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Gulf hot spot

Qatar’s policy of energy sector privatization has been a success. It is facilitating a rapidly expanding gas industry and allowing electricity generation to keep pace with economic development.

To suggest that Qatar is ‘hot’ may seem to be a statement of the obvious for a desert country that sees summer temperatures often exceeding 44à‚°C with humidity at 95 per cent. Enduring sweltering temperatures in the summer is the norm in the region but not everywhere is being talked about in the way that Qatar currently is – as the hot spot for business activity.

The capital Doha has overtaken Dubai as the construction capital of the region, according to a survey of regional costs published in May by the Middle East Economic Digest. As a further indicator, the number of passengers flying to Qatar was up ten per cent in 2004 prompting Qatar Airways to place a $15.2 billion order with both Airbus and Boeing. Recently, Qatar’s economy has grown by 20 per cent annually and is forecasting an annual $15-20 billion investment programme over the next five years.

Qatar’s rapid progress has occurred under the leadership of the Emir Sheikh Hamad bin Khalifa al Thani, who assumed power in 1995. Sheikh Hamad responded to a pro-democracy movement by introducing limited political liberalization, creating an elected council and giving women the right to vote.

Beyond petroleum

Like most Gulf Arab countries, Qatar’s economic strength has been built on oil and gas production. Along with neighbours Saudi Arabia, UAE and Bahrain it has been seeking to diversify away from reliance on fossil fuels and create a more balanced economy, able to withstand an inevitable decline in reserves in future years. Four years of rising oil prices have provided the financial resources to develop these broader economic interests. At the same time Qatar has been expanding its gas sector and is now on track to become the world’s largest LNG and GTL producer by 2010.

Qatar has recoverable oil reserves of 15.2 billion barrels with Asia being its main export market. The Dukhan field, located along the west coast of the peninsular, is Qatar’s largest producing oilfield. It also has six offshore fields. Foreign oil companies have been encouraged to participate in the industry and have introduced improved recovery technology systems thereby extending the life of existing fields. Foreign companies now account for more than one third of Qatar’s oil production.

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Qatar’s natural gas reserves of 25.77 trillion cubic metres are the third largest in the world after Russia’s and Iran’s. The majority is to be found in the offshore North Field, which is the largest non-associated natural gas field in the world. Qatar currently has two LNG exporters, Qatargas and Ras Laffan LNG (Rasgas). Both companies list Qatar Petroleum and ExxonMobil as major shareholders. The country has extended its customers for LNG beyond its original south east Asian market to India, Spain, Italy and the United States. In addition, the Qatargas II project will see the construction of two liquefaction trains that with supply an import terminal to be built in the UK.

The Dolphin gas pipeline project linking Qatar with the UAE is due to be completed in 2006 and will result in the export of compressed natural gas for power generation to Abu Dhabi, Dubai and ultimately Oman.

Addressing growth

Over the past fifty years the demand for electrical energy in Qatar had been steadily increasing. However, the population growth, expansion of the petrochemical and LNG industries and economic boom witnessed over the last decade has led to a sharp increase in demand. The maximum load over the network during the period from 1988 to 2003 rose from 941 MW to 2312 MW. By 2004 it had reached 2520 MW. Qatar’s annual power demand is growing by ten per cent each year requiring an additional 250 MW per year. The government has been seeking to wean Qatari nationals off the provision of free electricity since 1999. Citizens now are entitled to a limited amount of free power with charges being levied for consumption above a set threshold.

The majority of Qatar’s 2900 MW of installed capacity is gas fired. An investment of around $1 billion is needed if the country is to achieve the 1100 MW expansion of capacity forecast by 2010.

Until the year 2000, the supply of electricity and water in Qatar was the responsibility of the Ministry of Electricity and Water, which owned all the production assets as well as transmission and distribution infrastructure. The decision in May 2000 to privatize the electricity and water industries put Qatar among the front runners among the Gulf Arab states in reducing state control and abolishing power and water monopolies. Generation and desalination assets owned by the ministry were transferred to the Qatar Electricity and Water Corporation (QEWC). Responsibility for transmission and distribution was given to the Qatar General Electricity and Water Corporation (later to be re-branded as Kahramaa).

The majority of shares in the QEWC were sold via an initial public offering (IPO). While the government retained 42.74 per cent of the company, 16.86 per cent was taken by private investors and 40.4 per cent was sold to major companies, including Qatar Petroleum and the Qatar National Bank, which hold around 10 per cent each.

