a special report from Oil and Gas Investor andGlobal Business Reports

QatarEnergy

Opportunities In

ENERGY OPPORTUNITIES IN QATAR: AN OVERVIEW

Big Power in a Small PackageBy any standards, the state of Qatar is small. With a pop-

ulation barely over 800,000 and a land area (11,430square kilometers) roughly three times smaller than

Belgium, this barren, sandy peninsula jutting out like a raisedthumb into the Persian Gulf, north of Saudi Arabia, wouldstill be hidden in the shadows of anonymity if it were not forits immense hydrocarbon reserves.

Despite its reduced size and ungrateful topography, Qataris currently making a big splash due to a combination ofeasily accessible gas reservoirs and visionary leadership. Thisyoung nation is rubbing shoulders with the big boys of thehydrocarbon world and this has bought a taste for ambition.

Qatar became independent on September 1, 1971,following a period of British protectorate status that began in1916, after the Ottomans pulled out. The ruling family thatwas officially put in place by the Anglo-Ottoman agreementof 1913 (but had ruled virtually since the mid-1800s)remained in power and Sheikh Khalifa bin Hamad Al-Thanibecame Qatar’s first emir in the newly formed independentemirate.

Qatar’s economic tradition was built on trade and aprosperous, albeit rather primitive, pearling industry. Thediscovery of oil in the early 1940s revolutionized this and inparallel with the changes occurring in the whole region, thebulk of national income quickly became dependent on theextraction of hydrocarbons.

Oil revenues provided for a solid power base, particularlyafter 1973’s first major world oil crisis, and this should haveled Qatar on the path to increasing development as thisnewfound prosperity spurred immigration and substantialsocial progress. However, the region was still young and farfrom stable. Border disputes with both its neighbors, theisland of Bahrain to the west and Saudi Arabia to the south,were minor issues in comparison with the threat that Iranposed to stability in the Gulf States in the aftermath of the1979 revolution.

Partly out of concern for their safety and partly tocoordinate trade and economic development efforts, Qatar

joined Kuwait, Bahrain, Saudi Arabia, Oman and the UnitedArab Emirates in forming the Gulf Cooperation Council(GCC) in 1981.

Though Qatar was slowly finding its place in the world,development was being gravely hampered by the continuousdiversion of the country’s oil revenues into the personalcoffers of the ruling emir. In a move to change this, thecurrent emir, Sheikh Hamad bin Khalifa Al-Thani, tookover the reins of power from his father in a bloodlessoverthrow in 1995 that won the support of the ruling family,the Qatari armed forces and Qatar’s international allies,

This special report was prepared byLondon-based Global Business Reports, aftermeeting with several Qatari oil and gas players.It covers development of this country that isblessed with abundant hydrocarbon resourcesand how it intends to capitalize on thisunderground wealth. Authors are Ayse Hazir,project and marketing coordinator(ayse@gbreports.com), and Guillaume DeBassompierre, oil and gas reporter, GlobalBusiness Reports (guillaume@gbreports.com).

Cover photo of the Ras Laffan LNG plant courtesy of RasGas.

Q-2 Oil and Gas Investor ▪ September 2004

Ar Ru’ays

Al KhuwayrBAHRAIN

SAUDI

QATAR

ARABIA

Persian Gulf

Persian Gulf

Al Khawr

UmmSalal ‘Ali

Umm Salal Muhammad

Ar Rayyan

Al Wakrah

Umm Sa’id

Umm Bab

Dukhan

Tuwayyir alHamir

DawbatSalwa

(BAHRAIN)

HAWARISLANDS

Gulf ofBahrain

24”30’

25”00’

25”30’

26”00’ 26”00’

25”30’

25”00’

24”30’

51”30’51”00’

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The island of Halul is not shown.10

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spearheaded by the U.S. The threat of a counter-coup was

short-lived as father and son werereconciled the following year, withSheikh Khalifa bin Hamad Al-Thaniofficially withdrawing his claim to thethrone and conceding the leadership ofQatar formally to his heir.

As shown by the quick progressachieved by Qatar in the past decade,the change of power proved to be thebreakthrough that was to firmlyestablish this tiny nation on the path tosustainable growth, development andrapid social and political progress.Indeed, Qatar is now often hailed as amodel within the region for the way ithas been able to balance a conservativetraditional heritage with substantialliberalization of society in political,social and economic terms.

At the same time, the challengeposed by the country’s heavy relianceon hydrocarbon resources seems to alsohave been confronted and transformedinto a locomotive for diversification

into industry and services, while ahighly prioritized focus on educationensures that all this wealth will not beput to waste.

