The Economy - Oil and Natural Gas

Persian Gulf States Table of Contents


In 1935, after years of behind-the-scenes wrangling involving the shaykh, British and United States oil companies, the British, and the Saudis, an onshore concession was granted to the AngloPersian Oil Company, which transferred the concession to Petroleum Development (Qatar), an affiliate of the Iraq Petroleum Company (IPC). British, French, and United States oil companies held shares in IPC. Petroleum Development (Qatar) was renamed the Qatar Petroleum Company (QPC) in 1953.

As a result of adequate crude oil supplies at the time, exploratory drilling in Qatar did not begin until 1938. Oil was discovered in Dukhan, on the west coast, in 1939. By 1940 about 4,000 barrels per day were being produced. World War II and its aftermath brought development to a halt between 1942 and 1947, and exports did not begin until 1949. The Dukhan field extends south from Dukhan along the west coast and has three oil reservoirs layered progressively deeper between limestone formations and a natural gas field underlying them all. Dukhan crude has an American Petroleum Institute (API) rating of 40 and a sulfur content of 1.2 percent. A pipeline carries crude from the Dukhan fields to storage, refining, and terminal facilities on the east side of the peninsula at Umm Said.

In 1952 a Royal Dutch Shell subsidiary, Shell Company of Qatar (SCQ), obtained a concession for offshore exploration on the continental shelf. Most offshore discoveries centered on the island of Halul, about ninety kilometers east of Doha. The major offshore fields and the dates they were discovered are Idd ash Sharqi (1960) and Maydan Mahzam (1963). Offshore production began in 1964. Because Qatar and Abu Dhabi claimed the Al Bunduq field, the two parties agreed to exploit it jointly starting in 1969. Another offshore field was discovered in the summer of 1991 by Elf Aquitaine Qatar. Offshore crude had an API rating of 36 and a sulfur content of 1.4 percent. Offshore crude is stored at facilities on the island of Halul, which also has pumping stations and two single-buoy moorings for loading tankers. Combined offshore and onshore reserves as of January 1990 were 4.5 billion barrels, offering thirty-two years of production at 1989 levels.

Both concessions were for seventy-five years and gave the oil companies the right to explore, produce, refine, transport, and market all oil found in the stipulated area. In addition, the concessionaire companies were exempt from taxes and duties on imports and exports but were required to hire local labor where possible. The Anglo-Persian Oil Company (after a down payment of 400,000 rupees in 1935) was required to pay Shaykh Abd Allah ibn Qasim 150,000 rupees annually thereafter. (During World War II, when oil operations were suspended, the annual payment was 300,000 rupees.) Before commercial production could begin, an industry had to be assembled. The company built a jetty at Bir Zikrit and shipped in water, foodstuffs, and almost 100,000 tons of equipment and supplies from Bahrain before the first drop of oil was pumped. Once exports began, oil became extremely profitable in Qatar and in the rest of the Persian Gulf as a result of favorable concession terms, cheap labor, relatively inexpensive drilling and pumping costs, and easy access to transportation.

In 1952 the 1935 concession agreement was revised (in line with others in the region) to split profits fifty-fifty between the company and the ruler. Shaykh Ali ibn Abd Allah's share rose from about US$1 million in 1950 to US$61 million in 1958, after which his profits dipped to US$53 million in 1959 and did not rise to the 1958 level until 1963. Some money reached the local economy, but the initial impact of oil exports consisted mainly of high incomes for the Al Thani and high inflation on basic commodities.

From its initial concession in 1935, QPC kept aloof from the shaykh and was seen by the ruler and workers as high-handed and inept; for example, it triggered strikes by forgetting to issue workers' coffee rations or inadvertently forcing them to work during Muslim holidays. In the 1950s, the company had its own infrastructure (power, water, communications, and housing) and provided health care to workers and police protection to its facilities.

To gain some leverage over the oil company with regard to revenues, pricing, and production, Qatar joined the Organization of the Petroleum Exporting Countries (OPEC) in 1961, one year after it was formed. Qatar has stayed close to its OPEC production quota when it has been in its economic interest but has often exceeded its quota to compensate for soft markets or to take advantage of the price increases that resulted from the Iraqi invasion of Kuwait in August 1990.

Between 1960 and 1970, annual oil production more than doubled, from 60.4 million barrels (165,000 bpd) to 132.5 million barrels (363,000 bpd). Production peaked in 1973 at 208.2 million barrels (570,000 bpd). Between 1974 and 1980, production leveled off in the range of 410,000 bpd to 520,000 bpd. The early 1980s saw a steady decline, apart from a small recovery in 1984, with an annual production of 151.5 million barrels (415,000 bpd). After another flat period in the mid 1980s, production levels rose once again in the late 1980s and early 1990s, with 146.7 million barrels (402,000 bpd) produced in 1990. The 395,000 bpd production levels of 1989 and the first eight months of 1990 exceeded OPEC quotas.

