DOHA (Zawya Dow Jones), Oct. 27, 2009
Qatar, one of the world's wealthiest countries, will inaugurate a giant liquefied natural gas, or LNG, export plant this week at a time when world energy demand is being dragged down by the global economic slump.
Ras Laffan Liquefied Natural Gas Co. Ltd., better known as RasGas, a joint venture of Qatar Petroleum and Exxon Mobil Corp., has already started producing LNG from its sixth production facility, commonly referred to as train six, boosting the company's output by 7.8 million tons annually to 28.5 million tons of the supercooled gas.
The project is the latest in a series of mega plants that will make the tiny Gulf state the world's largest LNG exporter by far with a total capacity of more than 77 million tons a year by the end of the decade, of which about 42 million tons annually will come from another local operator, Qatargas Operating Co. Ltd.
LNG is gas cooled down so it becomes liquid and can be transported in special vessels over long distances.
RasGas' train six start up comes at a critical time for oil and gas exporters, with energy demand in the world's top economies slowing or falling as they cope with the fallout from the world financial crisis.
"Because demand for gas closely correlates with the development of industrial output in developed countries, the economic downturn and resulting decline in output has prompted a decline in natural gas demand," consulting firm Booz & Co. said in a report Sunday. "This reduction is led by energy-intensive industries.
At the same time, producers are faced with massive new LNG capacity coming on stream worldwide, creating "a position of oversupply of between 5% and 15% this year and next," according to Booz & Co.
Prices are also under pressure. Gas in the U.S. is at around $3-4 per million British Thermal Units, or BTUs, while two years ago cargoes of the fuel were being bought for an average of $7.26 a million BTUs in the U.S.
And even though prices are holding up better in Asia -- with LNG being sold at around $5-6 a million BTUs -- they are still way down from their peaks during the middle of last year, potentially threatening exporters' profitability.
"Profitability will be at risk if buyers seek to renegotiate contracts. Thus the large national oil and gas companies such as Gazprom in Russia, Statoil in Norway, Sonatrach in Algeria and QP in Qatar, should assess the implications of reducing production, and align their project portfolios with the new market realities," Booz & Co. said.
Despite challenging conditions, Qatar, unlike some of its larger neighbors, has weathered the storm of the global economic crisis rather well. The International Monetary Fund forecasts the country's economy to grow by 11.5% this year, outstripping growth in the region's largest economies, Saudi Arabia and the United Arab Emirates.
Qatar's per capita gross domestic product stood at an estimated $110,800 in 2008, according to the CIA World Factbook, well above the U.S.'s $46,900 and Germany's $35,400.
In recent years, natural gas exports to Asia, Europe and the U.S. have provided Qatar with a stable source of income, which the government in turn has channeled into overseas investments, including in trophy assets like Barclays PLC and German auto giant Volkswagen.
It is also investing heavily in infrastructure, with a new $14 billion airport due to open in 2011 alongside The Pearl real-estate development, which allows foreigners for the first time to buy property in the country.
The new RasGas plant, which produced first LNG in August, is one of the next generation of "mega trains" that will lift the country's LNG output. Production at a seventh train with the same capacity is expected to come on stream soon.
The inauguration of the vast plant in Qatar's Ras Laffan industrial area, about 80 kilometers north east of the capital Doha, comes amid speculation that the government will lift a moratorium on development of the country's giant offshore North Field gas reservoir. Qatar holds the world's third-largest gas reserves after Russia and Iran.
Faisal Al Suwaidi, chief executive of Qatargas, said earlier this month it was a question of when the block on development will be lifted, not if. The decision, which won't be made until 2014, when a full evaluation of the field's resources is complete, rests with Qatar's ruler Sheikh Hamad bin Khalifa Al Thani.
Any increase in its gas production will help bankroll Qatar's massive diversification program as the country looks to expand its economy beyond the hydrocarbon sector and establish itself as hub for other industries as well, including financial services.
Copyright (c) 2009 Dow Jones & Company, Inc.
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