THE EVOLUTION OF RAS LAFFAN LIQUEFIED NATURAL GAS CO. LTD. (RASGAS) L EVOLUTION DE LA COMPANIE RAS LAFFAN LIQUEFIED NATURAL GAS CO. LTD.

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1 THE EVOLUTION OF RAS LAFFAN LIQUEFIED NATURAL GAS CO. LTD. (RASGAS) L EVOLUTION DE LA COMPANIE RAS LAFFAN LIQUEFIED NATURAL GAS CO. LTD. (RASGAS) Neil B. Kelly, B.Sc. (Hons), M.Sc., P. Eng. Managing Director Ras Laffan Liquefied Natural Gas Co. Ltd. P.O. Box Doha, State of Qatar ABSTRACT Ras Laffan Liquefied Natural Gas Company Limited (RasGas), Qatar s second LNG company, was established by Emiri decree in 1993 as an incorporated joint venture between Qatar General Petroleum Corporation (QGPC) and Mobil Corporation. On September 13, 1997, the founding shareholders were joined by Itochu Corporation and Nissho Iwai Corporation of Japan. Discussions are currently ongoing to include a Korean entity as a further shareholder The government of the State of Qatar has granted RasGas the right to drill for and produce natural gas within a specified location in Qatar s principal gas field ( the North Field ) and to sell a specified quantity of LNG and additional quantities of related hydrocarbon products for a period of not less than 25 years. The $3.5 billion RasGas project is well underway. Two drilling rigs are currently working on a 15 well program and the construction of the offshore facilities and the onshore plant is on schedule and within budget. This is largely due to the success of the contracting strategy and project financing, which were innovative and introduced new concepts in the LNG industry. This paper outlines the brief history of the company, its role in the development of the North Field and its vision of the future

2 RESUME La companie Ras Laffan Liquefied Natural Gas LTD (RASGAS) est la deuxième companie de gas naturel liquifié au Qatar. Elle a été établie par un decret Emiri en 1993 dans un cadre de partenariat entre la companie de pétrole Qatari QGPC (Qatar General Petroleum Corporation) et la companie Américaine Mobil Corporation. Le 13 September 1997, deux companies Japonaises Itochu Corporation et Nissho Iwai ont rejoint les actionnaires fondateurs du projet. Des discussions sont maintenant en cours pour inclure une entité Korèene comme étant un autre actionnaire. Le gouvernement de l Etat du Qatar a octroyé le droit de forage et de production de gas naturel dans une zone spécifique située dans le domaine principal de gas appelé (North Field) et aussi de vendre une quantité determinée de gas liquifié et des quantités suplèmentaires d hydrocarbures pour une période de 25 ans au moins. Le projet RasGas, au coût total de 3.5 milliard de dollars, progresse bien. En effet, deux rigs de forage sont actuellement en opération dans le cadre d un plan de forage de 15 puits, la construction des installations et des equipment maritimes ainsi que l unité industrielle progresse selon le plan et dans les limites du budget. Ceci est du essentiellement au succè de la stratégie adoptée pour les contracts et au méthode de financement du projet. Ces méthodes étaient énovatrices et avaient introduit de nouveaux concets à l industrie du Gas Naturel Liquifié. Ce document resume L historique de cette companie, son rôle dans le development du North Field et sa vision pour le future

3 THE EVOLUTION OF RAS LAFFAN LIQUEFIED NATURAL GAS CO. LTD. (RASGAS) THE STATE OF QATAR The State of Qatar is a peninsula situated halfway along the west coast of the Arabian Gulf. It covers an area of 11,437 Sq. Km. and has a population of 640,000. Qatar gained its independence on September 3, 1971 and is currently ruled by His Highness The Emir, Sheikh Hamad bin Khalifa Al-Thani, who with the support of the ruling family and Qatari people assumed the Emirship on June 27, Doha is the capital city, seat of government and financial and commercial center. Other main cities include Messaged the base for numerous industries and seaport for the exportation of oil and industrial products; Dukhan the main onshore oil production field, Al-Khor, Al Wakra, and Al Ruwais

4 THE OIL AND GAS INDUSTRY IN QATAR The Dukhan Field was first discovered in 1938 and oil production began in Associated gas has been extracted since this time but was originally used solely in field operations. The first gas pipeline across the country was completed in 1962, enabling 25 MCF/day to be carried from Dukhan to Doha to be used for power generation. However, it wasn t until the early 1990s that development of the vast North Field commenced. COMMERCIAL IMPORTANCE OF THE NORTH FIELD The North Field extends over an area of 6,000 square kilometers underlying the territorial waters off the north-east coast of Qatar. It was discovered in 1971 and is the largest non-associated gas field outside of the former Soviet Union. The estimated proven and probable reserves of the Khuff reservoir are in excess of 370 trillion standard cubic feet of gas. North Field NFA RG QG Gas Pipeline Gas Liquid Pipeline RAS LAFFAN DUKHAN DOHA RG : Ras Laffan LNG Co. QG : Qatargas NFA : North Field Alpha Mesaieed Development of the North Field commenced in 1991 with the North Field Alpha complex (NFA). This facility, operated by QGPC, produces 800 million standard cubic feet of gas and approximately 30 thousand barrels of condensate per day

