By Rupert Cornford
The growth of Qatar's energy industry has created a steady workload for international contractors.
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%.
Execution of QP's latest upstream projects - Qatargas 3 and Qatargas 4 - started this month, after the EPC contracts were awarded to the joint venture of Japan's Chiyoda Corporation and Technip France (CTJV). The $4 billion contract covers the EPC of onshore facilities for two large-scale LNG trains, each with a capacity of 7.8 million tonnes per annum.
J Ray McDermott is carrying out EPC, installation, hook-up and mechanical completion of three wellhead topsides for Qatargas 3 and 4, each weighing 2,100 tonnes.
Qatargas 3 is jointly owned by Qatar Petroleum (68.5%), ConocoPhillips (30%) and Mitsui (1.5%). And Qatargas 4 will be implemented through a joint venture between QP (70%) and Shell (30%).
Each project comprises upstream gas production facilities that will produce approximately 424 million m3 per day of natural gas, including an average of approximately 70,000 barrels per day (bpd) of LPG (liquefied petroleum gas) and condensate combined from Qatar's North Field over the 25-year life of the project. The first LNG cargos from Qatargas 3 are expected to be delivered in 2009.
"Qatar is already a major producer [of LNG], supplying 25 million tonnes, about 15% of the world's total, in 2006. With many new projects under construction, capacity will increase to 77 million tonnes around the end of the decade, when Qatar will be the world's leading LNG exporter," Linda Cook, executive director - gas and power, Royal Dutch Shell tells this year's Finance and Investment in Qatar Conference in London. "LNG is expanding rapidly around the globe. I forsee industry capacity growth of around 10% a year for the foreseeable future," she adds.
Unlike LNG, GTL production techniques are still in their infancy in Qatar. The process of converting convert natural gas or other gaseous hydrocarbons into longer-chain hydrocarbons, which enables them to be blended with diesel in liquid form, is more tricky, although it is widely recognised that such process will become increasingly significant as world oil supplies become depeleted.
Oryx GTL is Qatar's first GTL plant and is a joint venture between Qatar Petroleum and South Africa's Sasol. It will receive 100 million m3 per day of lean gas from the North Field, in order to produce 24,000 bpd of diesel, 9,000 bpd of naphtha and 1,000 bpd of LPG (a total of 34,000 bpd). The plant, which is set to begin its first product shipment this month, has reportedly suffered major delays from its original timetable.
This came after news that QP and Exxon Mobil dropped plans to build a GTL plant in March, blaming the spiralling costs involved. With an original budget of around $7 billion for the plant - which was due to have a capacity of 154,000 bpd - are believed to have risen to $18 billion.
But following the announcement, a ceremony to lay the foundation stone for the Pearl GTL - the largest energy development ever launched in Qatar - took place. The project, which is being developed between QP and Royal Dutch Shell, will produce some 484 million m3 per day of wellhead gas, which will be transported and processed to produce 120,000 bpd of condensate, liquefied petroleum gas and ethane. Downstream dry gas will be used as feedstock to produce 140,000 bpd of clean, high quality GTL fuels and products. The Pearl GTL project is expected to produce some 3 billion bpd equivalent of wellhead gas over the period of the agreement. A total of $10 billion of contracts have already been awarded and construction began in the third quarter of 2006.
A joint venture of US giant Halliburton and JGC of Japan is providing project management and cost-reimbursable engineering, procurement and construction management (EPCM) services on the Pearl GTL. The team's role will include project management and start-up support of the overall onshore complex, along with cost-reimbursable EPCM of the GTL synthesis, utilities and infrastructure sections of the complex.
US firm CB&I is working on the engineering, procurement, fabrication and construction of two storage facilities on the project, with a combined storage capacity of 900,000m2; 120km of piping systems; and all associated mechanical, civil, building, electrical and instrumentation works. The onsite workforce is expected to peak at 1,000 employees.
J Ray McDermott won a contract to engineer, construct, transport, install hook-up and pre-commission two wellhead topsides - Pearl 1 and Pearl 2 - which each weigh 3,600 tonnes. The contractor is also working on the EPC and installation of two 30-inch (75cm) diameter, totalling 126km in length, for the project.
While the development of such mega projects is necessary for Qatar's future, the government is also aware that the pace of development needs to be kept under control.
In a report by the Oxford Business Group, Abdullah bin Hamad Al Attiyah, minister of energy and industry, says: "We have to be very careful with the North Field. We don't want to damage it. We will embark on a second wave of expansion only when we can be satisfied that we can increase gas production without compromising the lifespan of the field."
He adds: "Global gas demand is expected to increase by 50% over the next 25 years, especially in the US, Europe and Asia. "By the end of the decade, Qatar will be supplying the US with about 30 millon tonnes of LNG per year, nearly half of its LNG demand."
Planned investment in Qatar's energy industry will amount to around $70 billion over the next decade; and this will include further LNG and GTL projects.