Taking the LNG Road: The Efforts of Gulf Governments to Diversify Their Economies Are Almost as Well Documented as Their Oil Wealth. Yet While Attempts to Promote the Growth of New Sectors Have Not Recorded Unparalleled Success, the Drive towards Liquefied Natural Gas (LNG) Development Has Proved More Fruitful

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THE GROWING IMPORTANCE of the LNG sector in the Middle East and North Africa (MENA) is, in part, the result of its proximity to the oil sector. It too relies on hydrocarbon reserves, enabling producing states to make the most of their existing expertise, yet the requirement for liquefaction trains to turn natural gas into transportable liquid also enables the emergence of an industrial sector, yielding much sought after diversification, a boost to export revenues and job creation opportunities.

In simple terms, LNG involves a large amount of gas being converted into a much smaller amount of liquid. This liquid can then be carried by ship to markets around the world to regasification terminals, where it is converted back into gas for use in power generation and other industrial processes. It can either be consumed close to the regasification terminal, or can be piped via gas transmission infrastructure to sites further afield. Traditionally it was sold on long-term contracts of 20 years of more, but is increasingly marketed in the form of spot cargos, which provide more flexibility for consumers but increased uncertainty for producers. While Algeria has produced LNG for over 40 years, most MENA states have not made the most of their gas wealth until recently. This is partly because of the obsession with oil but also because the global LNG market has been limited. Poor in hydrocarbon wealth, Japan and South Korea have long relied on LNG imports from Indonesia, Malaysia and elsewhere but it is only in recent years the western European and North American LNG markets have become more substantial.

The International Energy Agency's World Energy Outlook in 2006 revealed that global LNG consumption increased by more than 30% between 2000 and 2005. On the back of rising European and US demand, global production capacity will almost double between 2005 and 2010 to 345m tonnes a year (mr/y) as a result of investment of $73bn in liquefaction trains. Over 45% of this investment is being made in the Middle East and Africa. Nigeria is emerging as a major producer but almost all the rest of this new capacity is being constructed along the African Mediterranean coast and in the Gulf.

Qatar, by far the most successful MENA state in developing an LNG sector, benefits from having the world's third biggest gas reserves, after Russia and Iran, with 910 trillion cubic feet (tcf), largely centred on the massive offshore North field. It is Qatar rather than Iran that has emerged as a major LNG producer because the Doha government has sought to attract investment in the sector.

There are two LNG producers in Qatar: Ras Laffan LNG Company (Rasgas) and Qatar LNG Company (Qatargas), both of which are jointly Qatari and foreign owned. Equity in the latter is held by Qatar Petroleum (65%), Total (10%), ExxonMobil (10%), Mitsui (7.5%), and Marubeni (7.5%). The company has exported LNG from Qatar for just over 10 years and now possesses three production trains with total capacity of 9.2 mt/y. Rasgas, which is mainly owned by Qatar Petroleum and ExxonMobil, possesses four liquefaction trains with combined production capacity of 13.2 mt/y and began exporting LNG in 1999; a fifth train is scheduled for completion by early 2008.

These two plants enabled Qatar to overtake Indonesia during the course of 2006 to become the world's biggest LNG producer. However, as a result of massive investment by ExxonMobil and Qatar Petroleum, Qatari capacity is set to more than double within five years. The two partners are developing a second, separate Qatargas plant, including two liquefaction trains, each with capacity of 7.8 mt/y, making them the largest LNG trains in the world. The first should be officially opened during the first quarter of 2008, the second about a year later. Some production has already been committed to supplying the UK.

Qatar Petroleum (70%) and ExxonMobil (30%) are also developing a second Rasgas plant, also comprising two 7. …