5 The NFA gas is supplied to petrochemical plants at Mesaieed, Qatar s original industrial city, other industrial plants and some is reinjected into the onshore Dukhan field for pressure maintenance and as a reserve. Exports of LPG and condensate originating from NFA commenced in The development of the Qatar s LNG projects; Qatargas and RasGas, is part of an overall plan for the development of Ras Laffan Industrial City (RLIC). RLIC currently comprises Ras Laffan Port, one of the largest man-made port facilities in the world, built at a cost of $1billion and the plant facilities of Qatargas and RasGas. Construction of future industries in RLIC has been comprehended in the overall master plan. RAS LAFFAN INDUSTRIAL CITY Main breakwater Future LNG Utilities Qatargas Future LNG Industries Future Industries Ras Laffan LNG Future Industries LNG BERTHS SWI Lee breakwater Future Refinery Cooling Water Outfall CONDENSATE Initial Utilities & Support Industries Construction Camps QatarGas Pipelines Existing Pipelines N The port which is operated by QGPC, will accommodate product shipments from up to 4 LNG berths, 6 liquids/chemicals berths, and 2 dry cargo/bulk solid berths. In addition, 1 Ro-Ro/Lo-Lo berth plus berths for tugs and launches are provided. The port has thus been sized to cater for the needs of Qatar s future LNG business and those of the planned Condensate Refinery and other industries earmarked for RLIC

6 N RAS LAFFAN PORT FUTURE LNG BERTHS LNG BERTH 2 NORTHERN (MAIN) BREAKWATER 5950m long SEA WATER INTAKE LNG BERTH 1 BASIN m CD -15 m CD CHANNEL MATERIALS 280m wide OFF-LOADING TUG BERTH BERTH SULPHUR BERTH CONDENSATE BERTH 2B MODULE ROAD SOUTHERN (LEE) BREAKWATER 4785m long The first sale of Qatar LNG, under a 25 year contract, was made from Qatargas to Chubu of Japan in January RasGas will make its first deliveries of LNG to Korea in By the year 2000 the North Field will be supplying gas to Qatargas and RasGas, to enable them to produce 6MMTA and 4.8MMTA of contracted LNG sales, respectively. The gas drawdown from the North Field to accommodate the combined requirements of NFA, Qatargas and RasGas over a 25 year period will be less than 9% of the estimated total recoverable gas reserves. North Field Gas Reserves Annual Consumption over 25 years for existing Plant Capacity (Qatargas, RasGas, NFA) (The partners in the Qatargas joint venture are QGPC, Mobil, Total, Mitsui and Marubeni.) 4.3 6

7 SHAREHOLDERS OF RASGAS The RasGas partnership is strong, combining host country commitment, technical expertise, project management and financing skills and marketing presence in the two principal established world markets for LNG (Japan and Korea). QGPC QGPC is wholly owned by the State of Qatar and operates in all sectors of the country s oil and gas industry. It has responsibility for exploration, drilling, production, marketing, refining, transport and storage of oil and gas, their derivatives and by-products. In addition, QGPC has joint ventures with industries engaged in manufacturing and marketing of petrochemicals and fertilizers. QGPC is also the majority shareholder in the Qatargas LNG project, with a 65% interest. Mobil Corporation Mobil is one of the world s largest integrated international oil and gas companies. Mobil has over 20 years experience in every phase of the LNG business and is the second largest producer and marketer of condensate in the world. Mobil also holds a 10% interest in the Qatargas LNG project. Itochu Corporation and Nissho Iwai Corporation The Japanese shareholders are both leading sogo shosha, or general trading companies. Both of these corporations are engaged in operations that range from the distribution of raw materials to provision of finished products to end users. The energy division of Itochu has considerable experience in the marketing and offshore trading of LNG, LPG, crude oil and petroleum products. Nissho Iwai has been a leader in Japan s LNG trade for approximately two decades and is engaged in the transportation and marketing of LNG to Japan. Korea Gas Corporation (KOGAS) KOGAS is owned 50% by the Republic of Korea, 34.7% by the state owned Korea Electric Power Corporation and 15.3% by regional Korean governments. KOGAS has been importing LNG since 1986 and is currently the sole importer of LNG into Korea. SPA WITH KOGAS On June 30, 1997 RasGas and KOGAS agreed to an amendment to the SPA entered into in 1995, thereby doubling the annual quantity of LNG to be delivered from 2.4MMTA to 4.8MMTA. Contractual deliveries will commence in July The contract term runs until 2024, with an option to extend beyond this. The SPA with KOGAS underpins the investment in the RasGas facilities that are now being constructed

