By Francesca Astorri
With its multiple partnerships and subsidiaries, Nakilat represents Qatar’s marine industry at its best, helping to diversify the Gulf state’s economy and supporting its oil and gas sector at the same time. Arabian Business meets Muhammad Ghannam, Nakilat’s managing director, to see how this industry works and why it will take Qatar forward
Nakilat, or Qatar Gas Transport Company as it is otherwise known, tends to deal in superlatives. It oversees the world’s largest fleet of liquified natural gas (LNG) vessels. As Qatar is the planet’s biggest producer of LNG — with around 77 million tonnes shipped out per year — Nakilat’s role in keeping global markets well-stocked with the country’s liquid wealth is nothing short of vital.
More than 70 percent of LNG exports from Qatargas and RasGas — the country’s two major gas producers — are transported on Nakilat’s ships. That means that about 54 million tonnes of LNG travel around the world annually on the firm’s vessels.
One decision that’s looming on the horizon could have huge implications for Nakilat’s future. In 2005, local officials placed a moratorium on additional projects to produce natural gas from Qatar’s giant North Field, which has nearly all of the country’s reserves. Next year, Qatar will decide whether to restart new exploration programmes at the North Field, which could result in Nakilat boosting its LNG shipping fleet beyond 54. Either way, the firm won’t have any problems securing financing if the ship orders come flooding in. Last month, Nakilat signed a $917m loan refinancing deal with Qatar National Bank.
“If they decide to go above the 77 million tonnes, it means that we will be requiring additional LNG ships. This means we will be constructing and operating more ships,” says Muhammad Ghannam, Nakilat’s managing director, adding that the number and size of the vessels will depend on the volume of production and on the export destination.
The question, in fact, is not only whether Qatar will increase its gas production but also to which countries, as some countries don’t have terminals that are equipped to host LNG ships of all sizes.
“It depends on the volume of production,” Ghannam says. “What influences the number of vessels we are going to produce is also the destination. Is it going to the Far East, is it going to Europe, or somewhere else? Distance is another factor and also the size too because some terminals can’t receive big ships.”
Over 5,000 people from 27 different nations are now working for Nakilat and in about three years this number could grow to over 10,000.
“We have around 5,000 people and we expect to really go above 10,000-plus in a few years down the road,” says Ghannam. “Once we get all the facilities completed, we will be more than 10,000 people. We plan to double our staff in about three years.”
Much of that focus will come from employing locals. The managing director says that 20 percent of employees at the firm’s head office are locals, and that figure will reach 30 percent soon. Nakilat’s Qatarisation rate increased by 139 percent compared to 2010 as 20 Qataris joined the company in 2012.
Nakilat is now building an average of 25 vessels of up to 120-metre LOA (length overall) per year, while simultaneously repairing 100 vessels during the same time frame. These may sound like big numbers, but even these are set to grow in the not-too-distant future. The firm is hoping to boost its repairing capacity to 150 vessels per year in the next few years, as a result of its tie-up with KS Investment, a wholly-owned subsidiary of Keppel Offshore & Marine. Nakilat-Keppel Offshore & Marine (N-KOM) is focusing on ship repair and maintenance, and has also repaired 34 LNG vessels last year. An average of 200-300 people are required to repair one LNG vessel and it takes about 20 days to complete maintenance operations. Up to ten vessels can be repaired at any one time, and N-KOM’s CEO, Abu Bakar Bin Mohammed Nor, is expecting to increase the company’s capacity soon in order to be able to work on more vessels.
Experts believe that the whole issue of gas production is likely to be reevaluated due to the US shale boom, which has resulted in many US companies applying to the government to export gas. In May this year the White House gave the green light to the construction of the Freeport LNG terminal on Quintana Island, a $10bn project that is designed to send cargoes to Japan and Europe. Meanwhile, the Sabine Port terminal in Louisiana will also produce gas, starting from 2015. Only last month, ExxonMobil boss Rex Tillerson criticised the US government for its slow processing of applications to export LNG, saying that the country was losing millions of dollars per day.
With the US moving onto the global market, the playing field has changed for a number of countries, including Qatar, which has the world’s third-largest gas reserves after Russia and Iran.
Kostis Antonopoulos-Rothschild, a senior commercial manager at N-KOM, says the move comes as no surprise.
“The shift will have a positive impact for the shipyard as it is bound to increase the global gas carrier fleet,” he says. “N-KOM, having established ourselves as a leading LNG carrier repair yard, would be in an excellent position to capture and serve the needs of this growing market.”
