Qatar looks beyond gas toward petchem to diversify economy

Focus story by Muhamad Fadhil

DOHA (ICIS)–Qatar is expected to move away from its reliance on gas for revenue and more towards petrochemicals and fertilizers in a bid to diversify its economy, industry sources in the Middle East said on Monday.

At present, Qatar is the world’s largest exporter of liquefied natural gas (LNG), with natural gas reserves of 885,000 billion cubic feet in 2013, according to data from the Energy Information Administration (EIA).

Qatar enjoys one of the highest per capita gross domestic product (GDP) in the world largely due to earnings generated from its huge gas exports.

“Basically, Qatar depends very heavily on gas for its revenue. Gas exports from Qatar contribute [significantly] to its GDP,” said a source close to an Asian producer.

According to the Organisation of the Petroleum Exporting Countries (OPEC), oil and natural gas account for about 60% of the country’s GDP and around 85% of export earnings.

However, a source close to a Qatari producer said amid strong competition from Australia, Russia and the US, “gas exports may not account as large a percentage in future in the country’s GDP”.

“Qatar is now facing aggressive and sustained competition from other key LNG exporters. Authorities need to think long term to address this challenge,” the source added.

The US, a key importer of gas, is also likely to become self-sufficient in the next few years due to a boom in domestic shale gas production and will buy less of Qatari LNG “sooner rather than later”, according to a source close to a UAE producer.

The US may compete with Qatar in the lucrative Asian market once Washington ramps up its shale gas output by the end of this decade, said a source close to a Saudi petrochemical producer.

“The US will challenge Qatar in the coming years. This will concern Doha. Qatar’s dependence on gas [for revenue] leaves it exposed to external economic volatilities,” the source added.

According to an International Monetary Fund (IMF) report in February, “revenue losses from lower oil and natural gas exports” and “the possibility of a sharp decline in oil and gas prices” present medium-term economic risks for Qatar.

In anticipation of lower gas exports and increased competition, Doha is working actively to develop its petrochemical sector.

“It is no surprise the government is pumping in money to develop the petchem segment. Qatar is already a leading exporter of polyethylene (PE). It sees opportunities to grow the sector further and potentially reap [more] profits from it,” an Asian petrochemical trader said.  

Qatar produced 16.8m tonnes of petrochemicals in 2012, according to Gulf Petrochemicals and Chemicals Association (GPCA).

As part of its long term goal to develop the sector, the country is expected to pump in $25bn to boost its petrochemical capacity to 23m tonnes by 2020, according to Abdulrahman Ali Al-Abdulla, CEO of the state-owned chemical distributor Muntajat in an interview with ICIS in early April.

Upcoming petrochemical initiatives in the country include the Al-Karaana petrochemical project and the Qatar Petroleum’s Ras Laffan Gasoline and Aromatics Project (RLGAP).

The Al-Karaana project, scheduled to start up in the second half of 2018 in the industrial town of Ras Laffan, will feature a 1.5m tonne/year mono ethylene glycol (MEG) plant, a 277,000 tonnes/year oxo alcohols unit, and a 300,000 tonnes/year linear alpha olefins (LAO) facility.

The RLGAP facility, also due for start-up in the second half of 2018, will produce 1.304m tonnes/year of paraxylene (PX), 890,000 tonnes/year of benzene, and 820,000 tonnes/year of pentane.

“New petchem projects will help Qatar in the long run. The country is traditionally strong in PE exports, so it is good to see the country producing PX and benzene,” according to a Middle East end-user.

Apart from new petrochemical projects, Qatar is also investing resources to support new initiatives in the fertilizer sector.

“Qatar knows it cannot just expand one sector. That’s why it is [earmarking] the fertilizer industry, as well,” said a southeast Asian based commodity trader.

Last year, the Qatar Fertiliser Co (Qafco) VI plant began operations in the industrial city of Mesaieed, producing 2,000 tonnes/day (730,000 tonnes/year) of ammonia and 3,850 tonne/day (1,405,250 tonnes/year) of urea.

The country produced a total of 10.7m tonnes of fertilizers in 2012, accounting for 35% of capacity from the Gulf Cooperation Council (GCC), according to GPCA.

Qatar, a small country with a population of slightly more than two million, is part of the GCC, along with Saudi Arabia, the UAE, Kuwait, Oman and Bahrain. 

GPCA estimates Qatar will produce 13m tonnes of ammonia and 16.5m tonnes of urea by the end of the decade.

To help the country market its petrochemical and fertilizer output, Qatari authorities established Muntajat in 2012 to distribute and sell the two commodities.

“Muntajat was established exactly for the purpose of marketing and sales. With all these new output, you need a single entity to best sell your product,” a south Asian petrochemical trader said.

The company is currently in charge of marketing and sales of almost 90% of Qatar’s production of 15 different chemical, fertilizer and polymer products.

Muntajat comprises nine production companies: Qatar Fuel Additives Company (QAFAC), Qafco, Qatar Petrochemical Company (QAPCO), Qatar Chemical Company (Q-Chem), Q-Chem II, Qatar Vinyl Company (QVC), SEEF Limited, Qatofin Company Limited and  Ras Laffan Olefins Company Ltd (RLOC).

The companies used to operate as separate entities but are now consolidated under the Muntajat umbrella.

“Challenges remain for sure. A few of the individual [production] companies were joint ventures. A lot of organisational issues need to be sorted out as a result. Staff will also move internally as part of the consolidation. Time will be needed to implement new processes and strategies,” said a source from a major Middle East oil producer. 

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections