Post Office Box 3212
State Owned Company
The transformation of Qatar from a nomadic society, largely dependent on pearl trading, into a modern, urban state, with living standards that are among the world's highest, is the direct result of the development of the Qatari oil industry. Even at the beginning of the 1990s, despite intense efforts to diversify its economy, the Qatari government remains dependent on the fortunes of the oil sector, and on the Qatar General Petroleum Corporation (QGPC) in particular. Oil revenues contribute more than 90% of government and export revenues, and the oil surplus of the mid-1980s and the accompanying decline in oil prices resulted in a fall in national income of almost 20% in 1986.
Until the mid-1970s, the hydrocarbon industry was largely in the hands of foreign companies. In 1974, the QGPC was established with the objective of gaining full control of the country's oil and gas resources for the state. This goal was quickly realized. QGPC's operations cover the whole range of oil and gas activity from exploration and production to downstream refining and fertilizer and petrochemical production, through key subsidiaries and joint ventures. Current priorities include the use of enhanced oil recovery methods to maintain production at current levels for the rest of the century, and the development of the massive North gas field on which the hopes for Qatar's future prosperity are pinned.
After World War I and the collapse of the Ottoman Empire, Qatar fell within the British sphere of influence and the first onshore oil concession in Qatar was awarded in 1935 to British Petroleum's predecessor, the Anglo-Persian Oil Company (APOC). APOC created a subsidiary, Petroleum Development (Qatar) Ltd. (PDL), to operate the concession. PDL was later renamed the Qatar Petroleum Company (QPC). The first well, Dukhan Number 1, was drilled in 1939. The outbreak of World War II delayed further work until 1947 and the first crude oil exports only took place in 1949. The Dukhan field remains Qatar's sole onshore oil field, and accounts for about half of Qatar's total oil production.
The first offshore concessions were granted in 1949 to two U.S. companies, the Superior Oil Company and the Central Mining and Investment Corporation. However, their exploration efforts were unsuccessful, and their concessionary rights were quickly surrendered. In 1952, the Shell Company-Qatar (SCQ) acquired exploration rights to most of Qatar's offshore territory and began an extensive exploration program. In 1960, the fields of Idd Al-Shargi and Maydan Mahzam were discovered. Commercial exploitation began a few years later. The largest offshore field, Bul Hanine, was discovered in 1970 and came onstream in 1972. Qatar also has a 50% share with Abu Dhabi in the offshore Al-Bunduq oil field.
It was against the background of the 1973 oil price shock, when the 13 members of OPEC sought to increase their power relative to that of the oil majors, that the Qatar General Petroleum Corporation came into being. The formation of QGPC became necessary following the government's decision to assume full control of the country's oil industry. In 1973, the state took a 25% stake in the onshore concessions of QPC and the offshore concessions of SCQ. Early in 1974, the year of QCPC's formation, the state increased its share in both companies to 60%. In 1976, QGPC took total control of QPC's onshore concessions and took similar action in relation to SCQ's offshore activities the following year.
Although a state company, QGPC--in terms of the composition of the board of directors--resembles a family firm. Half of the current eight-member board is composed of members of the ruling al-Thani family. The first--and so far only--chairman of QGPC is Sheikh Abdulaziz bin Khalifa al-Thani, minister of finance and petroleum and second son of the Emir of Qatar, Sheikh Khalifa bin Hamad al-Thani. In 1989 Qatar's Council of Ministers underwent a substantial transformation when several of the older members were retired and new ones, largely from the l,500-strong male side of the al-Thani family, were introduced into the government. Sheikh Khalifa's position, however, was unchallenged.
