The Half Century Ups And Downs Of Qatar's Energy Giants

Dec,13,2022

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The half century ups and downs of Qatar's energy giants

On November 19, 2012 local time, the torch device in the natural gas well of Ras Lavan Industrial City, Qatar

For Saad al Kaabi, this is an exceptionally busy week.

Kabi has two main identities: he is the energy minister of Qatar, making all energy related decisions in the country; He is also the CEO of Qatar Energy, which is a world-famous energy company. Qatar Energy Corporation is responsible for all oil and gas activities in Qatar, and the government of Qatar is its owner.

Since joining Qatar Energy Company (formerly "Qatar Petroleum Company") in the mid-1980s, Kabi has spent more than 30 years here. He graduated from the University of Pennsylvania with a major in petroleum and natural gas engineering. Today's international media like to call him "the energy leader of Qatar".

Saad al-Kaabi

The World Cup has opened, and the world is focusing on Qatar. Earlier last week, Kabi just signed a 27 year agreement with Sinopec to sell more than 100 million tons of LNG to China, which is considered the "longest supply agreement in the history of the LNG industry". In the middle of the week, Kabi sternly responded to a remark made by a German politician. The remarks came from German Economy Minister Habak, who criticized Qatar's labor problem and believed that it was "a stupid thing" to let Doha host the World Cup. At the same time, Kabi also needs to appear in various forums around the World Cup. Qatar's commitment to FIFA is that this will be the first carbon neutral World Cup, and the energy industry dominated by Kabi is a key player.

Among the many "myths" about Qatar, one figure has been widely spread - 200 billion US dollars, which is the cost Qatar has invested in the construction of World Cup related venues in the past decade, making it the most expensive World Cup ever. In contrast, the second ranked Brazil World Cup was only 15 billion dollars, and the third ranked Russia World Cup was 11.6 billion dollars.

Where did the 200 billion dollars come from? A large part of it is paid by Qatar Energy Company, which is run by Kabi, with the income from LNG export.

Energy is the pillar industry of Qatar's economy. Oil and gas revenues together account for 60% of the country's GDP. In 2020, the total revenue of Qatar Energy Company will be 21 billion US dollars and the total assets will be 116 billion US dollars. In 2021, Qatar Energy will become the fifth largest natural gas company in the world.

Over the past half century, Qatar's national destiny has been closely related to energy. The oil fields discovered in the 1930s and the natural gas fields discovered in the 1970s contributed to the formation of the Qatari nation and the independence of the country. Now, they are trying to use the huge wealth accumulated by energy to invest in national construction and diversify their sources of income. When oil and gas are exhausted, we can have an economy that can eventually take care of itself. As the leader of the energy industry, the rise, development and transformation of Qatar Energy Corporation are also promoting and referencing each other with the destiny of this country.

70's: start nationalization reform

After the First World War, the Ottoman Empire collapsed and Qatar became a protectorate of Britain.

Qatar's first onshore oil concession was granted to the British Iranian Oil Company (AIOC) in 1935, the predecessor of BP. Due to the obligations of the United Kingdom under the Red Line Agreement, the British Iranian Oil Company transferred the concession to an associated company of the Iraqi Oil Company to operate the mining business in Qatar. The company was later renamed Qatar Petroleum Company (QPC). This is the predecessor of Qatar Energy.

In 1939, Qatar Petroleum Company owned the first crude oil well, namely Dukhan 1. However, due to the outbreak of World War II, the mining work was postponed to 1947 and crude oil was exported for the first time in 1949. In 1960 and 1963, Idd Al Shargi and Maydan Mahzam oil fields were discovered respectively. In 1970, the largest offshore oil field in Qatar, Bul Hanine, was discovered and put into use in 1972.

1971 may be the most important year in Qatar's modern history. The influence of the British Empire declined after World War II, and anti colonial waves rose one after another. Affected by this, Qatar declared independence in 1971. Also in that year, a huge amount of natural gas reserves were found in the vast Persian Gulf waters between Qatar and Iran - the world's largest natural gas reserve, the "North South Pars" gas field.