8 FIELD DEVELOPMENT RasGas drilled and tested a delineation well in 1994, the results of which verified gas quality, well deliverability and gas reserves to support a minimum of 2 trains of LNG production for 25 years. Furthermore, a number of Reservoir and Completion studies were completed to support the most optimum development plan for the RasGas concession area, the development plan which calls for the drilling of 15 wells from 3 Wellhead Platforms will: 1. Meet gas demand for at least the next 25 years without compression. 2. Ensure prudent reservoir management of the gas reserves. 3. Provide safe, reliable, cost effective and mechanically sound completions. Drilling operations from 2 rigs commenced in April Wellhead Platform 2 Wellhead Platform 3 Living Quarters Platform Process & Utilities Platform Riser BS1 Flare 32" pipeline 92 km Wellhead Platform 1 RAS LAFFAN RAS LAFFAN LNG PROJECT PROJECT EXECUTION In 1994, Front End Engineering Design (FEED) work commenced for both the Onshore and Offshore facilities, with the objective of providing scope definition and bid packages suitable for lump sum bidding. Key to the project execution strategy was the bidding and early award of 4 critical long-lead item contracts directly by RasGas. These contracts (LNG Tanks, Main Cryogenic Heat Exchanger, Refrigerant Compressors and Turbines and Site Preparation work) were awarded by RasGas in the fourth quarter of 1995, prior to the award of the main Engineering, Procurement and Construction (EPC) contracts for the Onshore and Offshore facilities. In parallel with these activities, bid packages for the main EPC contracts were released to prequalified major international contractors

9 Following release of the lump sum bid packages, RasGas undertook additional FEED work for the Onshore Facilities, to further define the scope of work for the EPC bidders. This Critical Path Engineering provided detail definition on selected civil, underground and structural designs and also detail designs on selected equipment for early procurement by the successful EPC bidder. This strategy assisted EPC contractors in their bidding and also shortened the overall Project schedule. After the bid clarification and evaluation process, the Onshore and Offshore EPC contacts were awarded in March/April The contract for the Offshore platform facilities was awarded to the McDermott ETPM East Inc. / Chiyoda Corporation joint venture and Saipem SpA was awarded the work for subsea and onshore pipelines. The joint venture of JGC Corporation / M. W. Kellogg Company was awarded the Onshore EPC contract. Upon execution of the latter, the 4 long lead contracts were simultaneously assigned to JGC/Kellogg for single execution responsibility and coordination of the Onshore work. In February, 1997 RasGas exercised its options within the Train 1 contracts and awarded the Train 2 Facilities to these same EPC contractors. For the first time in a project of this nature and size, RasGas required all Onshore EPC bidders to submit proposals in respect of financing of all costs associated with the Project. In employing this strategy, contractors sought optimum sourcing of funds tied to their execution plans, from export credit agencies, commercial banks and other governmental and financial institutions. The bidding and commercial strategies employed by RasGas have led to the timely execution of the EPC contracts to deliver the first shipment of LNG by July FINANCING In December 1996, RasGas finalized $2.55 billion of loan facilities to finance the construction of the 2 trains. Bank and Export Credit Agency loan facilities represent $1.35 billion and an issue of bonds has already raised $1.2 billion. The bond offering was the first 4.3 9

10 capital markets issue for an LNG project, the first debt offering for any Qatari entity and the first Middle Eastern debt issue with a maturity beyond 7 years. It is also the first project debt from the Middle East with a rating of A3 from Moody s and BBB+ from Standard and Poor s. CURRENT STATUS At the time of writing, the onshore and offshore construction EPC contracts are on schedule and within budget. Drilling and completion activities are progressing well, ahead of schedule and test results are well within expectations.this progress has been achieved by maintaining an exemplary safety record. RasGas is thus confident that it can meet its contractual obligations to its shareholders, lenders and customer. VISION The vision of RasGas is to become a world class supplier of LNG by building, via a staged development, a multi-train LNG facility, responsive to the long term needs of buyers in existing and emerging markets. The immediate goal of the company is to achieve 10MMTA of long-term LNG sales. However, the plant has been sized to accommodate 6 trains with the potential to produce LNG in excess of 15MMTA. OUTLOOK The outlook for RasGas is bright. Marketing activity is strong within the traditional and emerging LNG Markets and opportunities are currently being sought to utilize spare capacity within the initial 2 train scope and expand the project by securing sales that would underpin the construction of further trains. As an integral part of the development of RLIC, RasGas has an opportunity to share facilities with its neighbor, Qatargas, to the economic benefit of both parties and participate as a supplier of feedstock to the planned future industries of RLIC. LESSONS LEARNED Expanding RasGas in a highly competitive environment presents many challenges. In order to meet these challenges, RasGas must draw upon experiences gained to date, as well as seek new opportunities to reduce capital costs through improved project definition and optimum project scheduling. Maintaining a competitive position in the world LNG market requires constant appraisal of initiatives designed to produce more LNG and related products at lower cost, without compromising on quality and responsibilities to the environment and safety