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Qatar's LNG resurgence

The country is expanding its liquefied natural gas export capacity

It was in April 2017 that Qatar Petroleum's chief executive, Saad al-Kaabi, made the announcement that many in the LNG industry had been awaiting for more than a decade. The moratorium on new projects utilising North Field gas, imposed in April 2005, was to be lifted.

Only in recent weeks, however, has the full scale of Qatar's renewed LNG ambitions become apparent. The initial assumption that Qatar might just be implementing a long-awaited debottlenecking of its six mega-trains—to yield an extra 12m tonnes a year or so of production capacity—has long been swept away.

It is now clear that Qatar is planning a second major LNG production complex, of up to 31m t/y, to supplement its existing nameplate production capacity of 77.4m t/y from the 14 liquefaction trains operating at Ras Laffan Industrial City. On its own, such a complex would have more capacity than most LNG-producing countries today. The only other one currently producing more than 31m t/y is Australia.

On 19 March, Kaabi announced that a front-end engineering and design (FEED) contract for three new 7.8m-t/y liquefaction trains (totalling 23.4m t/y) had been awarded to Japan's Chiyoda Corporation. FEED work would include "associated pre-investment to add a fourth LNG train in the future". Kaabi said first LNG would be delivered by the end of 2023, with the final investment decision likely by end-2019 or early in 2020.

The three new mega-trains will be supplied with 4.6bn cubic feet a day of gas produced from a new development in the southern sector of the North Field—increasing Qatar's total gas production by a fifth. The option to add a fourth train suggests that more North Field development is under consideration.

For those developers hoping to launch new liquefaction projects targeting start-up in the early 2020s, a Qatar freed from the constraint of its self-imposed moratorium represents daunting new competition.

Beauty contest

Not surprisingly, potential foreign partners have been queuing up to participate. This is despite the diplomatic spat between Qatar and a group of countries that includes three of its GCC neighbours—Saudi Arabia, the United Arab Emirates and Bahrain—which began in June last year.

Indeed, almost a year on from the start of the blockade, Qatar seems to have survived with relatively little ill effect. In March, the International Monetary Fund said: "The direct economic and financial impact of the economic rift… is fading. While economic activity was affected, this has been mostly transitory and new trade routes were quickly established." Certainly Kaabi seems unfazed.

"We are continuing discussions with potential international joint venture partners for this strategic project," he said, "to determine an optimised arrangement with the objective of delivering maximum value to the state of Qatar and contribute to the optimum utilisation of Qatar's natural resources."

Potential partners include the main foreign shareholders in the country's existing 14 trains: ExxonMobil, Total, Shell and ConocoPhillips.

However, it is not certain that any foreign partners will be chosen. Kaabi is on record as saying that partners will only be selected if they are able to demonstrate they can add value. So Qatargas—operator of all the existing trains, following the merger with RasGas at the start of this year—could conceivably proceed with the expansion on its own.

World-scale player

Qatar isn't just the world's largest LNG producer, it has a dominant market stake. According to LNG importer's group GIIGNL, its share of global trade in 2016 was just over 30%—79.6m tonnes out of a total of 263.6m tonnes. But LNG, while it accounts for more than half of gross gas production, is far from being the only game in town.

Qatar also exports gas by pipeline to the UAE and Oman, via the Dolphin project, and is the world's largest producer of gas-to-liquid products, with two major projects: Oryx and Pearl.

It has several projects which supply gas to the domestic market, for electricity generation, water desalination and to supply fuel and feedstock to a range of gas-related industries that include petrochemicals, GTL (the Oryx project) and aluminium.

A lot of the wet North Field gas is "consumed in processes" but that includes extraction of liquefied petroleum gas and natural gas liquids, which are sold separately.

Debottlenecking option

When the moratorium was lifted in April 2017, it wasn't immediately clear how the new gas might be used. All Kaabi had said was that it would be dedicated to export. This could have meant LNG, pipeline exports, more GTL capacity, or some combination of these three options.

However, large-scale GTL has fallen out of favour since the oil-price collapse of 2014, and the option of filling the underutilised 3.2bn cf/d Dolphin pipeline to the UAE became unattractive following the diplomatic rift. So, LNG emerged as the most likely option.

30%—Qatar's share in 2016 global gas trade

The initial plan was that "about 2bn cf/d" of new production would be allowed to go ahead. Because North Field gas is rich in liquids, this would have been just about enough for an additional 12m t/y of LNG-2m t/y per train, in line with an announcement made at the World Gas Conference in 2009 by the then chief executive of Qatargas, Faisal al-Suwaidi.

Qatar's first LNG trains had been successfully debottlenecked, from 2m t/y to 3.3m t/y each, in the early 2000s. This is a clear demonstration of the potential of debottlenecking to raise capacity by a significant margin. In fact, in May 2017 QP asked Chiyoda to examine the option of debottlenecking existing trains.

By July—a few weeks after the start of the diplomatic rift—the company had made up its mind not only that the new gas would be used for LNG, but also that the volume would be doubled to 4bn cf/d. That meant Qatar could expand its LNG production capacity by a third, from 77m t/y to 100m t/y—enough to regain its LNG supremacy, even from Australia, which will soon overtake it.

Avoiding disruption

The recent decision to go for three, perhaps four, mega-trains instead of a combination of debottlenecking and new trains appears to have come down to a simple matter of leaving well alone, according to sources in Qatar. The mega-trains have been performing impressively well and debottlenecking would have caused years of disruption to existing production capacity.

Another factor appears to be a desire to create an entirely new LNG complex, away from Ras Laffan Industrial City, which is about an hour's drive north of Doha, the Qatari capital. The most obvious location would be the existing industrial city at Mesaieed, about a half hour's drive south of the capital.

It would make sense operationally, not least because of the number of LNG tanker movements that already take place at the Ras Laffan port.

It makes sense given Qatar's dependence on LNG export revenue.

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