IWPP expansion

Following an Emiri decree in 2001, a new private generation company was established to build the first independent water and power plant (IWPP) in Qatar. The Ras Laffan Power Company was formed as a joint venture between the US AES Corporation, which holds 55 per cent of the equity, QEWC, which holds 25 per cent, Qatar Petroleum, which holds 10 per cent, and the Gulf Investment Corporation of Kuwait, also with 10 per cent. Power generation to the grid commenced in May 2004 adding 750 MW and 151 million litres per day of water desalination at a cost of $720 million. Ras Laffan has a 25 year power purchase contract with Kahramaa and a long-term gas supply contract with Qatar Petroleum.

Work has commenced on the Ras Laffan B Power and Water Plant project. It is expected to deliver 1025 MW of power and 264 million litres/day of water when it is fully commissioned in 2008. This second IWPP will be one of the largest infrastructure projects to date in Qatar and will be constructed by Q-Power, a Qatar Shareholding company incorporated through the participation of the QEWC. It holds a 55 per cent share alongside the UK’s International Power, which holds 40 per cent, and Japan’s Chubu Electric Power Company, which holds five per cent. A $750 million debt package involving 22 banks has recently been finalized for Q Power. Construction by EPC contractors Siemens and Doosan began in February this year.

Kahramaa is a Qatari Shareholding Company of whose shares the Government owns 42.74 per cent and 57.26 per cent are owned by companies and individuals. Kahramaa operates as an independent corporation on a commercial basis with a total capital of 4 billion Qatari Riyals ($1.1 billion). It is responsible for owning and operating electricity and desalination facilities, electricity transmission and water distribution networks as well as network development.

One project in Qatar that is expected to increase demand particularly drastically is the plan for an aluminium smelting plant at Mesaieed. This joint venture between Qatar Petroleum and Norwegian firm Hydro is expected to reach a full capacity of 570 000 tonnes a year of primary metal by 2009. The facility will be expandable, with room to easily double capacity. Kahramaa is discussing building a power plant to supply the aluminium smelter with electricity with the excess generation going onto the grid.

The Ras Abu Fontas B plant is the country’s largest and newest power and water desalination plant. At present it has a capacity of 1030 MW after Alstom added a 380 MW extension unit in 2002. It produces 218 million litres of water per day. An expansion of the Ras Abu Fontas B cogeneration plant and a new Kahramaa IPP known as Facility B are both part of a strategy to meet Qatar’s domestic power needs until 2015.

The proposed capacity for the Ras Abu Fontas B expansion project is 400-500 MW, with 75.7 million litres/day of water. The project will be executed by QEWC. The hope is that the expansion will be completed within 15 months of the project’s signing, which is expected to be in October this year. QEWC is in the process of evaluating consultancy bids for the project.

Consultants submitted bids in May for Facility B, which will run in parallel with the Ras Abu Fontas B projects. According to recent reports, the project will have an expected capacity of around 1000 MW and is set to include an option for the successful bidder to take up further projects – known as C, D and E – that are hoped to meet demand until 2015.

Grid network

Qatar’s electricity transmission networks consist of approximately 100 primary high voltage substations with total 660 km of overhead lines supported by 600 km of underground cables across the country. The network is coupled with 6500 low and medium voltage substations (11 kv) and more than 4500 km of cable lines.

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The National Control Centre (NCC) manages all network demand and data acquisition from generation plants and primary substations. Areva T&D has installed a g20 million state-of-the-art distribution management system for Kahramaa involving the refurbishment of an existing control centre in the Qatari capital of Doha and installing a modern SCADA Distribution Management System, which will efficiently manage the state’s 11 kV/415 V electricity distribution network. This contract follows on from a previous project in Qatar, where Areva T&D installed the NCC that enables Kahramaa to efficiently manage its 220/132/66 kV transmission grid.

Qatar has considered extending private involvement in its transmission and distribution assets and engaged German consultants Fitchner to carry out a study. These proposals have been put on hold.

Ending isolation

Qatar has an isolated power system at present but the prospect of importing and exporting power exists with the development of the long-awaited GCC Grid. The grid will link the power systems of Kuwait, Saudi Arabia, Bahrain and Qatar allowing for a reduction in spinning reserve and as a result improve efficiency. The project has an estimated cost of $1.19 billion being shared by the participating governments. Qatar’s acceptance of co-dependency for electricity both from countries in the region and through assistance from foreign investors marks a reversal of the previous ‘island’ mentality.

With plenty of natural gas to fuel its power stations, Qatar has the ability to produce cheap electricity. The inclusion of the private sector seems to be paying off as well. Speaking at the stone-laying of the Ras Laffan power and water plant, H.E. Abdullah Bin Hamad Al-Attiyah, second deputy prime minister and minister of energy and industry, said: “The initial result of privatization has been a great decline in the costs of power and water – of up to 40 per cent in existing stations and projects under construction.” As long as demand is met, consumers – both households and Qatar’s growing industrial base – should continue to enjoy the benefits of cheap power. MEE

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