INDUSTRY INSIGHTThought Leadership

Qatar upstream expansions underline Gulf petrochemical opportunities

By Adal Mirza, Middle East Senior Correspondent, Argus, and Muhamad Fadhil, Vice-President, Petrochemicals, Argus

The expansion of oil and gas production capacity, as well as new refineries, in the Mideast Gulf will underpin new petrochemicals capacity, buoyed by the recent improvement in ties between Qatar and the rest of the region. Oil and gas companies in the region are channeling their investments downstream into petrochemicals, as they attempt to maximize the value of every barrel of crude produced. The long-term strategy would still be export-oriented to key markets in Asia, but leveraging on relationships within the wider Gulf and also looking for opportunities to diversify in growing markets.

Petrochemical capacity expansion projects are underway across the Middle East, driven by three key factors — diversification of skills and knowledge; job creation; and the move to replace oil demand as it shifts away from transportation fuels. This will be increasingly important to ensuring the market for the region’s hydrocarbon resources.

Qatar gas drive

Qatar is planning to boost natural gas production from its best-known resource, the giant North Field. In February, state-owned QP gave the green light to a USD 28.25 billion programme — including drilling, offshore platforms, onshore production facilities, pipelines and storage tanks — to expand LNG production capacity to 110mn t/yr from 77mn t/yr.

First gas from the expansion is expected in 2025 and full capacity by 2027, just as QP starts a second-phase expansion, taking capacity to 126mn t/yr. Along with LNG, each new production train will provide large volumes of condensate and ethane to feed a potential boom in Qatari petrochemicals production.

To take advantage of the gas expansion, Qatar has plans for the region’s only new ethane-based petrochemicals project, at Ras Laffan. The USD 5 billion project, developed jointly with CPChem — a joint venture between Chevron and US independent Phillips 66 — will include a 1.9mn t/yr cracker, and two high-density PE units with a combined capacity of 1.68mn t/yr, as well as an ethylene glycol plant.

Once realized, the QP-CPChem project can optimize the use of ethane produced from the North Field LNG expansion project. This proposed project is targeting gas production capacity of 4.6bn ft³/d (47.7bn m³/yr) and is expected to add about 1mn b/d of oil equivalent to Qatar’s output. The QP-CPChem joint venture is estimated to increase Qatar’s polyethylene (PE) production by around 80pc when it starts up. Qatar currently markets PE produced by domestic firms Qapco, Qatofin and Q-Chem.

With its abundant feedstock, Qatar is likely to leverage on its existing partnership with CPChem as it builds its domestic footprint further downstream. Qatar petrochemical companies have utilized CPChem’s technology for PE production for a number of years, allowing them to bring the best of both worlds: advantaged feedstock cost and access coupled with world-class petrochemical technology.

The expansion plan is reminiscent of the boom in Qatar’s downstream industry in 2000, when the Gulf nation expanded rapidly into PE, becoming a major participant almost overnight, with the strong support of its international partners.

Any cracker or petrochemical joint ventures will expand the footprint of CPChem in the Mideast Gulf, where both are present. CPChem also operates two joint ventures in Saudi Arabia — Saudi Chevron Phillips (SCP) and Jubail Chevron Phillips (JCP).

Together with CPChem, Qatar is also eyeing longer-term investments for petrochemical expansions in the Americas, with plans for new capital expenditure likely to be revisited.

QP-Muntajat consolidation

The increased focus on petrochemicals follows last year’s decision by QP to integrate petrochemical marketer Muntajat into its operations — part of efforts to strengthen Qatar’s global position in the downstream sector. The integration combines the commercial and financial capabilities of QP and Muntajat and leverages on shared customer relationships. QP will also be able to tap into the Muntajat international presence in petrochemicals to increase its market share. On its part, the new downstream arm of QP will be able to utilize crossovers in the feedstock space to reach out to newer customers.

Qatar chose the consolidation route in recent years to pool its resources. As a smaller, export-oriented Gulf nation, Qatar needed to move quickly and find the best use for its advantaged feedstock and petrochemical output. QP announced the integration of petrochemical firm SEEF into its operations in April last year, while Qatar Vinyl merged its operations with Qapco in 2017.

These integrations in Qatar follow a wave of similar tie-ups between state-owned oil companies and their petrochemical affiliates in the Middle East. Oman in 2019 integrated state-owned oil company OOC, refiner Orpic and its other energy firms. In Saudi Arabia, Sipchem, a producer of methanol, polymers and acetic acid, merged its operations with fellow Jubail-based Sahara Petrochemicals, a supplier of PP. And the Saudi Aramco acquisition of a majority stake in Sabic, the region’s largest, is part of a wider drive to expand its downstream operations.

Petrochemical spillovers in Qatar

In the short term, Qatar’s petrochemical industry will receive a boost in 2021 as Gulf nations leverage on improved ties and connectivity, re-establishing decades-long partnerships and commercial channels. PE and PP producers in Saudi Arabia are already looking to sell more resins to customers in Qatar, starting this year, benefiting from the duty advantage between Gulf nations. The COVID-19 pandemic limited polymer cargo movements in January, but volumes slowly picked up from mid-February after restrictions were gradually lifted. Polymers typically move by road on an intra-Gulf Co-operation Council (GCC) basis and take around a week to reach customers from point to point.

QP, as an integrated producer, is expected to ramp up exports across the GCC and re-establish its regional position as a key producer of petrochemicals. Olefins and PE production in Qatar will reach 6.04mn t/yr in 2021, Argus data indicate, enabling the Gulf nation to become a key exporter of the polymer to Asia, Europe and the Americas. Other than PE, Qatar is also a major marketer of petrochemical products such as methanol, MTBE and linear alkylbenzene (LAB) within the GCC region and globally.

Further downstream, the positive spillover will also benefit film and bottle manufacturers, a major downstream segment of polymers. Saudi and UAE-based fast-moving consumer goods (FMCGs) manufacturers are increasingly looking to restart plastic finished product exports to Qatar as part of a regional growth strategy in light of a more challenging environment during the pandemic. LAB, used in the manufacture of detergents, is another downstream growth segment targeted by regional FMCGs companies.

New opportunities for co-operation

QP loaded a 712,000 bl condensate cargo at Ras Laffan on 3 March, destined for Dubai-based trading firm Enoc’s Jebel Ali splitter in the UAE. It was the first commercial energy trade between Qatar and the UAE since the improvement of Gulf relations in early January.

Established in 1999, the Jebel Ali refinery can process 210,000 b/d of condensate, which yields refined products such as naphtha, reformate, jet fuel, diesel oil, fuel oil and LPG. Without its regular supply channels, Enoc needed to be more creative in sourcing feedstock, even importing from the US to maintain operations.

The rapid expansion of Qatar’s LNG production could resurrect one of the region’s long-held ambitions, the creation of a GCC-wide gas grid. There is only one gas connection between the Gulf neighbors at present — the 2bn ft³/d Dolphin pipeline that runs under the sea from Qatar to the UAE and then to Oman. Amid improved relations expanding capacity might be possible, with the addition of new connections a likelihood.

While Qatar has worked on its expansion plans, Saudi Arabia has put on hold its ambitious USD 110 billion scheme to develop gas from the Jafurah onshore unconventional basin, suspending its first phase in December. Abu Dhabi too has delayed some of its sour gas field developments.

Both have long-term ambitions of achieving self-sufficiency in gas, but in the shorter term importing gas from Qatar would help meet rising demand and provide greater flexibility in the wider Mideast Gulf energy system.