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Thu 7 Aug 2008 04:00 AM

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Star of Qatar

Qatargas' CEO explains what growing demand for energy means for his company and the industry.

As the economies of India and China continue to boom, demand on world energy supplies is inevitably growing. The CEO of Qatargas explains what this means for his company and the wider energy industry.

It is not greed, it is economics. It is supply-demand balance. I mean, yes, I guess you can call it greed but we call it economics!" Faisal Al Suwaidi, CEO of Qatargas, is amused by accusations of greed over his company's recent deal with PetroChina.

Some commentators have claimed that the company was aggressive in its price negotiations for the agreement to supply the economic powerhouse with liquefied natural gas (LNG) for the coming 25 years.

I think that you will need all types of fuel to satisfy world demand. I'm not sure that it’s a question of competition anymore.

But even with the latest deal, Qatargas cannot even contemplate fulfilling all of China's LNG demands: "There is still more demand but unfortunately we will not be able to satisfy all of China's demand from one company. This is a fast-growing sector, especially for the hot economies of the world. China and India will have to import large quantities of gas."

There are two main reasons: "Firstly, they need to introduce this as part of their energy mix. Secondly, if they are to meet their Kyoto commitment, they will need to rely more on natural gas to reduce their emissions. For us, this is a new market."

It is not so much the producers as the markets that are driving the industry. As international oil prices have skyrocketed and the issue of climate change has risen in prominence, LNG has grown in popularity.

Much like the hybrid car, it forms a sort of halfway house between fossil fuel sources and alternative, renewable energy and can help to bring emissions down.

"This is a pretty clean type of energy," Al Suwaidi confirms: "Environmentally, I think people who'd like to meet their Kyoto targets will need to import or use natural gas as part of their energy mix."

"It's also more efficient."

It is cheaper (per thermal unit) than oil too. So why aren't we switching all of our energy requirements to this wonder fuel? Al Suwaidi is pragmatic: "I think that you will need all types of fuel to satisfy world demand in the future. I'm not sure that it's a question of competition anymore; it's a question of collaborating and making [sure] that we produce enough energy types to satisfy demand. It's more about working together."The fact that governments the world over are making it a key feature in their energy plans is evidence enough that nations have to look in different places to meet their energy demands.

In America, for example, 23 percent of the energy demand is catered for by natural gas. This proportional figure is likely to stay the same but the total national energy consumption is projected to rise by 17 percent over the coming decade - LNG companies are primed to gain, especially Qatargas.

Established in 1984, the organisation is now one of the world's biggest suppliers of LNG. Already shipping the product to Japan and Spain, the company is undergoing rapid expansion to incorporate the more estranged markets of Europe.

By 2010, it will be exporting 42 million tonnes per annum to markets in three continents, up from the 10 million tonnes that it currently ships.

"Growth rate in LNG is highest among all the energy types," says the Qatargas CEO. Precise figures are hard to determine but some reports have suggested that the LNG market is growing in excess of three times faster than the traditional oil and gas markets.

Earlier this year at the 6th Doha Conference on Natural Gas, Al Suwaidi claimed that LNG consumption will continue to rise by 10 percent a year for the next 10 years.

Everyone wants a piece of the action: India, China, South Korea and Japan are powering demand in the Asia-Pacific region (where usage is currently highest) but the American and European markets are hot on their heels.

Until recently, the markets of Europe and the US could not have been considered by Middle Eastern suppliers. With large gas fields distributed worldwide, consumers used to simply source their LNG ‘locally'.

Al Suwaidi explains how the market has evolved in recent years: "The main production areas or reserves [are in] Russia, Qatar, Iran and Canada. Until recently this was a regional business - the country would send gas next door to another country, or somewhere in the region. But, thanks mainly to Qatar and its partners' efforts, we have globalised [the market]."

Innovations in the processing and transportation of LNG in recent years have brought the price per unit for distant countries down to affordable levels. Qatargas is carefully positioning itself at the forefront of these developments.

"We pushed up trench capacity and [the capacity of our] LNG ships from 135 cubic metres to around 265 cubic metres," says Al Suwaidi.

"This has shortened the distance and helped us to think of Europe as a base market as opposed to an opportunity market. 10 years ago we could not think of those markets as base markets."

Although proponents of natural gas are keen to emphasise its (justified) environmental advantages, there are unanswered questions about the sustainability of transporting the product to such far-flung places when closer reserves are available.

The cargo ships that cross the oceans to replenish the pipelines are diesel-powered. Surely it would be greener to focus on the local markets? Especially given that studies have indicated that the emissions from the shipping industry are 5 percent of the world total - twice that of the aviation industry.