After independence, the newly established Qatari government began to nationalize the oil industry.

In 1973, the Qatari government obtained 25% shares of the onshore concession of the Qatari Oil Company and the offshore concession of the Qatar Branch of Shell. As part of the agreement, the government's share would increase by 5 per cent annually until it reached 51 per cent in 1981. At the beginning of 1974, Qatar Petroleum Company agreed to a new agreement, allowing the state to increase its shares in the two companies to 60%. In December 1974, the Qatari government officially announced its intention to acquire the remaining shares of Qatar Petroleum Company and Shell Qatar Branch. A government decree passed in 1975 declared that the government owned the remaining shares. In September 1976, the government fully owned the onshore concession of Qatar Petroleum Corporation. In February 1977, it fully owned the maritime concession of Shell Qatar Branch.

So far, the nationalization of Qatar's oil industry has been completed.

1990s: betting on LNG

Throughout the 1980s, Qatar Petroleum Company carried out a large number of exploration activities. The number of wells increased significantly, but oil resources did not emerge.

Later, Qatar Petroleum Company encouraged foreign operators to apply for exploration license. Most new exploration and production were completed by international oil companies, including ExxonMobil, Chevron and Total. Although all countries have carried out a lot of exploration, Qatar did not find any significant oil during that decade.

In the early 1990s, Kabi, who had just graduated from the University of Pennsylvania, returned to Qatar and officially joined the Qatar Oil Company. It was also at that time that the company began a bold attempt. They borrowed a lot of money to develop a risky product at that time: LNG.

At that time, the Gulf States did not attach importance to natural gas, but to oil. Qatar's plan is considered a gamble. BP withdrew from the project in 1992, believing that it could not generate sufficient returns. Qatar, however, is still betting on the development of liquefied natural gas despite its huge debts.

It turned out that Qatar Oil's adventure paid off. Five years later, Qatar launched its first LNG export facility - cooperation with ExxonMobil, Total Energy, Mitsui and Marubeni. In 2006, Qatar became the world's largest LNG exporter, surpassing Indonesia.

Qatar Petroleum is also part of the Dolphin Gas Project, which connects the natural gas networks of Oman, the United Arab Emirates and Qatar with the first cross-border natural gas pipeline in the Persian Gulf. The project was developed by Dolphin Energy, a consortium of Mubadara Development Corporation on behalf of Abu Dhabi government (51%), Total (24.5%) and Western Petroleum Corporation (24.5%). The project made significant progress in 2006.

In the next ten years, Qatar suspended the new development of the North Oilfield while completing the existing projects. At the same time, it focuses on becoming one of the most reliable energy suppliers in the world, and almost never misses the opportunity to transport LNG to customers. Its professional level has also been recognized by the international industry, and it is evaluated as "efficient and reliable".

The 21st Century: Initial Test of International Expansion

The first step of Qatar's development is to open up the wealth code between the state and enterprises through the nationalization reform of the oil industry. The second step is to obtain the original wealth accumulation and talent accumulation required for expansion by betting on LNG. The third step is international expansion.

"Our next plan is to become an international company... We may be one of the largest shareholders in the exploration field today. You will see that we will do more." In 2022, Kabi told the Financial Times that by this time he had become the CEO of the company, and the company had changed its name from "Qatar Oil Company" to Qatar Energy Company.

Over the past decade, Qatar Energy has built a huge exploration portfolio, including stakes in projects in Brazil, Canada, the Gulf of Mexico, Guyana, Suriname, Namibia, Egypt, Angola and South Africa.

Qatar Energy aims to increase its production outside Qatar from 45000 barrels of oil equivalent per day to 500000 barrels per day by 2030. At home, Qatar produces more than 5 million barrels of oil per day, including some oil and a large amount of liquefied natural gas.