The following report will attempt toanalyze in detail what kind ofopportunities this modernized, dynamicQatar offers and how its oil sector, gassector, the related downstreamindustries and services are structuredand where they are headed in thefuture. Quite logically, one of the major

focuses will therefore be the famedNorth Field, whose 6,000-square-kilometer surface area containingreserves estimated in excess of 900trillion cubic feet of gas, make it thelargest single concentration of naturalgas on the planet.

With dwindling oil reserves, how thisgas reservoir is exploited, industriallyand commercially, will play a majorpart in Qatar’s hydrocarbon industryand economy in the years to come.Much of Qatar’s bright future nowrelies on the success it has had insecuring long-term outlet markets forgas, hand-in-hand with the inter-national players.

Another portion of the country’sincome will be derived from the role ofits petrochemical industries, also injoint-venture agreements with world-class companies. And finally, we willlook at the Qatari service sectors andfinancial institutions whose growth hasbeen fueled by the undergroundbonanza. �

A serene desert covers a wealth of hydrocarbon assets. (Photo courtesy Guillaume de Bassompierre.)

Much of Qatar’s brightfuture now relies on thesuccess it has had insecuring long-term outletmarkets for gas.

Q-4 Oil and Gas Investor ▪ September 2004

Talk of Qatar’s oil should not make readers oblivious tothe fact that we have not really begun to analyze thehydrocarbons in the peninsula until we have men-

tioned natural gas. Proven gas reserves in the North Fieldalone currently stand at more than 900 trillion cubic feet,making it by far the largest single gas reservoir in the worldand placing Qatar in third place in terms of gas-reserve rank-ings (behind Russia and Iran).

With oil fields projected to be mostly depleted by 2023,investments aimed at dwindling oil field recovery and furtherdiscovery pale in comparison to the investment hopes thatthe Qatari government places in the country’s gas potentialbeing the locomotive for its economy in the future. Thegovernment is therefore developing efforts to exploit its vastreserves to the maximum, in all possible directions.

Though the so-called North Field’s potential has beenknown since 1971, it was not until the 1990s that thisimmense gas reservoir started to be exploited. Gas was notthen as strategic an asset as it is now, and furthermore, oilwas producing lucrative national income in any case.

Thus, in the early 1970s, Qatar flared about 80% of the16.8 million cubic meters of gas produced daily in associationwith crude oil extraction. It was only later in that decadethat the country made progress in using its gas resources, asdespite several setbacks, the proportion flared felldramatically.

This paved the way for the development of a natural gasindustry that kicked into high gear with the establishment ofthe Qatar Liquefied Gas Company Ltd. (QatarGas) in 1984as a joint venture of QP (65%), TotalFinaElf (10%),ExxonMobil (10%) and Mitsui and Marubeni (7.5% each).This venture aimed to market and export liquefied naturalgas (LNG) from the North Field.

A second company was formed with similar objectives in1993, Ras Laffan LNG Co. (RasGas). Its major shareholders

ENERGY OPPORTUNITIES IN QATAR: NATURAL GAS

Floating on Gas

Q-6 Oil and Gas Investor ▪ September 2004

Offshore Qatari wealth, extracted by RasGas. (Photo courtesy RasGas.)

are QP (63%), ExxonMobil (25%),Korean Kogas and two Japanese partners.In 1996 and 1999 respectively, these twoconsortiums delivered their firstshipments of LNG to East Asianmarkets. By then, Japan and Korea werealready major consumers and possessed amature distribution network that madethem prime initial targets for Qatariexports. This also explained the presenceof shareholders from these countries inthe QatarGas and RasGas ventures as thecommercial strategic partners.

Radical changes in the LNG marketsin recent years have allowed fortremendous expansion plans for bothcompanies and for Qatar. JerryWolahan, managing director of RasGas,says, “If the initial target was the Asia-Pacific market and this remained asteady customer, when demand went upin the U.S. and Europe, Qatar startedto center its strategy on these markets.We want to be diversified as a supplierin all demand areas.

“Five years ago, we were not quitesure we could be competitive in theU.S., since at that time, gas was beingsold at US$2 per cubic meter.”

Large sales did not happen in theU.S. and European markets where anoccasional spot cargo was delivered but

nothing more. Instead the emergingmarkets of Taiwan and India wereacquired in long-term sales agreements.Then, the picture changed.

“What happened in the U.S. wasthat the amount of gas producedlessened at the same time that LNGsupply grew; and the same thinghappened in Europe,” Wolahan says.“The North Sea production was slowingdown and Russia, which has a lot of gasbut has to deliver it through pipelines,could not supply demand with itsinfrastructure. So, the market conceptchanged and we started seeing marketsrequesting ever-higher LNG volumesby cargo.”