QGPC's activities cover not only exploration for and production of crude oil but all aspects of hydrocarbon activity. Refining of crude oil is carried out by the National Oil Distribution Company (NODCO), a wholly owned subsidiary of QGPC established in 1968. Qatar's first refinery was built in Umm Said in 1953. A second refinery was completed in 1974. At this stage refining capacity was about 12,000 barrels per day and the output went to meet domestic demand. By the early 1980s, growth in local consumption was such that Qatar began to import refined products. At the end of 1983, a new 50,000-barrel-per-day refinery came into operation at Umm Said. The refinery's output was more than sufficient to meet local needs and left a substantial amount for export. Work is underway to build a unit to facilitate the production of unleaded gasoline, and NODCO is examining other ways to expand and upgrade the refinery facilities further.
The gas activities of QGPC have become increasingly important, not only to the company but also to Qatar itself, as it strives to diversify its economy away from crude oil and build up a heavy industrial base. The North gas field was discovered in 1971. Although its significance was not immediately apparent, subsequent drilling revealed the field to be the world's largest known offshore non-associated gas field. The discovery of the North field may enable QGPC to remain a major hydrocarbon producer for the next 200 years. By contrast, oil reserves, at current production levels of almost 400,000 barrels of oil a day, will last for less than 30 years. Consequently, the emphasis of QGPC's development has shifted from crude oil to natural gas.
Gas is not a new product in QGPC's portfolio. Gas associated with oil production and non-associated gas from the Cap and Khuff fields, which lie underneath the Dukhan field, has played an important part in Qatar's industrialization process. Initially, this involved steel, cement, fertilizers, and petrochemicals. Water desalination and power generation have also been major outlets for gas production.
Gas is the key feedstock for the Qatar Fertiliser Company (QAFCO) which was established by the government in 1969. The government's shares were transferred in 1974 to QGPC, which still holds 75% of the shares: the remaining 25% are in the hands of Norsk Hydro of Norway. QAFCO plans to double its capacity to take advantage of the greater availability of gas from the North field project.
Qatar was the first Arabian Gulf state to build up its own petrochemical industry. The Qatar Petrochemical Company (QAPCO) was established in 1974 as a joint venture between QGPC (84%) and CdF (Chimie de France) and began production of ethylene, low density polyethylene, and sulfur in 1981. In August 1990, QGPC's interest in QAPCO was reduced to 80%, with the remaining 20% split equally between Enimont of Italy, and Elf Aquitaine of France through its Atochem subsidiary.
The importance of reliable gas supplies was demonstrated in the early years of QAPCO, which were marred by shortages of ethane feedstock arising as the result of the fluctuations of associated gas production along with the movements of the oil price. Like QAFCO, QAPCO is seeking to expand its capacity significantly in line with the increase in gas production.
With falling oil production, and therefore falling associated gas production, as well as the depletion of the Khuff reserves, it became imperative to develop the North field. The decision to go ahead was taken in 1984 and it was decided that development would take place in phases. Phase one involves the installation of production, processing, and transport facilities for 800 million cubic feet of gas per day to serve local industry and utilities. The project will also produce 5,000 tons per day of liquid products, such as propane, butane, gasoline, and naphtha, most of which will be exported. A third gas processing plant, NGL-3, is also under construction. It was announced in 1989 that a gas sweetening plant and a further sulfur processing unit would also be added to improve the environmental acceptability of the gas. Phase one was expected to be in full operation by early 1991. The exact nature of--and timetable for--phases two and three are uncertain. Phase two was widely expected to involve the sale of North Field gas to its neighbors, possibly through the development of a Gulf Cooperation Council (GCC) gas grid.
Phase three involves the sale of North field gas to markets in Europe and the Far East. In the mid-1980s, the Qatar LNG Company Ltd. (Qatergas) was established to manage, operate, market, and export liquefied natural gas (LNG) from the North Field. Initially, QGPC held a 77.5% stake in Qatargas, but this was subseqently reduced to 70%. Foreign investors include BP, Total CFP of France, and Marubeni and Mitsui from Japan. This venture calls for a worldscale LNG plant and a fleet of seven LNG carriers.
