29-10-03 Earlier this month, Qatar witnessed an historic milestone in the LNG industry when Ras Laffan LNG Company (II) and ExxonMobil signed a Heads of Agreement (HoA) to provide the US with 15.6 mm tpy of LNG. The deal is expected to bring some $ 12 bn to the country, the largest single investment in Qatar's growing energy industry.
Furthermore, the project will see the country become the single largest supplier of LNG to the US market.

Ras Laffan LNG Company (II) was established in 2001 with a 70 %/30 % equity split between Qatar Petroleum and ExxonMobil. It then joined its older sister, the Ras Laffan LNG Company, which had been established back in 1993.
This older sister has a slightly different equity structure, consisting of Qatar Petroleum (63 %), ExxonMobil (25 %), the Korean consortium KORAS (5 %), Itochu (4 %) and LNG Japan (3 %). Both sister companies have appointed RasGas Company as an operations and maintenance company, responsible for drilling, construction and operating/maintaining the facilities on behalf of its shareholding entities.

RasGas produces LNG and other related hydrocarbon products from Qatar's massive North Field, which has proven reserves in excess of 900 tn cf -- the largest single gas reserve in the world.
Currently, RasGas operates two onshore LNG trains capable of producing 6.6 mm tpy of LNG. A third onshore train is scheduled to begin operations in early 2004, and a fourth train is estimated to begin production in the second half of 2005. Each of these trains will produce 4.7 mm tpy of LNG. Two more LNG trains, 5 and 6, will be built, each capable of producing 7.8 mm tons for the ExxonMobil deal. RasGas plans to have the design for these trains completed by 2004 and the bidding process for construction in 2005.

Trains 5 and 6 are expected to go on stream in late 2009 or 2010, and will supply the US with 2 bn cf of LNG per day for the next 25 years. More than 26 tn cf of the North Field's reserves will be dedicated to this project. Some officials have expressed optimism that the first of the two trains may come online as soon as 2008.
ExxonMobil is looking at three possible sites for onshore receiving terminals -- Alabama, Louisiana, and Texas -- and there may also be an offshore receiving terminal. Construction for these sites is expected to coincide with the building of the trains. ExxonMobil officials say that this world-scale project will see many technological firsts for the US market, particularly in regards to regasification. This deal is reflective of the growing importance Qatar hopes to play in supplying the growing energy needs of the US, which uses some 60 bn cf of LNG each day.

The National Petroleum Council in the US, as well as many American lawmakers and Federal Reserve Chairman Alan Greenspan, see LNG as an increasingly important component of meeting long-term US energy needs. The US has already been purchasing Qatari LNG through spot purchases; however, this deal seems to evidence the notion that Qatar is poised to become the supplier of choice over neighbouring Saudi Arabia for such gas needs, and it is projected that Qatar could be supplying some 30 mm tons, nearly half of the demand, of LNG to the US by the end of the decade.
Presently, Korea Gas Corporation (KOGAS) is the largest purchaser of LNG from RasGas. Trains 1 and 2 were constructed specifically to meet the requirements of the Sales and Purchase Agreement (SPA) to supply KOGAS with 123 mm tons of LNG over the next 25 years, equating to 4.92 mm tpy. The first delivery under this SPA took place in August 1999. However, with some 16 mm tons of LNG consumed each year, and a 4 % annual growth in demand, Korea has been making an increasing number of spot purchases of LNG from RasGas. It is estimated that by the end of 2003, Korea will have purchased 5.5 mm tons of RasGas' LNG.

Other major customers include Petronet of India, which signed a SPA to be supplied with 7.5 mm tpy from Train 3 for the next 25 years (supplemented from excess out of Trains 1 and 2),while Train 4 is currently being earmarked for a series of LNG customers based both East and West of Qatar, with negotiations in various stages of development.
However, while RasGas is poised to capture an increasing share of the global gas market, some concerns have emerged, particularly regarding the perception that there is a large worldwide surplus of LNG and uncertainty over the credibility of potential new buyers in Asia. Some problems have already arisen in the deal with India's Petronet, following reports that RasGas was offering lower prices in its bid to supply China. RasGas reportedly bowed out of the bidding after fierce competition from rivals threatened to drive prices even lower.

Pricing issues have also emerged as result of the lower price of subsidised domestic gas in India, which has led to a scramble on Petronet's part to line up customers. Nevertheless, RasGas maintains that it will deliver the first of the 5 mm tons to India in December of this year, and it is expected that the additional 2.5 mm tons that is part of the SPA with Petronet will be delivered in due course.
RasGas is optimistic that Petronet will overcome the short-term pangs of marketing a new product, and compare the situation to the experience of the emergence of LNG markets in Japan and Korea. Similar matters have also drawn attention to pricing plans in the European Union.

Meanwhile, security has also emerged as a concern, since Qatar will be the single largest supplier of LNG to the US, while the country also serves as the key operational centre for the US Central Command. The threat from extremists in the region is therefore believed to have grown.
Yet RasGas conducted a security review prior to the Iraq conflict and expressed confidence in the country's security situation. RasGas also points to the fact that through all the Arabian Gulf conflicts, the Straits of Hormuz, that narrow waterway at the neck of the Gulf, have never been impacted. Additionally, given that LNG plants do not have a lot of inventory, any disruption would not have the same impact as such disruption at an oil refinery.

The continued expansion of RasGas' operations seems to suggest that Qatar's gas industry will flourish in the years ahead.
RasGas also believes it will be extremely competitive in terms of pricing, as it can leverage the size and ease of access to the North Field's massive reserves to lower production costs, thereby positioning itself as the leader of the LNG industry.