11 April 2010
Doha sees GDP growing 16 per cent this year as its industrial expansion continues, but the country's prospects have been hit by weak prices for its exports of LNG as the world experiences a surge in supply, and a domestic property slump.
Qatar is the fastest growing economy in the Gulf and a visit to this cluster of gas-fuelled plants on the country's north-east coast shows why.
The shore is lined with huge complexes as long as 1km, made of twisting steel pipes and tanks belching flames that turn the country's prodigious natural gas reserves into a range of liquid fuels exported by tanker around the world.
Each time one of these plants is started up, the impact on Qatar's tiny economy is enormous. Industrial projects launched this year will be the principle driver behind the country's forecast 16 per cent growth in real GDP.
Last week the government inaugurated a large refinery that turns light oil from gas production into motor fuels and feedstock for petrochemicals. And this week marks the opening of the Qatalum smelter, in the south of the country, that will burn gas to produce 585,000 tonnes of aluminium a year for export.
Later this year, two plants for producing liquefied natural gas (LNG) will come online. Royal Dutch Shell and
Qatar Petroleum also plan to complete construction by December of a separate US$19 billion (Dh69.78bn) facility to convert gas directly into petrol, diesel and other oil products - a facility that is groundbreaking in its scale.
And the flow of investment will not end there: the government and private companies are still pouring tens of billions of dollars into heavy industries that will use the products coming out of all these plants to create more advanced export goods such as chemicals, plastics and metals.
But the timing of Qatar's big investment on industry could hardly have been worse.
Each of the industries opening plants after three to five years of construction, whether petrochemicals, aluminium, refining or natural gas exports, is in the middle of a deep downturn. Oversupply from plants in the Gulf and Asia is combining with decreased global demand to dampen prices.
Profits from petrochemicals and refining are likely to remain low for years, analysts say, while prices for LNG, Qatar's principle export, have been hit by an unexpected surge in gas production in the US, the country that was supposed to become the next big market.
Aluminium prices have recovered from their lows of last year, but are still forecast this year and next to remain at least 20 per cent below the between $2,700 and $3,000 a tonne they were in 2007 and 2008.
Qatar's industrial plants in the short term will "not give the payback that was envisaged" when the projects were planned years ago, says MR Raghu, the head of research at the Kuwait Financial Centre.
"In most cases it's going to be an instance of bad timing," Mr Raghu says. "By definition, project investments are long term and they have to go through this grind of a cycle."
But Mr Raghu notes that Qatar's projects were among the most cost-competitive in the world and built for the long term, with the pay-off realised over "generations to come".
The biggest challenge is in the market for LNG, Qatar's most valuable export. Between 2000 and 2006, the country invested tens of billions of dollars into the construction of LNG plants to cater to an expected surge in gas consumption in Asia, Europe and the US.
The country is already the largest LNG exporter, with capacity at 53 million tonnes a year, but it is on track to raise capacity to 77 million tonnes a year by next year.
In the time that those projects have been under construction, however, growth in gas consumption has slowed while output from the US has sharply increased after increased development of unconventional reserves of so-called shale gas.
Average prices for LNG exports have fallen, leading Qatar to divert tankers to China and other markets that command a higher price, says Abdullah al Attiyah, the Qatari deputy premier and minister of energy and industry.
"We're not panicking," Mr al Attiyah said on the sidelines of the refinery inauguration on Tuesday. "We have the right to divert; we already divert 5 million tonnes to China and we have already signed an MOU [memorandum of understanding] for another 7 million tonnes to China."
Qatar wants to sell India additional volumes of 4 million tonnes a year, he said, while Pakistan is also in the market for more supply and Poland may import more from Qatar than the agreed 1 million tonnes.
The diversions are not the only instance of Qatar adapting to the new economic realities. The government also appears to have delayed a crude oil refinery that would process oil from the Al Shaheen field.
With refining margins for crude oil still very low and the cost of the refinery pegged very high, there is little rush to move forward, Mr al Attiyah indicated. "It's still on hold," he said of the plant, planned to have a capacity of 250,000 barrels per day (bpd). "We need to pay attention to the cost; the cost is very high."
The Laffan Refinery inaugurated last week presents a different cost-benefit calculation, since it processes condensate, a light oil extracted with natural gas.
The refinery has a lower capital cost, because it requires less complex technology and produces higher value products that command a premium on export markets.
Even so, Qatari officials took pains last week to describe the refinery as more of a strategic domestic project than an export venture.
The refinery will produce 63,000 bpd of naphtha, a high-quality fuel that will be used in the country's petrochemicals industry, while 52,000 bpd of kerosene will be turned into jet fuel for Qatar Airways.
The plant will also produce 24,000 bpd of diesel, which will help end the country's imports of the fuel and cater to a doubling in demand by 2025, estimates by Qatar Gas show.
Qatar's industrial growth spurt will likely slow in coming years. The government has maintained a moratorium on further development of the North Field, the country's main gas reserve. The moratorium was supposed to end this year but has been extended until at least 2014.
"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," Samuel Ciszuk, a Middle East energy analyst at IHS Global Insight, wrote in a recent report.
Even without the high profit margins that were originally predicted, Qatar's investments in industry would still yield huge revenues for the country's small population for decades, Mr Raghu says.
"These projects don't have employment as the central objective, they have good investments as their central objective," he says. "These are structured investments where the payback period is going to be very, very long."