For the state-owned oil and gas companies in the Gulf region, international expansion is unusual. Although Saudi Aramco and Abu Dhabi National Petroleum Company have invested in projects in the energy sector abroad, they have not pursued opportunities in the international upstream industry chain, but focused on maximizing domestic production.

Although increasing domestic LNG production remains a priority, Kabi said that newly discovered crude oil in Namibia and other countries can provide "versatility" and provide a new source of production outside Qatar, which focuses on natural gas. "We want to have a little mix of oil and gas in our portfolio." Kabi said.

Because of these measures, analysts said that Qatar Energy Company does not look like a traditional Middle East state-owned oil company, but more and more like their international partners.

"The monetization of natural gas has always been a top priority for Qatar. You can see that some tentacles are extending." Frank Harris, an energy consultant, told the Financial Times, "In terms of LNG, they began to look a little like Shell or Total, rather than a state-owned oil company."

Large international oil companies compete to become partners of Qatar Energy Corporation. Total signed an agreement on transferring some of its assets in Kenya, Guyana and Namibia to Qatar in 2019, and Shell also strongly invited Qatar to join their projects in other regions of the world.

Qatar Energy has established a global exploration cooperation portfolio. Shell, Exxon, ConocoPhillips, Total and Eni have signed new agreements in the northern oil fields, which will help to improve Qatar's domestic LNG production capacity.

Kabi said that over time, Qatar Energy has become a useful partner of these foreign companies. This is also because Qatar has more and more diplomatic influence in the world.

"The influence of our government has given these companies a great impetus. When everyone wants to show what they can do for us, I will tell them that we will measure people by their support for Qatar Energy in this field." Kabi told the Financial Times.

2022: Rise in the Russian Ukrainian conflict

In 2022, the sudden outbreak of the Russian Ukrainian conflict has plunged the world into an energy crisis. But for Qatar, this has provided an opportunity for its rapid rise.

The energy crisis has led to a surge in global demand for Qatar's LNG, increased Qatar's national income and consolidated the position of Qatar Energy as one of the most important resource companies in the world. In the first half of 2022, Qatar's oil and gas revenue surged by two-thirds, reaching US $32 billion.

Three months after the outbreak of the conflict, Qatar Energy signed a joint venture agreement with the world's five largest international oil companies to develop a huge project worth 29 billion dollars, namely the "North East" oil field. The project aims to increase Qatar's annual export capacity from 77 million tons to 110 million tons by 2026, helping it surpass Australia and become the second largest fuel producer after the United States. The second stage is called "North South": by 2027, its export capacity can be further improved to 126 million tons per year.

The negotiation of this agreement has lasted for several years and is not a stress reaction to Russia and Ukraine. However, the enthusiasm of large western energy companies to join the project proves the growing importance of Qatar as a natural gas superpower. Claudio Descalzi, CEO of Eni, said that entering Qatar was an important milestone for the company.

The turbulence brought about by the Russian Ukrainian conflict is reshaping the world energy pattern. Observers say that Qatar and the United States are facing a long-term struggle on the status of energy hubs.

The soaring demand for natural gas outside Russia is creating a new landscape. After the shale revolution in the United States, Qatar once lost its main advantages, but now it has the opportunity to return to the international arena. It is not only an important participant in the natural gas market, but also can gain political points by improving relations with the West.

According to the data of Energy Aspects Consulting, about two-thirds of Qatar's long-term export contracts go to Asian buyers. As a reliable supplier, they have built an outstanding reputation. But they now want a more balanced distribution of supply and increased exports to Europe. Half of the production from the "North East" oilfield is expected to be shipped to Europe and the other half to Asia.

Europe urgently needs to find a substitute for Russian natural gas. Qatar's geographical location also makes it more suitable for supplying Europe and Asia than the United States. In May this year, Germany, Europe's largest economy, said it had signed a preliminary energy agreement with Qatar. At the same time, the QIA has committed to invest 10 billion pounds in the UK, which shows that the relationship between Doha and London is strengthening.

