Second phase of Qatar's Al Khaleej 2 project underway

DOHA// The second phase of a gas project in Qatar that was conceived as a source of exports to Arab neighbours has been inaugurated. But Gulf states that are short of gas will be lucky to receive much of the output. "Al Khaleej 2 will be fully for the local market," Abdullah al Attiyah, the deputy prime minister and energy minister of Qatar, told reporters today in the emirate's capital. A senior official of Qatar Petroleum, however, left the door open to intermittent exports if any gas became available on a seasonal or short-term basis. "Basically, when we get into a project, we tie in a buyer for every molecule of gas we supply. So as far as additional supplies are concerned, these are short-term supplies. This is one of the avenues that can be looked at," said Saad al Kaabi(CK), the director of oil and gas ventures for the state petroleum company.

"But there is nothing of a long-term business that you could consider," he added. That could still be qualified good news for Abu Dhabi's Dolphin Energy(CK), the Mubadala-led consortium that developed the GCC's first and only cross-border pipeline project. The group's pipeline network, which includes an undersea line from Qatar to Taweelah on Abu Dhabi's Gulf coast, currently supplies 2 billion cubic feet per day of gas from Qatar's biggest gasfield to customers in the UAE and Oman. The import line's capacity, however, is 3.2 billion cu ft per day. Since the imports started in late 2007, Dolphin has been trying to secure additional gas from Qatar. Last year, it struck a deal to purchase gas that sometimes becomes available in summer, when Qatar's biggest international customers for liquefied natural gas (LNG) have their lowest seasonal requirements for the fuel. Additional gas ear-marked for Qatar's domestic market could become temporarily available due to maintenance shut-downs at large industrial plants, or at oilfields requiring gas injection.

Al Khaleej 2, which was inaugurated today, will supply up to 1.25 billion cu ft per day of gas to Qatar's domestic market, bringing the total capacity of the two-phase project to 2 billion cu ft per day. "This is the most important project for gas to supply the majority of industries in this area. It's a huge boost to the economy," Mr al Kaabi said. "Since signing the development plan on the 10th of July 2006, I have been delighted by the sheer speed and implementation of this second phase," Mr al Attiyah said. But in 2004, four years after Qatar Petroleum had signed a production sharing agreement for the project with ExxonMobil, more than 1 billion cu ft per day of the proposed production from Al Khaleej had been designated for export to the UAE and Kuwait.

In the end, Dolphin received gas only from the first phase of the project. Plans for 800 million cu ft per day of exports to Kuwait were dropped in 2005 after Saudi Arabia blocked the company's proposal to build an undersea pipeline from Qatar to Kuwait that would have passed through the kingdom's territorial waters. "The production was supposed to go to Kuwait, but the project didn't go as planned," Mr al Kaabi said today. "We are providing the same quantity domestically." As in the rest of the GCC, Qatar's domestic gas demand has grown faster in recent years than originally projected, as the emirate has ploughed revenues from its growing stream of oil and gas exports into industrial projects to diversify its economy. That means its domestic market can now absorb all the new supplies from Al Khaleej and more. By 2014, Qatar expects to complete another project, Barzan, to provide gas to local consumers. That development would supply 1.5 billion to 1.8 billion cu ft per day of gas, Mr al Kaabi said. Qatar sits on the world's third largest gas reserves, mostly located in the world's biggest gasfield, which the emirate shares with Iran. It current gas output approaches 11 billion cu ft per day, of which most is exported to Asia and Europe as LNG. Other Arab Gulf states, including the UAE and Kuwait, have not developed their more limited gas resources fast enough to keep pace with domestic demand. To reduce summer gas shortages, Kuwait began importing LNG last year from as far afield as Sakhalin Island off the Pacific coast of Russia. Dubai plans to start LNG imports this summer. Both Kuwait and the UAE have been afflicted by power cuts in recent years, due to shortages of gas to fuel power generation. Sharjah's latest power cut occurred just last week. [e-mail]