By Chris Stanton
Source: http://www.zawya.com/story.cfm/sidZAWYA20100411060624/Easing%20Off
Doha sees GDP growing 16 per cent this year as its industrial expansion continues, but the country's prospects have been hit by weak prices for its exports of LNG as the world experiences a surge in supply, and a domestic property slump.
Qatar is the fastest growing economy in the Gulf and a visit to this cluster of gas-fuelled plants on the country's north-east coast shows why.
The shore is lined with huge complexes as long as 1km, made of twisting steel pipes and tanks belching flames that turn the country's prodigious natural gas reserves into a range of liquid fuels exported by tanker around the world.
Each time one of these plants is started up, the impact on Qatar's tiny economy is enormous. Industrial projects launched this year will be the principle driver behind the country's forecast 16 per cent growth in real GDP.
Last week the government inaugurated a large refinery that turns light oil from gas production into motor fuels and feedstock for petrochemicals. And this week marks the opening of the Qatalum smelter, in the south of the country, that will burn gas to produce 585,000 tonnes of aluminium a year for export.
Later this year, two plants for producing liquefied natural gas (LNG) will come online. Royal Dutch Shell and
Qatar Petroleum also plan to complete construction by December of a separate US$19 billion (Dh69.78bn) facility to convert gas directly into petrol, diesel and other oil products - a facility that is groundbreaking in its scale.
And the flow of investment will not end there: the government and private companies are still pouring tens of billions of dollars into heavy industries that will use the products coming out of all these plants to create more advanced export goods such as chemicals, plastics and metals.
But the timing of Qatar's big investment on industry could hardly have been worse.
Each of the industries opening plants after three to five years of construction, whether petrochemicals, aluminium, refining or natural gas exports, is in the middle of a deep downturn. Oversupply from plants in the Gulf and Asia is combining with decreased global demand to dampen prices.
Profits from petrochemicals and refining are likely to remain low for years, analysts say, while prices for LNG, Qatar's principle export, have been hit by an unexpected surge in gas production in the US, the country that was supposed to become the next big market.
Aluminium prices have recovered from their lows of last year, but are still forecast this year and next to remain at least 20 per cent below the between $2,700 and $3,000 a tonne they were in 2007 and 2008.
Qatar's industrial plants in the short term will "not give the payback that was envisaged" when the projects were planned years ago, says MR Raghu, the head of research at the Kuwait Financial Centre.
"In most cases it's going to be an instance of bad timing," Mr Raghu says. "By definition, project investments are long term and they have to go through this grind of a cycle."
But Mr Raghu notes that Qatar's projects were among the most cost-competitive in the world and built for the long term, with the pay-off realised over "generations to come".
The biggest challenge is in the market for LNG, Qatar's most valuable export. Between 2000 and 2006, the country invested tens of billions of dollars into the construction of LNG plants to cater to an expected surge in gas consumption in Asia, Europe and the US.
The country is already the largest LNG exporter, with capacity at 53 million tonnes a year, but it is on track to raise capacity to 77 million tonnes a year by next year.
In the time that those projects have been under construction, however, growth in gas consumption has slowed while output from the US has sharply increased after increased development of unconventional reserves of so-called shale gas.
Average prices for LNG exports have fallen, leading Qatar to divert tankers to China and other markets that command a higher price, says Abdullah al Attiyah, the Qatari deputy premier and minister of energy and industry.
"We're not panicking," Mr al Attiyah said on the sidelines of the refinery inauguration on Tuesday. "We have the right to divert; we already divert 5 million tonnes to China and we have already signed an MOU [memorandum of understanding] for another 7 million tonnes to China."
Qatar wants to sell India additional volumes of 4 million tonnes a year, he said, while Pakistan is also in the market for more supply and Poland may import more from Qatar than the agreed 1 million tonnes.
The diversions are not the only instance of Qatar adapting to the new economic realities. The government also appears to have delayed a crude oil refinery that would process oil from the Al Shaheen field.
With refining margins for crude oil still very low and the cost of the refinery pegged very high, there is little rush to move forward, Mr al Attiyah indicated. "It's still on hold," he said of the plant, planned to have a capacity of 250,000 barrels per day (bpd). "We need to pay attention to the cost; the cost is very high."
The Laffan Refinery inaugurated last week presents a different cost-benefit calculation, since it processes condensate, a light oil extracted with natural gas.
The refinery has a lower capital cost, because it requires less complex technology and produces higher value products that command a premium on export markets.
Even so, Qatari officials took pains last week to describe the refinery as more of a strategic domestic project than an export venture.
The refinery will produce 63,000 bpd of naphtha, a high-quality fuel that will be used in the country's petrochemicals industry, while 52,000 bpd of kerosene will be turned into jet fuel for Qatar Airways.
The plant will also produce 24,000 bpd of diesel, which will help end the country's imports of the fuel and cater to a doubling in demand by 2025, estimates by Qatar Gas show.
Qatar's industrial growth spurt will likely slow in coming years. The government has maintained a moratorium on further development of the North Field, the country's main gas reserve. The moratorium was supposed to end this year but has been extended until at least 2014.
"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," Samuel Ciszuk, a Middle East energy analyst at IHS Global Insight, wrote in a recent report.
Even without the high profit margins that were originally predicted, Qatar's investments in industry would still yield huge revenues for the country's small population for decades, Mr Raghu says.
"These projects don't have employment as the central objective, they have good investments as their central objective," he says. "These are structured investments where the payback period is going to be very, very long."
By Chris Stanton
Source: http://www.zawya.com/story.cfm/sidZAWYA20100411060624/Easing%20Off
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