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Qatar's Golden Age

08 June 2011
As if things weren't looking peachy enough for gas producers, especially Qatar, the retrenchment of nuclear programs around the world has given producers more reason to cheer. While the Gulf state's hydrocarbon sector is expected to take a back seat to the non-hydrocarbon sector over the next five years, the gas sector will remain one of the pillars of the country's economy.

[Read: Qatar Steps Off The Gas For Next Chapter Of Growth]

The world could be entering a "golden age of gas," according to the IEA in a recent report, with Qatar at the forefront of these developments.

According to the report, gas could meet 25% of the world's energy demand, overtake coal demand by 2030 and be at par with oil demand by 2035, if its plays its cards right.

"Since early 2009, 100 bcm per year of liquefaction capacity has come on-line, of which more than 60 bcm is located in Qatar; this country now accounts for more than a quarter of world liquefaction capacity. As of mid-2011, total liquefaction capacity is estimated to be 370 bcm."

Total LNG trade grew 25% in 2010, to nearly 300 bcm, as most new plants reached their plateau production rates. Over the coming years, China, India and several countries in the Middle East and Latin America are set to become increasingly reliant on LNG imports.

Gas demand is also expected to surge in the Middle East, driven mainly by the power sector from its current level of 300bcm to 630 bcm by 2035 - equalling the gas demand by China, says the IEA. Gas-fired plants are brought online to replace oil-fired units and free up oil exports or value-added uses, such as petrochemicals.

Dolphin , the $3.5-billion gas project, is a fine example of Qatar supplying to regional players. Promoted by the UAE Government's Offsets Group (UOG), the Dolphin project has already received outline commitments from UAE for up to 2 billion cubic feet per day (bn cf/d) of gas, at a cost of $3.5-billion and links Qatar's North Field to Taweelah in Abu Dhabi and Jebel Ali in Dubai. The second phase of the project involves increased volumes of piped gas to the UAE.

According to the International Monetary Fund, Qatar's LNG production is expected to rise from 50 million tonnes in 2010 to 77.9 million by 2012, after which point it will remain steady till 2015.

According to Oil & Gas Journal, Qatar's proven natural gas reserves stood at approximately 896 trillion cubic feet (Tcf) as of January 1, 2011. Qatar holds almost 14 percent of total world natural gas reserves and is the third-largest in the world behind Russia and Iran.

The majority of Qatar's natural gas is located in the massive offshore North Field, which spans an area roughly equivalent to Qatar itself. Part of the world's largest non-associated natural gas field, the North Field is a geological extension of Iran's South Pars field, which holds an additional 450 Tcf of recoverable natural gas reserves.

Qatar's 20-year hydrocarbon investment program, which focused on a strategy to commercialize its substantial natural gas resources, culminates in 2012. The authorities have placed a moratorium on development of new hydrocarbon projects until 2015 to give itself time to assess its production performance and carry out a comprehensive study of its North Field. Lifting the moratorium would depend on the results of a study into the North Field's long-term potential and expectations about the path of global demand.




Nuclear Energy's Loss, Qatar's Gain

The brakes on nuclear energy programme would certainly help gas's cause.

The Japanese earthquake and tsunami has highlighted the vulnerabilities of nuclear energy, with the damaged Fukushima Daiichi nuclear plant becoming a rallying cry for critics of nuclear energy.

Governments across the world have watched in fear as the nuclear crisis unfolded in Japan and many governments are reviewing their policy, with Germany leading the pack by announcing it will become nuclear energy free by 2022.

On May 9, the Japanese government ordered that the Hamaoka nuclear power plant be shut in for the construction of a tide embankment which will take at least two years. Chubu Electric has estimated that as a consequence of the shutdown, they will require an additional 3.2mtpa of LNG and 1.3 million kiloliters/year of crude and fuel oil over the 2011-12 fiscal year.

Enter Qatar. Qatargas III and IV will see their first full year of production this year. Nearly 10mtpa of the 15.6mtpa capacity is contracted to end-users, leaving 5.6mtpa theoretically available to be diverted from equity volumes owned by Qatar Petroleum , ConocoPhillips and Shell .

Deutsche Bank notes that Chubu will rely heavily upon Qatar. Meanwhile, TEPCO is sourcing LNG from a more diverse set of producers, including Indonesia's Bontang and Tangguh plants, Peru LNG, and Russia's Sakhalin-2 in addition to Qatar (likely diverted from Shell 's equity share). TEPCO has also negotiated diversions from Japanese and Korean utilities, including Chugoku Electric, Kansai Electric, Chubu Electric, Osaka Gas, Tokyo Gas and KOGAS in late March and early April. TEPCO is now seeking short-term contracts starting in October 2011 to cover its incremental needs.

Qatar is already yielding dividends from the blossoming demand for gas, especially in OECD countries.





"The impact on European gas markets will depend on the degree to which Japanese utilities source LNG from Qatar, and the degree to which Qatar diverts LNG that would have otherwise been delivered into Europe," says Deutsche Bank.

However, gas prices haven't moved in tandem with rising oil prices, especially as non-conventional gas supplies have been found elsewhere.

"The projected glut in global gas supply and reduced need for imports by them U.S. could see some shift in the way conventional gas is priced and traded globally," notes the IMF.

"Considerable increase in LNG production in the next few years, accompanied with the sharp increase in LNG tankers, and an increase in production from shale gas in the U.S. are likely to affect conventional gas producers that rely on oil indexed long-term contracts and pipeline transportation."

The effect of shale gas supply on the U.S. market could be linked to the recent ?decoupling? of natural gas prices, says the Fund. The energy equivalence parity of oil and gas is such that natural gas price per MBTU, should be a sixth of the oil price per barrel."

But the rise of global gas demand, especially as nuclear programmes are mothballed - should see prices rise from around $7.4 per million British Thermal Units (BTUs) to rise to $9.00 in 2015, to $9.50 in 2020 and beyond $10 per MBtu by 2030, according to the International Energy Agency, the OECD watchdog.

Conclusion
A sudden sustained drop in oil prices, and consequently gas prices could choke Qatar's steady revenue stream from its oil and gas riches - that perhaps is the major risk to the Qatari economy.

But the country has cleverly betted on the "fuel of choice" for its future. While many analysts are concerned about 'peak oil', gas is expected to raise its profile as a key energy resource.

Additionally, 80% of new demand for gas is coming from hungry emerging markets, rather than sluggish OECD countries.

"Gas use will rise by more than 50% and account for over 25% of world energy demand in 2035 - surely prospect to designate the Golden Age Of Gas." And by extension, the Golden Age of Qatar.

© alifarabia.com 2011