This of course, provided a blessedopening for Qatari exporters RasGasand QatarGas into markets with highand increasing consumption of naturalgas. Wolahan expects that in 2010, theU.S. will need imports of 45 milliontons of LNG and that the market isgoing to change tremendously becauseof Europe and the U.S.

Indeed, the use of gas is definitely onthe rise, as it is increasingly seen as anenvironmentally sound resource by theworld’s energy markets. The portion ofgas used in electricity production, forexample is expected to grow from 15%

now to 24% by 2010.These new openings have nurtured

understandable and growing ambitionin both of Qatar’s LNG principleexporters.

September 2004 ▪ Oil and Gas Investor Q7

Qatar flared most of the gas it produced with oilin the early 1970s.

Faisal Al Suwaidi, vice chairman andmanaging director of QatarGas, expectschanges in world markets in the futurethat have implications for his companyand RasGas. “We don’t see supply ordemand as bottlenecks anymore,especially with this urgent demand inthe U.S. and U.K. Our vision atQatarGas is to be the No. 1 worldwideLNG producer by 2010.”

In terms of sheer production,QatarGas’ plan is to move from 10million tons per year to 41 million by2014, further illustrating the enormousscope of expansion projects.

Al Suwaidi says, “(While QatarGas)started with about US$4 billion inprojects, now with our actual expansionplans, projects amount to US$20billion a year.”

One of the infrastructures being builtconsists of two large trains earmarkedfor sales to the U.K. in a US$11-billionproject, which would allow upstreamdevelopment with a dedicated area forproduction in the North Field.

Called QatarGas II, it is planned tocome onstream in 2007. The other iscalled QatarGas III and it will beanother LNG train but for the U.S.,and it will be a one-train operation.

RasGas has an expansion project ofits own called RasGas II involving theconstruction of two new LNG plantsthat should start producing later thisyear and in early 2005, bringing totalcapacity to 16 million metric tons perannum.

Of course, aside from the obviousfinancial implications, the size of theseprojects also involves a majortechnological push. Al Suwaidiexplains, “We have to make sure thatwe push technology enough to keeppace with our requirements. Althoughit came late in the LNG industry, thislittle country, through its aggressiveapproach, pushes technology every timewe do a project.”

For example, when QatarGas’ firstthree trains were built, in 1996, theirinitial capacity was 2 million tons each.“One and a half years later, we builttwo trains at our sister company RasGasand those were 3.3 million tons each.In both of these instances, they werethe largest ever built before.

“When we built the two trains forRasGas II, those were for 4.8 milliontons each. There are no other trainsbuilt of this size. And now, our nexttrain will be 7.8 million tons.”

These numbers of course requirehuge gas reserves and, were it not forthe availability of a reservoir as unique

as the North Field, none of thesetechnological developments would bepossible. “To secure 7.8 million tonsfrom a single field to produce thatmuch LNG is a big challenge,” says AlSuwaidi.

As both Qataris and foreignshareholders learn from thesedevelopments, they may create newstandards across the world. Joint-venture partner Wayne Harms,president and general manager ofExxonMobil Qatar Inc., says, “We verymuch value the benefits of ourpartnerships with QP. We are here tohelp, to bring our technology, ourexpertise, whatever is necessary tomake the joint ventures successful and,in doing so, we grow also.”

The expansion project at RasGas IIwill take advantage of many synergieswith the existing trains 1 and 2facilities, resulting in lower expansion-project and capital costs and anincrease in security of supply for themutual benefit of all parties.

Examples of such synergies includefacilities sharing in the utility areas, aswell as sharing of existing storage andloading infrastructure. The expansionproject will also take advantage oftechnological advances to furtherreduce costs and enhance operatingperformance.

The final argument in favor ofexpansion lies in the structure itself, asWolahan explains, “(They) can shareassets across RasGas I and RasGas II.We also operate as one total plant sowe increase our reliability; if we have aproblem with one part of theproduction facilities, we can alwaysback it up with another part. So, itgives us an enormous amount ofreliability, the more trains we have inthe facility.”

The excitement surrounding the twomain players, RasGas and QatarGas,could easily overshadow other projectsexploiting the North Field’s reserves for

different purposes. There are severaldevelopments of interest thatunderline the willingness of the Qataristate to use gas in as many diverseforms as possible, both industrially andcommercially.

