Is Doha the next Dubai?

In the space of four days in October, Qatar became an energy superpower. It signed natural gas megadeals with ExxonMobil and Shell worth $17 billion, and has other projects worth an estimated $20 billion with US and European energy giants in the pipeline.

All this will make the tiny emirate - OPEC's smallest oil producer - the world capital of the gas-to-liquids industry by 2010 and the single largest supplier of liquefied natural gas to the United States, a huge energy market that is ready to undergo rapid and vast expansion in the coming years.

Qatar, which has been assuming a more assertive role in Gulf affairs, is on target to become the world's biggest LNG exporter by 2010 with an annual output of 30 million tons and is pushing to raise production to 45 million tons a year. Current LNG production is 15 million tons a year, mainly to Japan, Spain and the US.

Qatar's success in forging these new contractual connections, particularly with the United States, will provide it with the kind of stability and security that its neighbors can only dream about.

It also gives the emirate a huge head start on the other Gulf producers, which are increasingly looking to gas as the energy and export-driver of the future. LNG - natural gas supercooled and condensed for transportation by ship - is viewed by Washington as vital to the long-term fuel supply.

The ExxonMobil deal, worth $12 billion, is the centerpiece of these glittering prizes, but it has deep political implications as well. Qatar has emerged unscathed from the political strains the events of September 11th placed on the United States' relations with the Gulf states.

It proved itself a trusted Arab ally through its support for US policy and military operations in Afghanistan and Iraq, particularly by allowing the US Central Command to set up its operational headquarters in the emirate when other Gulf states refused. Centcom is a vital element in President George W. Bush's war against terrorism and the most active military command in the US defense establishment.

According to the Texas-based security think tank Stratfor, this has meant that Doha has been given 'access to some top-shelf technology. In addition to de facto security guarantees that serve both countries' interests, and the economic benefits of having a few thousands soldiers kicking around their country, having Centcom in Doha gives Qatar a say in how, where and when US forces operate and policy is implemented - massively magnifying the small state's geopolitical punch.'

Qatar has the world's third largest natural gas reserves after Russia and Iran - an estimated 900 trillion cubic feet at the end of 2002. Under the terms of the ExxonMobil agreement signed by state-run Qatar Petroleum in Doha on October 16th, the emirate will supply 15.6 million tons a year from Qatar's vast North Field in the southern Gulf.

That's the single largest investment in Qatar's booming gas sector and the largest project for importing LNG into the United States announced so far.

Delivery is scheduled to start in 2008-09 and is expected to run for more than 25 years. The project involves everything from production to shipping, with the Ras Laffan Liquefied Natural Gas Co. II (RasGas II), which will supply the gas, chartering two more 145,000 cubic meter capacity LNG carriers.

Ultimately, the project will entail the construction of two new LNG trains in the RasGas complex, each with an annual production capacity of 7.8 million metric tons, tripling the current two-train production capacity of 6.6 million tons a year at a stroke. Another two trains of 4.8 millions tons a year are currently under construction to cope with the swelling demand for Qatar's LNG.

The $5 billion deal with Qatar Shell, a subsidiary of Royal Dutch/Shell, signed on October 20th, involves building the world's largest plant to convert natural gas into liquid fuels, comprising two production trains of 70,000 barrels a day each.

The first line is scheduled to start up in 2008-09 with the second going onstream two years later. The plant will primarily produce naphtha and transportation fuels to be marketed worldwide.

Shell will also develop a block in the North Field to produce 1.6 billion cubic feet of gas a day. GTL technology is pretty much untested, but energy companies are hopeful that the new environmentally friendly fuels it produces will become popular as demand grows for less polluting diesel engines.

Qatari Energy Minister Abdullah Hamad Al-Attiyah, who is also chairman of Qatar Petroleum and of OPEC, declared, 'This first world-scale project is an important milestone in establishing Qatar as the GTL capital of the world and is supporting the economic development of Qatar.'

Sir Philip Watts, chairman of the Royal Dutch/Shell Group who signed the agreement on behalf of the European energy giant, added, 'Not only are we building the largest GTL plant of its kind the world has ever seen, but we'll be producing a new range of clean and versatile products which offer significant environmental and performance benefits.'

Over the last three years, Qatar has signed at least nine major contracts to supply LNG to Western Europe and Asia, including one with ExxonMobil for the supply of 14 million tons a year to Britain and others with India's Petronet, Italy's Edison, Spain's Repsol and Korea Gas Corp. of South Korea, the world's single largest LNG consumer.

Attiyah says that negotiations with ExxonMobil, Marathon, ConocoPhillips and Sason-Chevron for further gas contracts 'are at an advanced stage. The agreements could be concluded at any moment because Qatar has adopted a flexible economic policy.' These have a combined value of upward of $20 billion.

Qatar is ideally positioned to become the leading gas supplier to its partners in the Gulf Cooperation Council. Demand has been rising at 6.5 percent a year and some of these states are already finding themselves hard put to meet it. By 2005, the GCC's overall deficit is expected to hit 4.5 billion cubic feet per day, and 6 billion cubic feet per day by 2010.

Collectively, the GCC's current gas reserves are estimated at 975 trillion cubic feet. But with the exception of Qatar these are mostly what is known as 'associated gas' linked to oil production and not capable of meeting the rising demand for gas.

Saudi Arabia has an estimated 25 trillion cubic feet of oil-associated gas and is in the process of opening up its upstream gas sector to foreign investment, the first time that has happened since the oil industry was nationalized in 1975. But that is proving to be a laborious process and it will take years before production begins. Even then, the gas will be used for domestic consumption rather than export.

Iran is the only regional state that can rival Qatar's gas reserves. Its big offshore South Pars field in the Gulf, for instance, is ripe for foreign investment.

But Iran is having to struggle to attract sufficient technology and funds to develop its massive reserves and lags far behind Qatar's breakneck development program over the last 10 years or so. Unilateral sanctions imposed on Iran by the United States prevent American companies from providing investment.

The GCC has long talked about building a regional gas grid based in Qatar's North Field to supply the alliance's member states. Recurring power shortages in the region have given the project some urgency, yet the idea, like many others involving collective GCC participation, has foundered because of a lack of political will.

Another Gulf-wide project - an oil pipeline starting in Kuwait to link all the GCC countries - would provide export terminals for tankers on the Arabian Sea coast, rather than inside the Gulf. Shipping routes out of the Gulf have to pass through the chokepoint Strait of Hormuz, which is vulnerable to blockage.

The idea has been kicking around for decades, and is trotted out with every regional crisis, but always winds up getting shelved - as it did when the GCC oil ministers met in Doha in early November. Perhaps the prospects for the gas grid will fare better as regional demand for Qatar's abundance of this source of energy inexorably mounts.