil, natural gas liquids and refined petroleum products, according to the Saudi Financial Group. This year, the group forecast earnings will spike to QR109 billion [$30 billion] for LNG exports and QR192 billion [$53 billion] for the oil sector due to rising output and high energy prices.

Qatars oil and gas sector is not just attractive to oil multinationals. For the would-be investor without the capital of an IOC — Shell has invested QR76.4 billion [$21 billion] and ExxonMobil QR58 billion [$16 billion] — or a major contractor in extraction or production, opportunities beckon in associated technologies and the downstream sector: petrochemicals and associated by-products. The oil and gas sectors attract a need for technologies, especially away from downstream. Even small investment might have worthwhile returns. And if GTL takes off, this might attract other investments, said Anil Khurana, director of operational strategy and private equity at management consultants PRTM.

Qatar is also banking on its low energy costs to develop energy-intensive industries such as aluminum. The QR20.7 billion [$5.7 billion] aluminum smelter project Qatalum, a joint venture between Qatar Petroleum and Norsk Hydro, started production in 2010 and is currently operating at 70 percent of its 585,000 tons per year capacity. Expected to boost the countrys GDP by QR5.4 billion [$1.5 billion] a year, this figure is slated to double through associated-linked projects in industry and manufacturing.

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