One of the most notable of theseother projects is the Dolphin project,which will connect Qatar to theUnited Arab Emirates through anatural gas pipeline grid. Initially,Qatar will sell around 222 billionmeters per year of North Field naturalgas to Abu Dhabi as of 2006 but thiswill grow substantially when Dubai

and Oman are added later.Another project worth mentioning,

that will feed on an upstreamdevelopment in the North Field, is theconstruction of a gas-to-liquids (GTL)plant in Ras Laffan as part of a jointagreement between Shell and QP. Itsplanned production objective of140,000 barrels per day of GTLproducts—primarily naphtha andtransport fuels (with a smaller quantityof normal paraffins and lubricant baseoils)—could make this US$5 billioninvestment the largest plant of its kindin the world.

A second GTL project, this oneborne out of a joint venture agreementbetween QP and Sasol, is scheduled tostart in 2005, producing 24,000 barrelsper day of fuel, 9,000 per day ofnaphtha and 1,000 per day of liquefiedpetroleum gas for a total investment ofabout US$800 million.

RasGas and QatarGas are also actingin concert in the construction of ahelium purification and liquefactionplant that is expected to supply roughly220 million cubic meters of liquidhelium, or more than 10% of theworld’s total helium market.

On a final note, gas-feed from theNorth Field is also increasingly used forindustrial petrochemical purposes.

In short, the coming onstream of theNorth Field in the last decade hasprovided Qatar with endless record-breaking possibilities to feed worldmarkets with a series of technologicallyinnovative applications of natural gasthat is expected to assure its economicsecurity for decades to come.

As with oil, the strategic emphasisplaced by QP on the use of well-equilibrated joint ventures ensures thatit will remain a pacesetter North Fieldprovides many North Field providesmany possibilities. Several new, largerLNG trains are under construction, andtwo gas-to-liquids plants and a heliumliquefaction plant are also planned. �

Q-8 Oil and Gas Investor ▪ September 2004

“Our vision at QatarGasis to be the No. 1worldwide LNG producer by2010.”Faisal Al Suwaidi, QatarGas

Oil was discovered in Qatar in the Dukhan onshorefield on the Gulf of Bahrain coast in 1939, and thefirst oil was exported in 1949. Offshore exploration

began in 1952 and extraction began from the fields aroundHalul island, off the east coast of Doha, around the mid-1960s. In 1961, Qatar joined OPEC, gaining some leverageas far as oil-pricing policies were concerned, but also placingitself under the obligations and restrictions issued by the or-ganization.

The offshore discoveries prompted a sharp increase in thenation’s oil production until 1973, the year of the first worldoil crisis, when Qatari oil production peaked at 570,000barrels per day, enhanced by first production at the BulHanin offshore field that same year.

From there on, production has steadied at around 500,000barrels per day before slowly declining. This decline wasaccentuated throughout the 1980s partly because ofdwindling reserves and increasing difficulties of extractionand partly due to OPEC’s limitations—even though thesewere bypassed in 1989 and 1990 to take advantage of thesurge of international oil prices caused by the first Gulf Warin Iraq.

Until a few years into Qatari independence, a consortiumof international companies that had been granted long-termconcessions carried out all petroleum exploration andextraction. Through two emiri decrees—in 1974 and 1977—this policy was reversed and all oil-related activities cameunder full national control with the establishment of theQatar General Petroleum Corp. (QGPC), whichsubsequently changed its name to today’s Qatar Petroleum(QP).

QGPC continued the exploitation of oil in principal fieldsalready discovered where most easily extracted and,following the coup in 1995, it introduced a number of newpolicies aimed at increasing oil production, locatingadditional reserves before existing reserves become tooexpensive to recover, and investing in advanced oil-recoverysystems to extend the life of existing fields.

In light of declining production during the past decade,this policy involved inviting technically skilled foreign oilcompanies into production-sharing agreements designed toencourage them to improve their recovery schemes and toexplore for new oil deposits, both onshore and offshore, inseveral blocks earmarked for potential discoveries.International bidders were therefore signing two kinds ofjoint-venture agreements with the state-owned QGPC.

Exploration and production-sharing agreements (EPSA)involved prospecting in blocks suspected to contain oilreserves but previously untapped with an aim to exploitdiscoveries in the future. Development and production-sharing agreements (DPSA) were in fields either already inproduction or merely known to exist and that requiredcapital or technological investment to come onstream atprofitable rates.

Foreign investment in Qatar’s oil industry was thus given anew boost and QP can now boast a sizable quantity of joint-venture agreements with a large number of the world’s mostrenowned enterprises. Through these or on its own, thestate-owned QP, chaired by Minister of Energy & IndustryAbdullah bin Hamad Al-Attiyah, remains at the heart ofevery aspect of the oil industry in the country, whetherexploring, drilling, extracting, transporting, storing, refiningor even commercializing. which it does principally to Asianmarkets, with Japan currently the largest customer by far.