Besides Qatar’s abundant supplies of gas, Nakilat believes that additional work will come from other sources. Ghannam is ready to start negotiating with the new port authorities to build the vessels the facility needs, and also to offer repair and maintenance services. Scheduled to start operating in early 2016, the New Doha Port is set to create a new freight location that can compete with Dubai’s Jebel Ali and Abu Dhabi’s KIZAD. As a result, the market for support vessels at the port is likely to be substantial.
“We will start negotiating very shortly with the new port authorities,” Ghannam says.“We will start talking to them to see what their requirements are, but we are optimistic that everything for Qatar can be built in Qatar, that’s our mandate, I am optimistic we will be successful in getting there.”
The new port could also help Nakilat increase its business in terms of maintenance and repair services for some of the vessels, while additional work might also come from Qatar Petroleum, the Qatar Emiri Navy, and the country’s coast guard.
Diversifying the firm’s revenue streams still further, Ghannam is also keen to get into the luxury boat business, by building fibre-glass boats from around 2014 onwards. At the beginning of this year, Nakilat Damen Shipyard Qatar (NDSQ), a joint venture between Nakilat and Dutch shipbuilder Damen, announced the construction of a one-of-a-kind 69-metre-long luxury vessel equipped with the latest technologies.
“This vessel is going to be built to do so many things that are not standard. In Holland they build this kind of vessel but to fulfill only two or three specific roles,” Ghannam said, at the time that the boat was announced earlier this year.
There is no specified time frame for the vessel’s launch, but the managing director says it will take about three years to build. As to the price, negotiations are still ongoing, but Ghannam says that the cost will be “a fair, equitable, reasonable, competitive price”.
Ghannam says that when the luxury boat business does finally get off the ground, private customers will be able to approach Nakilat and ask it to build bespoke models. Each of these will be tailored to the specific needs of each client, he says.
Once the manufacturing facilities are operational in the sixth and final phase of Erhama Bin Jaber Al Jalahma Shipyard at Ras Laffan port, NDSQ managing director Jan-Wim Dekker expects to see between fifteen and 30 clients approaching him every year to build a yacht. Well-heeled Arabs have long been keen yacht buyers and regularly feature as owners on lists of the world’s largest private vessels.
Saudi Arabia’s Prince Alwaleed Bin Talal Alsaud is believed to be the owner of the $609m 180-metre long superyacht, Azzam. Meanwhile, the number of marinas, harbours and ports being built in Doha and elsewhere in the Gulf is also encouraging the rise of the yacht business.
The marine industry is considered to be fundamental for Qatar’s oil and gas sector because it enables the country to deliver its natural resources without the two factors that tend to affect pipeline: political instability. According to Ghannam, seagoing vessels also provide flexibility, security and accessibility. In some cases, this method of transport is even cheaper than pipelines.
“The countries that really have high demand for gas are not accessible for transportation of gas through pipelines,” he says.“Those countries that could benefit from pipelines also happen to be surrounded by countries with political risk for the pipeline.”
In 2011, the flow of gas from Egypt to Israel was stopped due to terrorist attempts to blow up a pipeline. Similarly, Total’s LNG pipeline from its onshore field in Yemen has also been attacked on numerous occasions. In Europe, spats between Russia and Ukraine have halted the flow of gas to receiver countries in the west of the continent. There is a long list of incidents in which gas pipelines were involved in political disputes, terrorist attacks and regional instability. But if pipelines can be threatened by terrorists, ships have their equivalent: pirates.
Most vessels are insured against pirate attacks; some companies hire mercenaries to protect their cargoes, and some boats are even equipped to respond to these attacks. But the fact is that the Gulf of Aden and the coast of Somalia have gained the international community’s attention in the last few years, with the increasing attacks on ships passing through these waters en route to the Suez Canal.
According to the US Department of State, between 2008 and 2012, Somali pirates hijacked 175 vessels and attacked at least 445 others. They have kidnapped 3,000 crew members from over 40 countries. But Ghannam believes that the phenomenon is finally slowing down and that LNG vessels are in a safer position than most other types of vessels.
“The likelihood [for an LNG vessel to be captured by pirates] is slim to none,” he points out.
“The reason is because the vessels are too high, so it’s very difficult for pirates to board. The vessels are also travelling at very high speed, so hardly any attempt has been made against LNG vessels. The problem of piracy is now slowing down; we take all kinds of precautions, but we’ve never had an experience with attacks against LNG vessels.”
While Nakilat’s past has been wedded to the oil and gas industry, its future could be vital to the diversification of Qatar’s economy. After all, as the Gulf state follows its peers in branching out into cruise tourism, logistics, shipping and terminals, which Nakilat and Qatar both stand to benefit. It may look like a paradox, but Qatar’s latest step towards a more diversified economy could come from an industry that is directly related to its oil and gas sector.