A challenge faced by European buyers is that Qatar traditionally prefers long-term contracts with fixed delivery locations to flexible contracts offered by American manufacturers, which allow buyers to ship fuel anywhere and are more popular in Europe. European buyers are more reluctant to sign a 25 year contract because the future role of natural gas is uncertain in the "decarbonized" world that most leaders want.

Future: Explore energy transformation

All resource-based countries have a fear that natural resources will always be exhausted. What should we do when that day comes? The oil countries are also facing another heavy pressure: the trend of global warming in recent years, the pressure of transition to sustainable energy, and the voice of abandoning fossil fuels has gradually become the mainstream.

By 2021, Qatar will still have the largest per capita carbon dioxide emissions in the world. Qatar is well aware that more and more countries are moving away from fossil fuels. Can Qatar still find its place in a future without fossil fuels? Transformation is necessary. At present, the question turns into: How long will the world depend on fossil fuels? How soon can Qatar separate its sources of wealth from fossil fuels?

To this end, the Qatari government has formulated the "2030 National Vision", which aims to transform Qatar into an advanced society capable of achieving sustainable development by 2030. The development goals of the plan are divided into four main pillars: economic, social, human and environmental development.

For Qatar, it is urgent to find new and more sustainable energy sources. An important attempt is to make oil from natural gas, or GTL for short. GTL is sometimes called "green fuel". Compared with petrochemical diesel, GTL has relatively low carbon dioxide and carbon monoxide emissions. Qatar's Pearl GTL is the world's largest GTL project, which was put into operation in 2011. It will combine upstream production with onshore conversion plants. Not only has Qatar obtained high economic returns, but also good environmental benefits.

Another attempt is to develop solar energy. Qatar has set the goal of realizing that 20% of energy comes from solar energy by 2030. Qatar Solar Corporation was established, and an agreement was signed with Total and Marubeni to build a solar power plant capable of producing 800 MW of electricity.

Another attempt is to develop carbon capture technology. Qatar Energy aims to reduce the carbon intensity of its LNG facilities by 35% by 2035 through carbon capture technology to ensure that its customers can reduce emissions to net zero between now and 2050.

In 2021, Qatar Petroleum Company was officially renamed as Qatar Energy Company. At the press conference, Kabi said that the old name failed to reflect what the company was doing, while the "new strategy" would "focus on energy efficiency and environment-friendly technology".

Of course, this is also part of the renaming wave of the world's old energy companies. Statoil changed its name to Equinor in 2018, removing the reference to oil in its name. Total changed its name to TotalEnergies in 2021.

However, unlike its publicly listed partners, Qatar Energy did not set a net zero emission target for its business, nor did it abandon its natural gas business.

For listed companies like Shell, under the pressure of climate activists and investors, controversial fossil fuel projects are often difficult to carry out. However, Qatar Energy has no such pressure. According to Kabi, the company will not seek listing in the foreseeable future.

Kabi is still a staunch supporter of LNG, and has "justified the name of natural gas" on many occasions. He believes that although natural gas also emits a lot of carbon when burning, it is less than oil and coal, and should become the core of the world energy transformation.

"If you look at the basic power load in the world, it is either natural gas or nuclear power that can be accepted and affordable. The rest will be some fuel oil and a large amount of renewable energy." Kabi said, "I agree to take the green route. But I always said that natural gas is not a transitional fuel, it is a purpose fuel."

The World Cup is still in full swing. Qatar's commitment to FIFA - to host the first carbon neutral World Cup - is still fresh in my mind. Critics and praises poured in. Some questioned their high per capita carbon emissions, and some admired their attempts to reduce carbon emissions.

For Kabi, the heat wave brought by the World Cup may be over soon, but this company, this industry, will continue to move towards the next five, ten and fifty years with Qatar.