After independence in 1971, the Qatar National Petroleum Company was created in 1972 to handle oil operations. In 1973 the government held 25 percent each of QPC and SCQ. Two years later, the Qatar General Petroleum Corporation (QGPC) was established, and the government signed new agreements with the oil companies giving QGPC 60 percent ownership. By 1977 onshore and offshore operations were fully nationalized, and service contracts were given to former concessionaires.

Production of petroleum products began in 1953 when a QPCowned refinery started up with a capacity of 600 bpd. By 1975 refining capacity had expanded to 6,000 bpd, and by the early 1980s another 4,000-bpd-capacity had been added. A refinery opened in 1983 and added 50,000 bpd in capacity, bringing the national total to more than 60,000 bpd. The National Oil Distribution Company refined an average of 62,000 bpd in 1990; 75 percent of production was exported. As a result of the jump in prices caused by the Iraqi invasion of Kuwait, 1990 profits were 40 percent higher (US$1 billion) than in 1989. Most of the refined products are consumed locally.

Natural Gas

The Qatari government celebrated twenty years of independence in September 1991 with the inauguration of Phase One of the North Field development project. The gas project, in a 6,000-squarekilometer field off Qatar's northeast coast, is supervised by Bechtel of the United States and by Technip Geoproduction of France. The project marks a major step in Qatar's switch from a reliance on oil to gas for most of its revenues. The North Field is the world's largest natural gas field, and its exploitation will place Qatar in the top ranks of the world's gas producers. Natural gas from other fields provides fuel for power generation and raw materials for fertilizers, petrochemicals, and steel plants. With the expected depletion of oil reserves by about 2023, planners hope natural gas from the North Field will provide a significant underpinning for the country's economic development.

In the early 1970s, Qatar flared about 80 percent of the 16.8 million cubic meters of natural gas produced daily in association with crude oil liftings. In that decade, the country made progress in using its natural gas resources despite several setbacks. Whereas nearly 66 percent of onshore gas was flared in 1974, by 1979 that proportion had fallen to less than 5 percent.

Two natural gas liquids (NGL) plants began operation in Umm Said in 1981. NGL-1 used gas produced from the Dukhan field, and NGL-2 processed gas associated with offshore fields. The combined daily capacities were 2,378 tons of propane, 1,840 tons of butane, 1,480 tons of condensate, and 2,495 tons of ethane-rich gas. However, repeated difficulties prevented the plants from coming on-line as scheduled and operating at full capacity. A massive explosion at the precursor of NGL-1 in 1977 killed six people and caused US$500 million in damage. NGL-2 had problems with the pipelines that connected the plant with offshore fields. The sharp drop in oil production in the 1980s meant that lack of feedstock caused plant shutdowns and underproduction. As a result, downstream users suffered as well. In 1982 the two plants produced 500,000 tons of propane and butane-- slightly more than one-half of plant capacity. Condensate production lagged even further at 138,000 tons, or 40 percent of capacity.

This gloomy outlook is mitigated to some degree by hope for development of the massive natural gas reserves in the North Field. Discovered in 1972 by SCQ, its proven reserves of 4.6 million cubic meters (as of 1989) will be productive well into the twenty-first century. The Qatar Liquefied Gas Company (Qatargas) was established in 1984 as a joint venture with QGPC and foreign partners to market and export liquefied natural gas (LNG) from the North Field.

Phase One of the US$1.3 billion project was officially inaugurated on September 3, 1991. By the end of the month, it was pumping 23 million cubic meters of gas per day from sixteen wells. This is expected to meet an estimated 17 million cubic meters per day of domestic demand.

QGPC plans a massive development at Ras Laffan in association with the North Field project. In addition to a new port with LNG, petroleum products, and container loading berths, project plans include a 2,500-ton per year methanol plant and a 450,000-ton per year petrochemical complex. The development is scheduled for completion in the late 1990s.

In line with its desire to diversify the firms engaged in developing its resources, Qatar signed a letter of intent in February 1991 with Chubu Electrical Power Company of Japan to supply 4 million tons per year of North Field gas for twenty-five years, starting in 1997. This amount represents two-thirds of Qatargas's expected capacity of about 6 million tons per year.

For more recent information about the economy, see Facts about Qatar.

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Source: U.S. Library of Congress