Energy contracts demand a shrewd eye

While the Qatari government is aware of being careful with its resources, $70 billion of investment in energy project is planned in the country over the next 10 years.

The future of Qatar largely depends on its ability to opitimise the use of its abundant natural resources. The country sits on about 272 trillion m3 of natural gas, which makes it third only to Russia and Iran in terms of capacity. The discovery of the North Field - the world's largest non-associated gas field - in 1971, has put Qatar on the world map and given rise to massive investment in energy projects in the country, specifically LNG (liquefied natural gas) and GTL (gas to liquids) developments.

In turn, this has created focussed opportunities for international engineering, procurement and construction (EPC) contractors, but fluctuating materials markets have created unique challenges for those committing to long-term projects.

"In general, offshore projects in Qatar are undertaken on a lump sum type of contract model, and in an EPC contract, materials and subcontract orders may only take place a year after contract award," says Stewart Mitchell, general manager - Qatar Projects, J Ray McDermott.

"Contractors have to be aware of the potential pricing risks when tendering for this type of project, especially given the highly volatile pricing conditions that exist within the market at present. We have, on a number of projects, agreed materials escalation clauses in our contracts - such agreements are beneficial not only for the contractor but also for the consumer."

Mitchell adds that a further challenge faced by offshore contractors in Qatar is ‘interface' issues - in relation to safety and scheduling - due to the close proximity of projects.

J Ray McDermott has enjoyed a long history of work in Qatar; it has been active there since 1963 and it now accounts for 50% of the contractor's workload. It was also involved the development of the Qatargas LNG project, which marked the first of its kind in the country.

LNG is natural gas that has been processed to remove valuable components, usually methane, ethane, propane, butane and nitrogen - or impurities that could cause difficulty downstream. It is condensed into a liquid at almost atmospheric pressure by cooling it to approximately -163°C.

Qatargas, which was set up in 1984 under an Emiree Decree, is part-owned by state energy utility Qatar Petroleum (QP), with a 65% stake, and the rest is divided between Total, Exxon Mobil, Mitsui and Marubeni.

In 1992 and 1994, two sales and purchase agreements were signed with Chubu Electric and seven other Japanese power and gas companies for Qatargas to supply 6 million tonnes per annum of LNG for a 25-year period.

In 2000, Qatargas became the world's first LNG company to achieve certification in both ISO 9002 and 14001 for its quality and environmental management programmes. And following the successful completion of the de-bottlenecking project, production capacity at Qatargas's three-train plant now stands at 9.5 million tonnes per annum, well above its original design capacity of 6 million tonnes per annum.

In December of 2004, QP reached a deal with ExxonMobil to supply LNG to the UK by 2007. The US $12 billion (QR43.6 billion) Qatargas 2 project will supply LNG from Qatar to the UK by the winter of 2007-8. QP has a 70% stake in Qatargas 2 while ExxonMobil holds the remaining 30%.

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