Taking the LNG Road
The efforts of Gulf governments to diversify their economies are almost as well documented as their oil wealth. With a global dependency on oil consumption and few genuine economic problems, it is easy to see why political leaders across the region have failed to take the difficult decisions that would eventually create a much broader economic base. Yet while attempts to promote the growth of new sectors have largely been unsuccessful, the drive for liquefied natural gas (LNG) development has been altogether more fruitful.
The growing importance of the LNG sector in the Middle East and North Africa (MENA) is at least 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. This not only yields the much sought-after diversification and boosts export revenues but enables job creation.
In very 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. It has traditionally been sold on long-term contracts of 20 years of more, but is increasingly marketed in the form of spot cargoes, which provides more flexibility for consumers but more uncertainty for producers.
While Algeria has produced LNG for over 40 years, most MENA states have failed to make the most of their gas wealth for many years. This is partly because of the obsession with oil but also because the global LNG market has been more limited in the past. Hydrocarbon poor Japan and South Korea have long relied on LNG imports from Indonesia, Malaysia and elsewhere but it is only in recent years that the western European and North American LNG markets have begun to become more substantial.
The International Energy Agency's World Energy Outlook in 2006 revealed that global LNG consumption increased by more than 30% during the five years to 2005. On the back of rising European and US demand, global production capacity will almost double between 2005 and 2010 to 3451n tonnes a year (rot/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 of the rest of this new capacity is being constructed along the African Mediterranean coast and in the Gulf.
Qatar has been by far the most successful MENA state in developing an LNG sector. It has undoubtedly benefited from having the world's third biggest gas reserves, after Russia and Iran, at 910 trillion cubic feet (tcf), largely centred on the massive offshore North field. Yet it is Qatar rather than Iran that has emerged as a major LNG producer because the government has actively 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 Qatar 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 the end of this year.
These two plants enabled Qatar to overtake Indonesia during the course of 2006 to become the world's biggest LNG producer. …