If trade continues to grow at the current rate, the volumes could increase by up to 75 percent over the coming 10-15 years.

Experts say one part-solution to the problem is to ship the cargo using modern ships powered by a hybrid mix of conventional diesel and ‘boil off'. During transit the gas naturally heats up a little, producing some gas boil off that can be harnessed for energy. Being gas, there are fewer emissions.

Some of Qatargas's ships do currently use this technology: "Originally, [the cargo ships] were done as diesel but some of them can take the boil off from the cargo to use as a fuel," explains Al Suwaidi.

Others have reliquefaction plants onboard, preserving the full cargo but meaning they are powered solely by diesel. Al Suwaidi says: "Now we've increased demand in our export market, we try not to use the boil off to transport the quantity. We'd rather deliver the full cargo as opposed to using part of it for transportation."

Although he recognises that there are residual emissions in the transportation process, he remains focused on the economic overview. Citing a commitment to markets, he says that the company is happy with the diesel-based system.And he is committed to the distant markets, eyeing a long-term profitability. This has meant splitting supplies between the three key areas of America, Europe and Asia.

"We know in the future there will be more demand and higher prices in Europe or the US so we've decided to distribute our production between three consuming continents and this will help us to win in the longer-term. We're probably losing in the shorter-term but we take the longer-term stance I think."

But just how long-term a stance can you take when you're dealing with a finite resource? Al Suwaidi doesn't see any immediate need to move out of the LNG market.

"We know there is plenty of reserve there. It's not a question of reserves. It is still at 900 TCF [trillion cubic feet - two TCF is defined by the American Bureau of Standards as a giant field]."

It is one of the biggest gas fields known at the moment. Big enough to convince the CEO that his company will soon be the largest global LNG company.

Today, every last drop of oil and breath of gas are valuable commodities, both in an economic and practical sense. To make sure that the profit and energy of the Qatar field is properly harnessed, the organisation took a moratorium on further development of the North Field in 2005 amid fears that too fast an expansion could jeopardise the future of the supply.

Speaking about the decision, Al Suwaidi said: "You could monetise, you could ruin the field in 10 years or you could properly manage it and the reserves will be there for the next 100 years. That is why Qatar Petroleum brought a moratorium to take time out and study the field and make the right decision."

The bigger picture is exactly what the shrewd CEO concerns himself with. "I tend to think of the longer-term plans as opposed to the day-to-day and I involve people in my decision-making," he says.

"We have a clear direction statement that we share with the people of Qatargas and based on that we prepare our 10-year business plan. This gets reviewed and updated at least twice a year and by different management groups."

The company's communications policy particularly stands out in the environment of the Middle East, which has traditionally been more opaque than that of the West, particularly in the energy industry.Transparency is of vital importance to Al Suwaidi. "I think this is very important for Qatargas or any other company in the world," he says.

And it is an aspect of business that he thinks is improving in the Gulf: "This is something that you just cannot escape," he emphasises. "To be competitive in today's environment, you need to be more transparent. It's good for the company and the shareholders, and good for the people."

And from his perspective, it makes good business sense. "My basic belief is that unless you tell people enough [information] they will not be able to contribute to your bottom line. If they are not well-informed or empowered they will not be able to, even if they want to."

If any employee is uncertain about the company line, he himself will answer their queries. "We have a CEO scheme whereby anyone in the company can drop me an email and ask about the policies and future plans for Qatargas."

In a company of more than 2000 people, this is no mean feat. But he plays it down saying, "I only get maybe four or five emails a week."

He has found that he is best served by a well-informed staff, allowing him to adopt a laissez-faire management style: "I don't run from office to office to shout at people and give them to-dos. This is not a [viable] management style anymore; you need to manage people and at the same time give them maximum empowerment, maximum freedom. So basically I hire good people and get out of their way!"

But even if Al Suwaidi is happy to leave the ranks to their own devices (within the remit of the 10-year plan), he must still be actively involved in managing the expectations of all the stakeholders. He identifies this as the most difficult part of his job.

"We have more shareholders in Qatargas than the other LNG companies in the world. Besides that, we have 54 nationalities [in our employment]. So the most challenging thing is managing the expectations of so many shareholders and so many employees of different backgrounds. But saying that, it's very interesting to work with both."

The variety is only going to increase as the company takes on supply contracts with Japan, Spain, Thailand, France, Mexico and Korea (amongst others) in the coming years.

Despite the ambiguous environmental impact of the shipping, the advantages LNG offers in terms of clean energy are definite. And at the moment the world needs all the fuel it can get.

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