QATAR - Oil Refining & Gas-Based Projects.

The refining sector in Qatar is being expanded in a big way. Together with an expansion of the Mesaieed oil refinery from 100,000 to 137,000 b/d, a 292,000 b/d condensate splitter is being built at Ras Laffan in the north of the country which will be fed by Qatar's two sets of LNG ventures - QatarGas and RasGas. The state-owned Qatar Petroleum (QP) is also having a 250,000 b/d oil refinery under construction.

Qatar will become the world's capital for gas-to-liquids (GTL), which will produce ultra-clean fuels to be much in demand from the next decade. With Qatar having become the world's biggest exporter of LNG, the emirate has plans to raise it LPG output and exports from 4m t/y to 14m t/y by 2012. It will have the biggest fleets in the world to transport LNG and LPG (see gmt11QatrGasExpSep10-07 of next week).

The Condensate Splitter Option: Booming output of light condensate in the Middle East and Asia - with Qatar to produce 800,000 b/d of this by 2012 - offers refiners a cheap and fast way to make high profits, helping ease capacity strains after years of under-investment in the refining business on both sides of Suez. Condensate is a by-product of natural gas production and its volumes are set to surge over the next few years as gas fields are developed to meet growing demand for cleaner fuels.

The processing of this liquid is necessary because it has a high content of sulphurous mercaptans. Importers have been reluctant to buy condensates from Qatar and Abu Dhabi, so both have opted for large splitters.

Condensate can be blended with crude oil to run in refineries but can also be processed in splitters, an option growing more attractive as the best way to capitalise on rising demand for premium fuels. When processed through a splitter, condensate produces 50% naphtha and a large portion of diesel, products whose profit margins have soared over the past two years, helping crude oil prices to more than double. The Middle East needs more capacity to make motor fuels, particularly gasoline. Major petrochemical makers in Asia require more naphtha as feedstock to produce ethylene, the basic building block for everything from compact discs to car dashboards.

The attraction of a splitter is enhanced by bullish forecasts for condensate supply. Condensate output in the Middle East, Russian Far East and Asia/Pacific will more than triple between 2003 and 2013 to almost 6m b/d. Production of condensate is outstripping that of crude oil, reserves of which are dwindling in Asia. East of Suez condensate output will rise to over 14% of total liquids production by 2013, up from 5.4% in 1997.

A condensate splitter with a 100,000 b/d capacity costs around $300m. A mid-sophisticated 220,000 b/d oil refinery would 6 times more; 150,000 b/d complex oil refinery would cost up to $4.2 bn. Demand for condensate driven by new splitters is expected to almost triple between 2003-13 to 4.7m b/d, of which the Middle East will account for about 75%. Saudi Arabia is considering construction of up to three splitters, having already commissioned one. Qatar's first Ras Laffan splitter, 146,000 b/d, will be on stream in the fourth quarter of 2008; a second 146,000 b/d unit there will start up in 2010. Iran is to have three splitters, of 120,000 b/d each. Abu Dhabi is boosting its splitter capacity in a big way. Asia is lagging but Shell's new JV petrochemical complex in China includes a splitter. Smaller units are being built in Thailand and Vietnam, leaving room for more oil firms to take advantage, especially if condensate prices remain relatively weak.

New splitters will drive up demand for condensate and its price. But for now, condensate is still relatively cheap, attracting buyers whose refineries are complex enough to enable easy blending. Qatar's RasGas sour condensate has traded at a $6/b premium to average Dubai crude, usually below Malaysia's light/sweet Tapis crude. Asia/Pacific's largest condensate stream, Australia's North West Shelf (NWS), trades below Tapis, despite being a low-sulphur liquid. The swift rise in output, particularly of Middle East condensate high in sulphur, may keep prices under pressure until new capacity is built. Condensate produced in Asia typically contains less sulphur and is easier to refine. Condensate being high in sulphur and metals will always be tough to sell.

With the above perspective in mind and to keep pace with rising volumes of condensate from the North Field (see gmt10QatrFieldsSep3-07), Qatar Liquefied Gas Co. (QatarGas) has decided to double the capacity of its 146,000 b/d Ras Laffan splitter. As part of its expansion plans, it is looking to include an aromatics plant, a gasoil hydrotreater and a unit to divide heavy and light naphtha. QatarGas has issued details of this to a host of international contractors, who submitted their interest in July. The project will be under an engineering, procurement, construction and commissioning (EPCC) contract.

With EPCI costs rising at a high rate, the timing of the investment is being studied with great care. Not only gross profitability should be maximised but internal rate of return must be considered. The QatarGas splitter is a JV QP (80%), Total (10%) and ExxonMobil (10%). Total is the technical manager of the project. The splitter will be operated by QatarGas which, along with Ras Laffan Liquefied Natural Gas Co. (RasGas), will provide the bulk of the condensate feedstock. The foundation stone of the first splitter was laid down on April 16, 2006, at an official ceremony in Ras Laffan Industrial City.

The splitter includes associated storage and export facilities. Its EPC contract was given in 2005 and to a consortium of GS Engineering and Construction and Daewoo Engineering and Construction of South Korea.

The refining and fuels distribution sector is run by the Qatar Fuel Co. (Wuqud), a public limited firm set up in March 2002. Capitalised at QR150m (then $41.2m), Wuqud is owned 40% by QP and 60% by private individuals and companies. Wuqud has had a 15-year monopoly over the local market from April 2002. It has taken over from QP, which has been in charge of the sector since its unit, National Oil Distribution Co. (NODCO), was wound up in late 2000.