The same is true for downstream operations in theindustrial sectors and for the extraction of associated andnon-associated gas.

This being said, it can easily be argued that a large part ofQP’s success is owed to the associations it has developed, asforeigners themselves will confirm. Roger Myers, generalmanager for Canada-based Talisman Energy, says, “The waythe minister has led the industry is indicative of a capacity towork with people and understanding how they work. Thefact that they want to work with the foreign operators here isvery important.

“In general, QP likes and wants the partnership concept;they want to be brought along and do not like to be treatedin an ‘us and them’ fashion.”

Currently, Qatar contains proven recoverable oil reservesestimated at 15.2 billion barrels with a capacity to produce

ENERGY OPPORTUNITIES IN QATAR: OIL

Every Last Drop

September 2004 ▪ Oil and Gas Investor Q-9

Qatari oil production is becoming increasingly sophisticated.

850,000 barrels per day though currentOPEC quotas limit Qatari exports to674,000 per day as of August 1, 2004.The target for the future has been set at1 million barrels per day, and with agrowth rate that reached 8.3% in 2003,this figure seems quite attainable.

Between 55% and 60% of this totalis being extracted by QP as the loneoperator in three fields. The main oneis Dukhan, which comprises threereservoirs of crude oil with an APIgravity of 40.9° and an average sulfurcontent of 1.2%.

Daily production from Dukhan isaround 320,000 barrels, though thereare plans to boost production further,partly through a scheme of poweredwater injection aimed at enhancing oilrecovery and maintaining reservoirpressures. The other two fields QPoperates alone are both offshore andsignificantly smaller fields. MaydanMazham produces around 60,000barrels per day—far lower than pastpeaks but on the way to a recovery thatcould take it back to a rate of 75,000barrels per day by the end of this year.

Bul Hanine holds about 700 millionbarrels and development plans couldbring its capacity to 100,000 barrels perday by the end of 2004.

The remaining 45% to 40% are thusextracted in conjunction with anumber of foreign oil companies thathold DPSAs: TotalFinaElf discoveredthe Al-Khalij Field in 1991 off Haluland after several upgrades is nowexpanding production capacity there to80,000 barrels per day, up from thecurrent 60,000. Occidental Petroleumoperates both the North Dome (90,000barrels a day) and South Dome(17,000) Idd El Shargi offshore fields,which are related; and the Japaneseconsortium Qatar PetroleumDevelopment Co. operates the smaller

offshore oil deposits known as Al-Karkara and A-North which are tocome onstream in 2005 with an initialoutput of 10,000 barrels per day.

As explained earlier, exploration isongoing and thought to be quitepromising. The only onshore EPSA isheld by ChevronTexaco, which willsurvey virtually the whole Qataripeninsula except the area aroundDukhan. However, several offshoreblocks are currently being scanned.

Maersk operates already in theproductive Al Shaheen offshore field,which should reach 200,000 barrels perday of output this year, and it signedan EPSA with QP in April for an

extension of its actual Block 5 area. Anadarko Petroleum Corp. is

conducting seismic surveys in blocks 11and 13 after successful findings havebrought Block 12 (now known as AlRayyan Field) into production. EnCanaCorp. is currently evaluating entry intothe second exploration phase on Block2. And finally, fellow Canadiancompany Talisman Energy is engagedin a US$16.5 million commitment overfive years for the exploration of Block10 and recently engaged in a 1,200-square-kilometer 3-D seismic programthis summer. �

Q-10 Oil and Gas Investor ▪ September 2004

“The fact that [the

ministry wants] to work

with the foreign operators

here is very important.”

Roger Myers,

Talisman Energy

As is to be expected, the positive aspects of activitygenerated by big-scale oil and gas projects has trickleddown to virtually every sector of the Qatari economy

and triggered an avalanche of opportunities and optimismthat benefits local companies’ growth and encourages foreigninvestment to pour in.

This is the case for sectors such as construction,infrastructure and utilities, which are booming in parallel tothe country’s hydrocarbon production, as well as foreducation, finance, services and trade where the impetus ofthe general economic expansion driven by revenues andinvestment in oil and gas is being felt in similar, albeit lessdirect, ways.

For example, it is hardly surprising that QP should wish toextend it activities to drilling as well. It entered apartnership in March with Japan Drilling Co. (JDC) tocreate Gulf Drilling International (GDI). Cooperation is itsstrategy of choice.

