Imagine a technology that could turn natural gas into premium oil products, such as low-sulphur vehicle fuels, petrochemical feedstock and high-quality lubricants. This technology does not only exist, but is also being implemented at massive scale in the deserts of Qatar by Shell. Having invested $19 billion in constructing this modern-day wonder of the world, Shell is in the process of starting it up. This small country has became a prominent economic power crouching to find its place among super powers

Shell opted to build a gigantic plant in Qatar, which has the world’s third-largest reserves of natural gas and has created one of the most welcoming business environments in the world for large-scale energy projects. In 2002, when Pearl GTL was mooted, Shell’s presence in Qatar consisted of an office staffed by one executive and a secretary. This was kind of ironic when you consider that it was Shell that discovered Qatar’s North Field, source of 99% of the country’s gas reserves, in the 1970s. Today, Shell has overtaken ExxonMobil to become the largest foreign investor in Qatar’s natural gas industry. Its two big gas projects in the country, the Qatargas 4 LNG mega-train and Pearl GTL, represent an investment by Shell of some $21 billion.

Most of that is accounted for Pearl, which is a world-class generator of superlatives. The site is as large as London’s Hyde Park. For those in the energy business, however, its true scale can perhaps be measured by how much product it will produce and how much cash it will generate. When ramped up to full output it will produce 140,000 b/d of GTL products, from two 70,000 b/d trains and 120,000 b/d of liquefied petroleum Gas (LPG), a total hydrocarbons output of 260,000 b/d. In other words, around 7.5% of Shell’s hydrocarbons output last year.

At a final capital cost of $18-19 billion, Pearl is one of the most expensive energy projects ever built. When the project was first proposed in 2002, Shell estimated it would cost $4-5 billion. By the time of final investment decision in 2006, cost estimates had risen to $12-18 billion.

However, while the capital cost of the project rocketed, so did oil prices. Even when priced conservatively at just the crude oil price, Pearl’s combined hydrocarbons output – at 95% availability and $ 100/b crude – would generate annual revenue of $9 billion. That, ignoring operating costs of a few percentage points, would mean a payback period of just over two years. At  $50 oil, well below even the most pessimistic long-term forecasts, the payback period would be around four years. Right now, oil price is well over $ 100/b. To put it another way, Pearl will take gas that costs around  $ 6 / barrel of oil equivalent to produce and convert it into products that currently attract more than $ 100/boe.

Despite the scale and complexity of the plant, the project was on track to start up its first GTL train by the middle of this year and the second before the year-end. As expected the plant to ramp up to full output by the middle of next year.

Oil Production
Qatar is the second smallest crude oil producer in OPEC, with its production exceeding only that of Ecuador. In  2009, Qatar produced approximately 1.2 million barrels per day  (bbl/d) of total liquids: 830,000 bbl /d of crude and 380,000 bbl /d of non-crude liquids. Preliminary estimates for production in 2010 indicate total production of liquids to be about 1.4 million bbl/d: 850,000 bbl /d of crude and 590 bbl /d of non-crude liquids. The country’s crude oil production capacity was estimated to be just over one million bbl/d in 2010, falling just below its condensate and natural gas liquids production capacity for the same year.

Though Qatar petroleum production has grown steadily since 2002, Qatar’s fields are maturing, and output at Dukhan formerly the largest producing field is in decline. To offset anticipated declines, enhanced oil recovery (EOR) techniques are being considered for several fields including Al-Shaheen, Dukhan, Bul Hanine, and Maydan Marjam. Danish company Maersks offshore field Al-Shaheen is an important source for future production growth. Though it averaged just under 300,000 bbl/d of production in 2009, Maersk completed an expansion project in 2010 that increased its production capacity to 525,000 bbl /d.

Refining Capacity
According to Oil and Gas Journal, as of January 1, 2011, Qatar has 338,700 bbl/d of refining capacity. There are currently two refineries in Qatar, located in the major port cities of Umm Said and Ras Laffan. The 138,700 bbl/d Ras Laffan condensate refinery began operations in late September 2009. The Laffan refinery is controlled by a consortium of investors: Qatar Petroleum 51%, ExxonMobil 10%, and Total 10%, and Japanese companies Idemitsu 10%, Cosmo 10%, Mitsui 4.5% and Marubeni 4.5%. The refinery will have the capacity to produce about 60,000 bbl/d of naphtha, 50,000 bbl/d of jet fuel, 25,000 bbl/d of gasoil, and 10,000 bbl/d of LPG. Plans call for a doubling of Ras Laffans refining capacity by 2015, primarily to refine a greater portion of the North Fields rapidly growing production of condensate. Although Qatar Petroleum was considering an additional 250,000 bbl/d refinery to process the heavier Al-Shaheen crude, the project has been put on hold.

Natural Gas
According to Oil and Gas Journal, Qatar’s proven natural gas reserves stood at approximately 896 TCF as of January 1, 2011. Qatar holds almost 14% 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 worlds largest non-associated natural gas field, the North Field is a geological extension of Irans South Pars field, which holds an additional 450 TCF of recoverable natural gas reserves. The North Field is key to Qatar’s natural gas development and production plans, as the site of nearly all of the country’s natural gas reserves. In 2005, Qatari government officials placed a moratorium on additional natural gas development projects at the North Field to allow time to study field development optimization. The moratorium did not affect exploration and production projects already approved or underway, allowing Qatar to continue its growth in natural gas production.

