Qatar Matures, New Grassroots North Field Projects Unlikely

Direction Hinted

Comments by Qatari energy minister Abdullah bin Hamad al-Attiyah and Saad al-Kaabi , director of oil and gas ventures at state-owned Qatar Petroleum (QP) suggest that the emirate’s moratorium on new projects involving gas volumes from the giant offshore North Field reservoir might again be extended into 2014, while making it clear that new grassroots projects are unlikely to materialise. “If we go for grassroots projects, we’ll have to set up new operating projects, we’ll have new costs", al-Kaabi told Bloomberg on the sidelines of an industry conference, adding that upgrading existing ventures would be the “cheapest and most efficient way to expand” going forward. The message was further reinforced by al-Attiyah, who repeated Qatar’s earlier published expectation to be able to add another 12 million t/y of LNG capacity through debottlenecking its trains if more gas becomes available, according to Bloomberg (see Qatar: 9 October 2009: Debottlenecking Could Add Up to 12 mil. T/Y of LNG Capacity to Qatar's Peak Targets).

The seemingly constant prolonging of the moratorium on further North Field development, which Qatar launched in 2005, together with a thorough survey of the vast reservoir—the world’s single largest gas field—was initially only supposed to last until 2006 (see Qatar: 15 September 2006: Qatar Disappoints with Delay to North Field Gas Study till End of 2008 and Qatar: 25 August 2006: North Field Reservoir Assessment Due End-2006; Qatar's Gas Future Rests on Results). The moratorium has since then been regularly protracted and as late as early this year was said to extend into 2013 (see Qatar: 16 January 2009: Qatargas I Calls Force Majeure; North Field Moratorium Seems Extended to 2013 and Qatar: 11 November 2008: Indian Energy Minister Seeks 5 mil. t/y of Additional Qatari LNG During Visit). What seems like a new indication that the moratorium could extend into 2014 should just be seen as confirmation that the main direction and strategy for the development and utilisation of the North Field reservoir is already laid out and that the emirate—after firmly establishing itself at the top of global LNG output—will look mainly to prolonging the lifespan of its gas reserves.

Prolonging the reserves has been at the heart of Qatari endeavours since the start of North Field’s development and it is interesting to note that subsequent moratorium extensions since 2006 have often been motivated by a difficulty in identifying markets for the LNG volumes, or worries about long-term LNG pricing- this aside from the endlessly delayed reservoir study. In fact, a very good clue as to Qatar Petroleum’s relatively early understanding of the reservoir situation was given in media comments made in October 2007 by Qatargas’ chief executive Feisal al-Suwaidi, who said that new projects, beyond those already slated, would necessitate expensive compression methods throughout the vast reservoir to counteract pressure falls (see Qatar: 17 October 2007: Doubts Increase over Qatar's Ability to Raise LNG Exports Beyond 2011). This would naturally raise production costs significantly and alter the now favourable economics at all existing projects.

No More Calls

News that Qatar is highly unlikely to consider any new grassroots projects drawing gas from the North Field will naturally sadden the shrinking number of companies that still entertained hopes of future opportunities there. Qatar has worked together with a relatively small number of supermajors in the development of its vast gas resources and those companies are highly likely by now to have a good understanding of the North Field and its limitations. Significantly, they have all over the past several years seized on LNG growth opportunities elsewhere, like for instance deeply Qatar-involved ExxonMobil’s investment in Papua New Guinean and Australian LNG projects.

Still, Qatar will go from being one of the largest and most protracted upstream growth areas in the past few decades to merely sustaining its output after its current LNG push is completed in late 2010 (or perhaps early 2011), its GTL push is completed during 2011, and al-Khaleej and Barzan, the domestic market supply gas projects, come onstream fully, well before the middle of the decade. The loss will, from that perspective, mainly be felt by oil service companies and contractors, which over the past decade have built up sizeable operations in the emirate.

The greatest disappointment is likely to come from some of Qatar’s neighbours, many of whom had been hoping for the construction of future gas import pipelines, or in the case of the UAE and Oman, larger volumes through existing lines. Neighbours such as Bahrain and Kuwait woke up to their future gas import needs too late compared to regional gas import pioneer Abu Dhabi, despite Kuwait in particular experiencing deep shortages over the past few years. With Qatar now signalling that there will be no more room for any greenfield projects, hopes of sourcing comparatively cheap and politically unproblematic imports are fading quickly, as Iraq is unlikely to have a large stable surplus for a long time and Iran is both failing to get projects off the ground and makes anything but a favourable energy partner to the GCC states with political circumstances as they are. Even Abu Dhabi and Oman will be disappointed, as the Dolphin pipeline still has significant spare capacity and is built so that it might be easily expanded, a prospect that Qatar has now poured cold water on.

The Security Perspective

The decision might, however, help soothe brewing security tensions with Iran, which has expressed fears that Qatar’s fast development of the North Field—coupled with its own failure to develop its part of the shared reservoir, known as South Pars in Iran, in a timely manner—would result in overall pressure falls and possible reserve migration to the Qatari parts. This is potentially a highly explosive issue among the general public of the Gulf—not unlike the charges trumped up against Kuwait by former Iraqi president Saddam Hussein before his invasion of the country—and therefore an issue that Qatar has tried to handle with the utmost delicacy. From the reservoir survey standpoint, the Qatari’s are probably trying to assess future Iranian production, using less advanced and efficient technology in order to manage the longevity of the whole reservoir and further enforcing their decision that their current production level might be enough, when viewed from a political standpoint.

Outlook and Implications

Qatar’s perhaps not definitive, but highly likely decision not to pursue any large new development projects on the vast North Field reservoir has robbed its neighbours of their last opportunity for new or additional attractively-priced gas supplies via pipeline without having to turn to Iran, with all the political and economical challenges that would entail. Indeed for Kuwait and soon also Bahrain, more receiving LNG imports at regionally very high prices might become the only way of staving off long-term shortages , a situation that Dubai and other northern emirates might eventually find themselves in as well.

For Qatar, however, its rapid ascent to the summit of LNG production will allow it to manage the market more closely over the years ahead, entrenching its market share and building alliances in order to meet future competition on its own terms when the large number of planned Australian LNG ventures come onstream, mainly in the middle and second half of the coming decade. Until then growth will be slower, mainly to the chagrin of oil service companies and contractors, which have managed large projects of a size unlikely ever to return to Qatar.

Still, Qatar has significant growth prospects left, with debottlenecking expected to add 12 million t/y of LNG production capacity and a significant margin left to satisfy future domestic demand growth. The emirate will be able to continue growing its petrochemical and chemical industrialisation ventures and satisfy its planned growth in all other sectors under development, as large parts of its vast LNG and condensate export earnings stabilise and are invested in the domestic economy.