At the signing ceremony, Qatar’s minister of energy andindustry, Abdullah Bin Hamad Al-Attiyah, highlighted thebenefits of such synergies. “The establishment of a nationaldrilling company constitutes an important stage incontributing to the development of oil and gas in Qatar,supporting the local economy and creating employmentopportunities for Qataris to work in the management andoperations of an internationally recognized drillingcompany.”

Abdul Jabbar A. Noor Saifaldeen, managing director ofGDI, says, “We always intended to establish a nationaldrilling company because of the amounts involved in drillingbudgets for (national oil company Qatar Petroleum) and theobjective to strategically secure drilling rigs.

“When it became clear that the forecast for the next 15 to20 years was very healthy, we decided to go ahead and startlooking for a suitable partner.”

Drilling evidently is a very direct side-effect of enhancedactivity in the hydrocarbons sector. And if this example stillinvolves the large shadow of QP’s presence, many a companydealing in products or service is reaping equal benefits underother forms of cooperation with local private businesses.

While some of the major service enterprises have managedto establish a presence here on their own, most foreigncompanies bent on laying their stone in the edifice of Qatar’shydrocarbons boom choose to associate themselves with alocal representative agent. This formula allows foreigncontractors or traders to have a shot at the juicy tenders thatare streaming onto the Qatari market with relatively lowrisk.

For one, their investment will be limited until actualbusiness is secure as there is no need to establish an officeand have costly expatriate human resources just to fish outcontracts. Also, the agent or partner representing theirinterests will have extended knowledge of local customs, anetwork of relationships within QP, its partners and different

ministries and even, in mostcases, an intuitive knowledge ofwhere the best opportunities willbe in the future.

And another benefit, amongseveral, is that the Qataripartner can also solve thornyissues such as managing thelabor force that will need to behired in the aftermath ofobtaining any type of localcontract.

There are many many suchcompanies to be chosen from forthose eager to participate in theopportunities that Qatar’sdevelopment provides in sectorsas varied as construction,utilities, infrastructure, industry,education or whatever else isclosely or remotely affected bythe boom in hydrocarbons.Which “sponsor” is best willdepend on which niche is inquestion.

Companies like the Al ManaGroup, the Al Dolaimi Group,

ENERGY OPPORTUNITIES IN QATAR: SERVICES & FINANCE

Snowball Effects

LNG train No. 3, en route to completion.

September 2004 ▪ Oil and Gas Investor Q-11

the Al Jaber Group or SalamInternational to name but a few, areoften large conglomerates of long-standing family tradition that spawnmany trade arms and can thuseffectively represent a large array ofinternational companies in manysectors.

In most cases companies such asthese that were previously centered on

trade, have now beefed up theirconstruction activities and included anoil and gas contracting/servicingdivision that has often become theirmajor focus. Though in some ways toogeneral a statement to be applicable toall entities alike, Abu Issa, chairmanand chief executive of SalamInternational, says, “Right now, we aremainly a contracting-basis companyand we want to shift into amanufacturing base and participate inthe industrial development of Qatar,which is basically related to oil andgas….

“The construction boom will lastanother 10 years probably before itsettles, but what will continue todevelop steadily is the upstream anddownstream energy-related industries.”

To do that, Salam International hashired professionals with proven oil andgas backgrounds such as Marwan Taha,executive director.

“Our role here is to provide the localknowledge and expertise on the Qatarimarket to guide our internationalsuppliers on how business is approachedand to give them professional adviceboth commercially and technically,”Taha says.

Saudi-based Arabian Construction

Engineering Co. (ACEC) concentratedat first on infrastructure and utilityprojects before representing foreigninterests in sectors as varied astelecoms, shipping, travel services andcontrol-system equipment. ACEC nowconcentrates on the oil and gasbusinesses, albeit with a heavyindustrial focus.

Ghaleb Wasfi Shousha, ACECmanaging director, says the constantsearch for business opportunities for theforeign majors ACEC represents is nota one-way avenue. As a facilitator ofbusiness for local customers, agent-typecompanies such as ACEC also spendtime researching the globe to matchwhatever needs come up in theprocurement process of their clientswith the latest technology, therebyreversing the relationship.

Basically, he says, ACEC’s goal is toshorten the distance between thesupplier and the end user. In short, ifthe pool of companies whose interestsACEC represents in Qatar does notmeet a particular requirement of aclient, it will actively search worldwidefor potential candidates to fill this gap.In the process, the client’s need is metand a foreign company has received abusiness opportunity in Qatar.

Q-12 Oil and Gas Investor ▪ September 2004

Local banking is keen on project development,says R. Seetharaman, acting general manager ofDoha Bank.

