Turning up the gas

Faisal Al Suwaidi has become a victim of his own success in creating a worldwide market for liquid natural gas

RED flames shimmer behind a thick shroud of smoke at the Ras Laffan gas plant in Qatar. Methane from the bottom of the Persian Gulf is part-combusted and filtered in a spaghetti-like tangle of steel pipes. Further along, the gas is cooled in bulbous storage tanks to minus 160°C, turning it into liquid and reducing it to one-six-hundredth of its original volume, ready to be sent across the oceans aboard a new generation of supercarriers. Local officials boast that the plant will be the largest structure made by man in centuries when it is finished next year. Already it produces a quarter of the world’s liquefied natural gas (LNG).

Ras Laffan is a singular industrial success, but that was no foregone conclusion. It would not have been built without one man taking a gamble. Faisal Al Suwaidi, the boss of Qatargas, wagered a decade ago that a massive boost in production would create a market large enough for his country’s main asset, the world’s biggest known gasfield. When it was discovered in 1971, Qataris were dismayed. Mr Suwaidi, who got his first job in the petroleum industry the following year, remembers there being a lingering disappointment that gas, not oil, had been found in the vast offshore North Field. Nobody traded gas then. Later a regional market developed in eastern Asia, with Japan and South Korea buying LNG from gas-rich Indonesia, Malaysia and Brunei, but gas remained oil’s underachieving younger sibling, lacking a global market.

Then in the late 1990s Mr Suwaidi set out to create such a market by taking three important steps. First, to build Ras Laffan and its extraction facilities, he pledged full co-operation with foreign partners. This may sound obvious. But the industry’s sorry state at the time had much to do with producer countries, including Russia, Iran and Saudi Arabia, refusing to pay for superior foreign expertise, or accept the political costs of doing so. Not so the Qataris. Companies such as Shell, Total and Exxon Mobil became full partners, says Mr Suwaidi, and made all the difference.

Second, he focused on selling gas to faraway nations rather than Gulf neighbours. Only they would have enough demand for LNG in the long run. To do this he had to reduce prices and offer more flexible contracts. Japan became an early client and the first industrial nation to rely on long-distance gas deliveries. China and India followed as their economies began to boom. Europe, too, developed an appetite. In May this year Qatargas opened the largest European LNG import terminal at South Hook on the Welsh coast, supplying a fifth of Britain’s gas needs. South Hook is part-owned by the Qataris, hinting at Mr Suwaidi’s third innovation. National energy firms rarely pay for the vast infrastructure needed to liquefy gas, ship it in freeze tanks and regasify it close to consumers. Mr Suwaidi, by contrast, invested heavily in such facilities. Ras Laffan alone may have cost of the order of $60 billion (there are no official figures). He also commissioned a fleet of gas ships, twice the size of the biggest existing ones.

His gamble paid off handsomely. Together with another Qatari firm, RasGas, Qatargas now dominates the world LNG market. The resulting flood of wealth has brought huge change at home. Qatar had no schools or hospitals when Mr Suwaidi was born in 1954. Since then its population has grown forty-fold. Its national income per head is now among the world’s highest. This year its economy may grow by 10%, and new capacity coming on-stream during 2009 will double Qatar’s LNG production capacity to 62m tonnes a year. By 2011 it expects to produce 77m tonnes a year, providing half as much energy as Saudi Arabia’s oil output.

But once that target has been hit, production will be capped, with no plans for further expansion. The era of bold innovation is drawing to a close. Speaking at a recent industry conference, Mr Suwaidi sounded nothing like a visionary. He rattled on about safety at his plants: an important subject, but hardly what one would expect to be his main preoccupation. “People give me a lot of credit but I just listen to what others say,” he says, tying a string of worry-beads around his thumb. How then did he get this far? He says he was just “lucky”, like one of Napoleon’s generals.

From seller’s market to buyer’s

Mr Suwaidi’s unexpected modesty comes after a gruelling few years. He appears to have been cowed by continual construction delays at Ras Laffan. Sam Ciszuk, an analyst at IHS Global Insight, says the plant’s completion has become “more like a test of endurance than a crowning moment”. On top of that, gas prices have collapsed over the past year. Spot prices fell by 75%, more even than oil. The gas equivalent of a barrel of crude now sells for around $20. The industry is seeing its first glut, not least because so much extra capacity has been built. Mr Suwaidi is a victim of his own success. He turned a seller’s market into a buyer’s market. Fortunately most LNG is bought on longish fixed-price contracts, otherwise things would be much more serious for him.

Mr Suwaidi’s new-found conservatism mirrors a wider change in Qatar. His political masters, the ruling Thani family, have suspended exploration of the North Field, hoping to sustain output for 100 years. And they have backed plans by Russia and Iran to create a gas cartel analogous to OPEC. A secretariat is being set up in Doha. Qatar is becoming a new Saudi Arabia, more concerned with market stability than maximising short-term profits.

Even so, long-term demand for gas has never looked better. China and India look set to continue growing fast, as will their energy needs. Besides being cheaper than oil, gas emits less carbon dioxide when burned, so its attraction has grown along with rising concern about climate change. Some producers, like Canada, Norway and Britain, are running out of reserves. Meanwhile Russia’s aggressive energy policies have made its European customers wary. Qatar, by contrast, underlined its dependability by inviting America’s armed forces to build a large base there. Despite the current price slump, Mr Suwaidi’s faith in a global LNG market seems likely to be rewarded.