New Qatari Emir is good news for Gas

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Amidst all the fascinated reporting of last month’s unprecedented succession of power in Qatar – when former emir Sheikh Hamad bin Khalifa al-Thani handed over “the reins of power” to his son Sheikh Tamim bin Hamad al-Thani – there seemed to be a general lack of emphasis of just how important a gas producer Qatar has become. The main focus appeared to be on the many high-profile investments that Qatar has made with the money it has made from its gas.

Yes, it was recognised that Qatar is now the biggest producer of LNG. But it is not just the biggest producer – it is the biggest by a very wide margin. In 2012 Qatar exported 77.1 million tonnes (mt). The second-largest producer was Malaysia (23.4 mt), followed by Australia (20.5 mt) and Nigeria (20.1 mt). No other country produced more than 20 mt. To put it another way, Qatar took a third of the total global market of 238 mt.

Construction workers on on the Qatar Gas 4 ProjectCONSTRUCTION UNDER WAY AT QATARGAS 4 – Completion of the Qatargas 4 project, a mega-train around a kilometre long and the 14th LNG train at Ras Laffan Industrial City, gave Qatar production capacity of 77 mtpa. (Photo courtesy of Shell)

And yet LNG is only half the story. When the last of the current round of gas production projects, Barzan, reaches full output, Qatar will have gross gas production capacity of 23 Bcf/d or some 240 Bcm/year. This will make it the world’s third-largest gas producer after the United States and Russia – bigger than Iran, bigger than Canada.

Qatar is not just the biggest producer of LNG, it is also by far the biggest producer of gas-to-liquids (GTL) products. It exports large amounts of pipeline gas to the United Arab Emirates and Oman via the Dolphin pipeline, exports that it is currently planning to ramp up. At home it uses large amounts of gas not just for electricity production (some of which is exported) and water desalination, but also as fuel and feedstock for a range of gas-related industries that includes petrochemicals and aluminium. It is also a major exporter of condensate and LPG, which are by-products of its natural gas production.

This makes the smooth succession of power in Qatar of vital importance to Qatar’s many customers for gas and gas-related products around the world, especially in Asia.

Enlightened and progressive: There is no question that much of Qatar’s success in developing LNG is thanks to the policies of the enlightened and progressive former emir – ably assisted by former energy minister Abdullah bin Hamad al-Attiyah, who retired a few years ago, and the current incumbent Mohammed al-Sada.

In the 18 years that emir ruled, he transformed the country from what some have described as a “sleepy backwater” into an economic and diplomatic powerhouse. Unlike some of the countries that have become LNG producers, Qatar was seen as presenting little political risk. That said, there had been concerns about the political outcome if anything were to happen to the emir – and there had long been rumours that he was not in the best of health.

The former emir’s decision to hand power over to his son is one of the best indicators of just how enlightened and progressive he is. At the same time, you can be sure that he would not have done so if he was not sure that the former heir apparent was ready and well qualified for his new role.

Speaking on Al Jazeera, the ground-breaking news operation that the emir was responsible for setting up, he declared: “I will hand over the reins of power to Sheikh Tamim bin Hamad al-Thani; and I am fully certain he is up to the responsibility; deserving the confidence; capable of shouldering the responsibility and fulfilling the mission.”

New leadership, same direction? The handing over of power, and the subsequent cabinet reshuffle that followed, leaves Qatar with a new, much younger, but well qualified leadership that is likely to continue following the trail blazed by Sheikh Hamad. If anything, the general view appears to be that the new emir is likely to focus less on foreign policy and more on domestic issues.

That said, there will inevitably be changes. As Sheikh Hamad said in his speech: “The time has come to turn a new leaf in the history of our nation, where a new generation steps forward to shoulder the responsibility with their dynamic potential and creative thoughts.”

One of several big challenges facing the new emir and his team will be how best to manage the nation’s economy. For years, rising revenues from natural gas have given the country one of the fastest, if not the fastest, rates of GDP growth in the world. In 2011, for example, real GDP growth was 14.1% and nominal GDP growth 36.3%. The former emir often emphasised just how important economic growth is in a nation with a fast-growing population that wants to provide its people with good health, education and other public services. Qatar has also of course taken on the challenge of staging the football World Cup in 2022, which is requiring large investments.

Population growth is likely to slow from the fast rates of the previous decade, but so is the growth of GDP as Qatar’s hydrocarbon production levels off. Crude production is in decline, though there is a big push to reverse that trend, while revenues from natural gas will plateau when Barzan reaches full production. Other sources of revenue are unlikely to be large enough for Qatar’s GDP growth to continue at double-digit rates.

There is therefore likely to be growing pressure to launch a new round of gas development once the current moratorium on further production projects utilising North Field gas is reviewed. However, the results of that review will depend on reservoir studies yet to be completed and it is possible that the moratorium will be extended if the results are less than positive.

There has also been speculation – notably in a recent issue of Middle East Economic Survey (MEES) – that the new emir may usher in an era of restructuring at Qatar Petroleum, the national oil and gas company.

For now, the new emir will need to take time to adjust to his new role. Moreover, the nation is approaching its holiday season. Come September, however, there will be intense interest in any signs of the direction that the new emir intends to take – not least amongst Qatar’s gas customers.

by Alex Forbes