The Al Mana Group also evolvedfrom humble beginnings as a smalltrading house, and has a longertradition of serving the oil and gasindustry. One of the biggest and mostdiverse among similar groups—withbusiness divisions including car rentals,computer services and shipping—AlMana Group considers oil and gas oneof its flagships and has grown throughpartnerships developed with foreigncompanies dealing either inconstruction, services or even inequipment products.

Salah Al-Baker, oil and gas directorof the oil and gas group, says, “Throughthe representation of some of thebiggest companies in the world, ourgroup has been involved in some of thelargest multibillion-dollar infrastructureprojects undertaken in Qatar. A few ofthese projects that were completedrecently will be the mainstay of thiscountry’s economy for years to come.”

Meanwhile, Al Jaber Group created asubdivision, Al Jaber Engineering, withthe aim of focusing on commercial,engineering and construction servicesrelated to the oil, gas andpetrochemical sectors.

The Al Dolaimi Group’s case is alittle different as it does no

representation work on behalf offoreign companies but more directservice business through its principalsubsidiary, National Oil WellMaintenance Co. (NOWMCO), whichboasts the greatest capacity related tooil wells, from cementing services to

coiled tubing or even engineering andlaboratory work.

Its growth in Qatar soon served as aspringboard for further expansion. “Thesuccesses of Qatar operations were soonextended to other countries in theregion allowing the development of our

September 2004 ▪ Oil and Gas Investor Q13

Besides oil and gas production, fishing is enjoyed offshore Qatar. (Photo courtesy Guillaume deBassompierre.)

expertise with the challenge posed byregional variations,” says president andchief executive Abdul Aziz Al-Dolaimi.

“The remote locations of Iran, SaudiArabia and Indonesia were tackledsuccessfully and operational decisionshad to be made proactively. Thisdeveloped the self-reliance of ourpersonnel and prepared us for furtherexpansion.”

But the snowball effect does not stopthere, as Qatar diversifies its economythrough the filter of oil and gas-generated businesses. QP’s GulfHelicopters, which was born from theneed to serve Qatar’s offshoreplatforms, has grown to be aninternational transport company. Itbuilt on the success of its localoperations, on the expertise itaccumulated and the networks itcreated with international clientsoperating in Qatar and elsewhere, andtook advantage of its mother company’sbacking to establish operations inseveral international locations servicingoil wells.

Mohamed Al Mohannadi, GulfHelicopters general manager, says,“Originally a two-helicopter fleet, weare now a 22-helicopter fleet operatingin Doha and Halul Island but moresignificantly with a presence in Iran

and India on long-term contracts andwe have also worked from time to timein places like Oman, Saudi Arabia andYemen.

“Some of our customers who areworking in Doha requested that we goto Libya and work with them there.”The company is studying thatpossibility along with another—toexpand to Mauritania.

Also a QP offshoot, Qatar Expo hasgrown horizontally on the Qatarimarket rather than internationally. Anexhibits and fairs organizer was bornfrom showcasing the natural gaspotential of the tiny peninsula. Nowpromoting the fifth Doha InternationalOil & Gas Exhibition—alongside QP’sDoha Conference on Natural Gas atthe end of February 2005—it has alsogrown to organize fairs in totallyunrelated sectors such as homefurniture, decoration, construction andautomotives.

Another example of how oil and gashave been a locomotive ofdevelopment for Qatar is the advent ofthe financial sector whosesophistication now almost equals thatof neighboring Gulf countries. Itsrecent growth allows for a much morediverse backbone to finance projects ofinternational magnitude through the

domestic finance market and is startingto open doors for regional consolidationas well.

The country’s banking system ismaturing, meanwhile. R. Seetharaman,acting general manager of Doha Bank,says, “Essentially our focus is towardsvarious oil and gas projects where wehave syndication opportunities to startwith, and then start getting into theaggregation parts of commercialbanking.

“The idea is to build the relationshipwith the syndication on a pure project-financing basis and then evolve towardsoverall commercial services for theclients we served.”

The bank, through this initialcontact strategy, then hopes toincorporate local clients in its customerbase and offer a fuller range of services,such as payment of wages, credit cardsfor executives and daily accounts.

All in all, Qatar’s efforts to steer itswhole economy in the wake of thedevelopment of its hydrocarbonresources have proven to create a wideand increasingly varied dynamism inseveral sectors and also to generate awealth of business opportunities thatshould secure an unending flow offoreign direct investment for decades tocome. �

Q-14 Oil and Gas Investor ▪ September 2004

All the effort Qatar has put into developing its oil andgas sectors has not steered it away from diversificationvia channeling petrol dollars into balanced economic

development. The country’s vision has it multiplying ways toconvert natural-resource revenues into solid, sustainablegrowth, and the vision includes the downstream industrialsector in which investments and projects have been nearlyequally forthcoming.

