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Qatar: Change at the top for Qatargas, as LNG capacity continues to grow

THE QATARI government has replaced Faisal al-Suwaidi with Khalid bin Khalifa al-Thani as head of Qatargas

Al-Suwaidi's exit is unlikely to prove a significant setback for Qatar's liquefied natural gas (LNG) industry, the expansion of which is almost complete. Khalid, a member of the ruling family, has industry experience: he was previously director of Ras Laffan Industrial City, where Qatar's LNG trains and much of its gas infrastructure are located.

However, although it may be business as usual under Khalid, al-Suwaidi's departure – unexplained by Qatar Petroleum (QP), the national oil company, or the oil ministry – is a surprise: he played a central role in turning Qatar into the world's biggest LNG producer; helped make Qatar's citizens the world's richest; and gave the country a say in regional geopolitics.

Well respected by Qatargas's foreign partners, al-Suwaidi took over the company in 1997, when its LNG capacity was 9.5m tonnes a year (t/y). By the end of this year, with the start-up of the project's final train, Qatargas 4, Qatar's overall capacity should reach 77m t/y (see Table 1) – around one-third of projected world capacity – with Qatargas providing more than half of the total.

Under al-Suwaidi, Qatargas has managed to stick – more or less – to an ambitious development schedule for the company's new LNG trains, despite extreme inflation in energy costs between 2006 and 2008, and the shortages of engineers, materials and equipment that caused it. The company has also helped implement experimental technology – Qatargas's LNG trains and ships are twice as big as industry norms – without significant delays.

So why has he gone? According to one rumour, the energy minister, Abdullah bin Hamad al-Attiyah, believed the Qatargas boss was after his job – and forced him out as a pre-emptive measure. That seems unlikely: any reshuffle of such senior government posts would ultimately be the decision of the emir, Hamad bin Khalifa Al Thani. If he wanted to replace al-Attiyah, he still could.

A more compelling argument – albeit without much hard evidence to support it – is that the country's energy business is chronically underperforming.

Qatari LNG output amounts to just 31m tonnes a year (t/y) at present, according to industry sources – half of the nameplate, 61.4m t/y capacity (36.3m t/y through RasGas's six trains; and 25.1m t/y through Qatargas's five trains) and just 40% of the country's year-end capacity target of 77m t/y (which should be attained when Qatargas's last two trains, each with a capacity of 7.8m t/y, are on stream – see Table 1).

One possible explanation for such a low total is that Qatar's mega-trains continue to experience technical problems. Another – which would be more worrying – is that Qatar's North Field is proving less productive than QP, parent company of Qatargas, had envisaged. There is some circumstantial evidence that suggests that may be the case: in 2005, Qatar introduced a moratorium on new gas projects, partly to ease congestion in its bulging orderbook, but mainly because it needed to take a more prudent approach to reservoir management – to ensure the field, the world's largest natural gas deposit, could support the gas projects the government had already sanctioned.

A rumoured dry well and faster-than-expected declines in production rates from some wells, requiring expensive compression equipment, suggested the North Field might be more complex and less easy to produce than initially thought. Earlier this year, Qatar extended its moratorium on new gas projects until 2014, adding credibility to doubts about the North Field's long-term capacity to support additional gas ventures.

Qatar's energy industry is also facing other difficulties. It has had to cope weak demand for its condensates – theoretically a valuable revenue stream. This, in combination with disappointing gas sales and low gas prices might throw into doubt its ability to finance its large bill for infrastructure investment.

However, Qatar has a less alarming and more plausible motive for running its LNG plants below capacity (which would support the idea that al-Suwaidi's departure is not linked to operational problems): weak demand, an oversupplied market and low gas prices. The official line is that the ramp-up to 77m t/y remains on target, indicating that reservoir damage or technical problems at Ras Laffan are not the cause.

Several of Qatar's new LNG trains were originally intended to supply the US, where LNG demand and gas prices are weak because of the recession and robust supply, mainly thanks to the success of domestic unconventional gas exploration and the start-up of several competing LNG projects over the last two years. The US Energy Information Administration expects imports to rise slightly this year, partly to offset lost domestic gas production because of the moratorium on drilling in the Gulf of Mexico. But it says the US will remain "secondary" to Asia and Europe as a market for LNG (PE 5/10 p18).

Indeed, the Peru LNG terminal started producing last month, but Mexico's Manzanillo regasification terminal is not yet ready to receive Peru's gas, boosting by 4.4m t/y the availability of LNG to a region that scarcely needs it (see p14).

Qatar has been assiduously trying to build its share in other markets. Andy Flower, an LNG consultant, estimates that Qatar supplied 15 of the 22 LNG-importing countries in the first quarter of 2010, compared with seven a year earlier. And in April it added Argentina to its list of LNG trade partners.

However, supplies to its primary off-takers are down. The UK, another big market for Qatar, seems to be taking lower volumes of Qatari gas: last month, the country was receiving a Qatari LNG shipment every week to 10 days, according to market sources, compared with an original expectation of about two Q-Max (266,000 cubic metre) deliveries a week. Meanwhile, although the UK's new government has underlined its long-term commitment to imported gas, the pressure to reduce the economy's energy intensity to meet climate-change targets means the UK may no longer be the growth market that Qatar thought it would be.

Low Qatari LNG production and exports might be interpreted as an attempt by Qatar, a member of Opec and of the Gas Exporting Countries Forum, to boost prices by withholding supply. But it is more likely that the country is taking advantage of low seasonal LNG demand and weak market fundamentals in general to carry out maintenance and correct any lingering technical problems at its export facilities.

As Frank Harris, head of LNG at Wood Mackenzie, a consultancy, puts it: "Norway's Snøhvit LNG has been up and down like a yo-yo, but no-one has ever said Statoil [the project operator] is trying to manipulate the market."

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