Although the moratorium had been scheduled for review in 2014, the Energy Ministry indicated in late 2010 that it does not plan to lift the moratorium at this time. The Barzan gas project, which will produce about an additional 600 BCF per year, was the last North field project to be approved prior to the moratorium. The project will be a 90-10 joint venture between Qatar Petroleum and ExxonMobil, and is expected to come online between 2014 and 2015.

Qatar continues to expand natural gas production. In 2009, Qatar produced billion cubic feet of natural gas, three times the amount produced in 2000. Although the increase in natural gas production fuels the growing natural gas requirements of domestic industry and its gas-to-liquids (GTL) projects, the bulk of this increase is going towards LNG exports. Qatar’s natural gas consumption in 2009 was approximately 745 BCF.

As for exportation, Qatar exported over 2,400 BCF of natural gas in 2009, of which about 70% was liquefied natural gas (LNG). Qatar currently exports about 2 BCF/d of natural gas to the UAE and Oman through the Dolphin pipeline.

Liquefied Natural Gas
Qatar is the worlds leading LNG exporter. In 2009, Qatar exported nearly 1,800 BCF of LNG. Japan, South Korea, and India were the primary destinations for Qatars LNG exports, accounting for about 57%. European markets including Belgium, the United Kingdom and Spain were also significant buyers of Qatari LNG, accounting for an additional 33%.

Although Qatar began exporting LNG in 1997, heavy government emphasis on this sector, in terms of making investments and attracting foreign investors, contributed to the rapid development of Qatar LNG capacity. This LNG sector is dominated by Qatargas Operating Company Limited (Qatargas), which operates four major LNG ventures (Qatargas I-IV) and Ras Laffan Company Limited (RasGas), which operate three major LNG ventures (RasGas I-III). RasGas is owned by Qatar Petroleum (70%) and ExxonMobil (30%), while the Qatargas consortium includes Qatar Petroleum, Total, ExxonMobil, Mitsui, Marubeni, ConocoPhillips, and Shell. Each venture has an individual ownership structure, though Qatar Petroleum owns at least 65%  of  all  the  above  ventures.

RasGas and Qatargas have 14 LNG trains currently online, with a total LNG liquefaction capacity of 3,400 BCF/year (69.2 MMT/year). Five of these trains were added in 2009 and 2010. RasGas III, Train 7, with a liquefaction capacity of 380 BCF/year  (7.8 MMT) of LNG began operations in February of 2010. Qatargas III, Train 6, came online in November of 2010 with the same liquefaction capacity. The 7.8 MMT train is considered as a mega-train, and is currently the largest worldwide.

In March of 2011, Qatar will complete its monumental cycle of LNG infrastructure expansion with the inauguration Qatargas IV, Train 7 (80 BCF/year or 7.8 MMT), which will bring the total capacity to 3,750 BCF/ year (77MMt / year). Qatari government officials have noted that they do not anticipate building any more LNG facilities in the near-term future, and that any additional capacity increases will be the result of improvements in the existing facilities. Although the most recent train additions were originally intended with U.S. markets as the primary target, low U.S. gas prices due to the shale gas boom have caused Qatar to pursue contract options with countries particularly China and India. In the first 10 months of 2010, the United States had imported only 33 BCF of LNG from Qatar.

Dolphin Project
Qatar is the supplier for the Dolphin Project, which connects the natural gas networks of Qatar, the UAE, and Oman with the first cross-border natural gas pipeline in the Gulf Arab region. The pipeline currently exports 2 BCF/d from Qatar, though it has a design capacity of 3.2 BCF/d. Dolphin Energy has been trying to secure additional Qatari gas to meet the rapidly growing demand for gas in the UAE, however, increased supplies from Qatar are uncertain.

Gas-to-Liquids
Gas-to-liquids (GTL) technology uses a refining process to turn natural gas into liquid fuels such as low-sulfur diesel and naphtha, among other products. Qatar is one of the sole three countries; South Africa, Malaysia, and Qatar to have operational GTL facilities. Qatars Oryx GTL plant (Qatar Petroleum 51%, Sasol-Chevron GTL 49%) came online in 2007, but due to initial problems, was not fully operational until early 2009. At full capacity, the Oryx project uses about 330 MMCF/d of natural gas feedstock from the Al Khaleej field to produce 30,000 bbl / d of GTL. The Pearl GTL project (Qatar Petroleum 51%, Shell 49%) is expected to use 1.6 BCF/d of natural gas feedstock to produce 140,000 bbl/d of GTL products as well as 120,000 bbl/d of associated condensate and LPG. Shell announced that the plants initial phase would begin operations in the first quarter of 2011, and that the second phase would come online in the first half of 2012. In addition to being the largest GTL plant in the world, the Pearl project will also be the first integrated GTL operation, meaning it will have upstream natural gas production integrated with the onshore conversion plant.

By: Mostafa Mabrouk, Vice Chairman Assistant For Economic Affairs, Ganope

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