The oldest of these industries is the Qatar Fertilizer Co.(QAFCO), which was founded in 1969. Incidentally, it wasalso national petroleum company Qatar Petroleum’s (QP)first joint venture; it held 75% and Norsk Hydro held 25%.Despite some nominal changes, QP’s shares have beentransferred to an industrial holding company calledIndustries Qatar (IQ) and Norsk Hydro’s shares have beentransferred to the spin-off of its fertilizer division, the newlyformed Yara International.

The partnership has lived on to bring QAFCO totechnological heights and commercial success, suggestingagain that association with leaders in their respective fields isan invaluable strategy. During the past 25 years, the fertilizercompany has not ceased to grow. In April of this year, itinaugurated its fourth train after successive growth steps in1973, 1979 and 1997, bringing its yearly production to 2.8million tons of urea and 2 million tons of ammonia.

These figures make it the largest producer of urea in theworld from a single site and one of the world’s leadingexporters. Its markets total 35 countries, though its focusremains South and East Asia.

Khalifa Al Sowaidi, managing director of QAFCO, says,“Making ammonia and urea is another way of transporting

gas that can lead to effective diversification. To transport gasand to liquefy it is expensive. To take gas near the sourceand transform it into urea—which is bulk—and send it on abulk ship to the end-user is the right way to produce acompetitive income.”

Also succeeding from its proximity to North Field’sseemingly infinite gas reserves is QP-formed Qatar

ENERGY OPPORTUNITIES IN QATAR: PETROCHEMICALS

Making Oil Go Further

September 2004 ▪ Oil and Gas Investor Q-15

Ahmed Al-Emadi, deputy general manager of Q-Chem, which is a partnerin the world’s largest ethane cracker, and has a capacity of 1.3 millionmetric tons of ethylene production per year. (Photo courtesy Guillaume deBassompierre.)

Petrochemical Co. (QAPCO), acompetitive player internationally inlow-density polyethylene (LDPE)products. QP found a partner in France-based Atofina when it decided to createan industrial solution to use ethanefeedstock borne out of its petroleumproduction in both associated and non-associated gas form.

QAPCO transforms the ethane gasinto ethylene to then produce LDPEand solid sulfur as a byproduct of theprocess. QAPCO has actually grown sofast to such a critical size that nowadaysit is importing some of its ethylene rawmaterial while it waits for the mega-joint-investment project of building theworld’s largest ethane cracker—with acapacity of 1.3 million metric tons ofethylene production per year—to comeonline in 2008.

In the mean time, a combination oftechnology and size make QAPCO’spolyethylene train one of the few unitsin the world with a very low-coststructure—actually, one of the lowestin terms of unit cost of productionbecause through a single train QAPCOis able to produce very high volumes ofpolyethylene, according to Hamad Al-Mohannadi, vice chairman and generalmanager.

Its first major integrationinvestment, Qatar Vinyl Co. (QVC),which was developed jointly with itsAtofina partner, QP and Norsk Hydro,started production of caustic soda,ethylene diochloride and vinyl chloridemonomer in 2001. Other investmentplans include the ethane cracker builtwith Atofina and Qatar Chemical Co.(Q-Chem) and its partners.

It will see QAPCO shed US$850million into a unit that will assureproduction and transport of ethylenefor Q-Chem’s operations, its own,QVC’s and also for the operation of yetanother project called Qatofin, a jointventure of Atofin, QAPCO and QP.

The Qatofin integrated derived plantwill produce linear low-densitypolyethylene as soon as 2007. In thelonger term, it is also rumored thatplans for a PVC plant are in thepipeline.

Q-Chem was born officially in 1997but its production of high-densitypolyethylene (HDPE), 1-Hexene andsolid sulfur (byproduct) started in late2002 after more than US$1 billion ininvestment by the founding partners:QP and Chevron Phillips ChemicalCo.

As with the industries described inthis chapter, cost effectiveness achievedthrough size, competitiveness grantedby the proximity of feedstock andenergy sources, and technologicalinnovation ensured by an alliance witha world leader in the field ofpetrochemicals have already virtuallyassured Q-Chem promising growth andan affirmed presence on world markets.Q-Chem is already looking ahead withits plans for joint investment withQAPCO in the ethane cracker facility.

Qatar has chosen a path of applyingits oil and gas resources to strategic,complementary, orderly and synergisticenterprises with vertical with horizontalintegration. �

Q-16 Oil and Gas Investor ▪ September 2004

“Making ammonia and

urea is another way of

transporting gas….”

Khalifa Al Sowaidi,

QAFCO