Even before the Persian Gulf crisis, this part of the project had run into trouble. In order to justify the necessary investment, estimated by some to be as high as US$4 billion, Qatar gas needed two large-scale long-term supply contracts, beginning at the end of the 1990s. Despite the globetrotting of QGPC managing director Jaber al-Marri, these contracts have not been forthcoming. Fears about the gulf situation have also caused these potential customers to look elsewhere for new supplies.
The uncertain fate of phases two and three has switched the emphasis towards finding more domestic outlets for North Field Gas. This would have been necessary in any case, as domestic gas demand would only account for about two-thirds of the gas from phase one. In 1988, a firm of international consultants presented a plan to QGPC for the development of domestic projects to utilize Qatari gas. Suggestions included an aluminum smelter, a ferro-alloy production plant, methanol production facilities, and the expansion of the petrochemical and fertilizer operations. Although discussions with international partners have taken place, progress on these projects has been slow.
The virtual certainty that gas will not be able to substitute for falling oil production within a ten-year time span has resulted in a greater concentration on the oil side of QGPC's business. Hitches in gas plans mean that, contrary to expectation of the mid-to-late 1980s, oil will still be the main source of QGPC income at the end of the century.
QGPC has initiated a program to expand and upgrade its oil production facilities in a bid to maintain production at current levels. Without further action, offshore production is expected to fall to a quarter of 1990 levels by the mid-199Os. Production levels will be maintained by bringing the Diyab structure of the Dukhan field into production and by using enhanced recovery techniques, both onshore and offshore.
Qatar has been thoroughly explored and the prospects for the expansion of production via new commercial discoveries are believed to be limited. QGPC itself carried out much exploration activity during the early 1980s but exploration fell back drastically as the oil glut of the mid-1980s gathered pace. Since then, QGPC has encouraged foreign operators to apply for exploration licenses for Qatari territory. BP's subsidiary BP America, Elf, and Amoco have participated in exploration activity. Although the number of wells drilled picked up significantly towards the end of the 1980s, there has been little success so far. The most promising area for exploration includes islands which are the source of a territorial dispute with Bahrain, but this area is likely to remain untouched until a political settlement has been reached.
QGPC entered the last decade of the 20th century with several question marks hanging over it. Qatar's oil reserves and production are modest by gulf standards, but a large investment effort is still needed to maintain oil production at current levels. The prospects for development of the North Field, which has long been regarded as QGPC's and Qatar's chief source of income for the next two centuries, are uncertain. This uncertainty has been compounded, not only by Iraq's invasion of Kuwait and the perceived general instability of the region, but also by statements from Iranian officials since the end of the Iran-Iraq War, laying claim to a significant share of the gas from the field. QGPC has not shown itself to be unduly concerned, but the warning signs are there.
Principal Subsidiaries: National Oil Distribution Company; Qatar Petrochemical Company (80%); Qatar Liquefied Natural Gas Company (70%); Qatar Fertiliser Company(75%).
al-Othman, Wasser, With Their Bare Hands: The Story of The Oil Industry in Qatar, Harlow, Longman, 1984.
El Mallakh, Raqaei, Qatar Energy and Development, London, Croom Helm, 1985.
Zahlan, R.S., The Making of the Modern Gulf States: Kuwait, Bahrain, Qatar, UAE and Oman, London, Unwin Hyman, 1989.
Cranfield, John, "North Field Moves Ahead," Petroleum Economist, January 1990.
Financial Times Survey on Qatar, February 22, 1990.
Ellis, Neville, "Qatari Catastrophe," Petroleum Economist, September 1990.
Meed Special Report on Qatar, October 26, 1990.
Crystal, Jill, Oil and Politics in the Gulf: Rulers and Merchants in Qatar and Kuwait, Cambridge, Cambridge University Press, 1990.
"Qatar: A MEED Practical Guide," MEED, all editions.
Source: International Directory of Company Histories, Vol. 4. St. James Press, 1991.