Dolphin Natural Gas Project - Research Paper Example

Dolphin Natural Gas Project Countries in the Middle East are with no doubt endowed with immense resources of oil and natural gas. Various projects have been laid down by governments and private businesses to make the best out of these resources for economic growth. This research focuses on the Dolphin Natural Gas Project in the Persian Gulf which is one of the most sensitive of the gas projects that exist in the region. This is due to the fact that it involves three countries namely the UAE, Qatar and Oman. During the inception, each of the three partners was tasked with a role and responsibility in the project. However, as the paper will highlight, the entry of foreign based companies such as the French’s Total and other has created new dynamics in the multi-million dollar project. This paper will provide a background check on the circumstances which led to the formation of the project and the politics involved between Qatar and the UAE. Discussions on the effects of these relations will be the focus of this research activity. The central idea of this study is to look at these dynamics and the effect which the project has created on its partners and other stakeholders. Introduction Background The idea behind Dolphin Natural Gas Project was initially started in 1999 with the sole intention of supplying natural gas to the three states of the Middle East. The project which was to be fully completed in July 2007 cost an estimated 7 billion dollars gross and an estimated $3 billion in the offshore pipeline. The gas pipeline which is approximately 364 kilometers joins the three nations via sea and land. The onshore processing plant is at the Ras Laffan processing plant which is located in Qatar. Opened in 2006, it is the largest of its kind in the world and creates more gas than entire countries in the continent per day. The processed gas is piped to Taweelah receivers in the United Arab Emirates which are joined by the 182 km long Al Ain – Fujairah gas pipeline in the country. It is estimated that the gas project delivers a staggering equivalent of 330,000 barrels of oil per day (www.dolphinenergy.com). With this kind of money, political and economic interest comes into play from stakeholders from within and without. The entire region keenly monitored the gas project from its inception to the current state of political and social impacts. Significance and objectives of the study This research paper will look at five major dynamics that surround the operations and functionality of the project. This includes identifying all the stakeholders involved in the project, the political interests of Qatar and the other partners in the gas project and the merits or demerits of this action. Additionally, this study will focus on the participation of private stakeholders such as Total limited, Qatar petroleum and ADNOC and the impacts thereafter. Lastly, there will be justifications of the intense interests that the foreign players are slowly developing to be involved in the project. Literature Review Various journals and media publications have highlighted the project and the implications that it attracts for the region. Because of the direct impact the pipeline has on the three nations and the Middle East’s economy at large, the Dolphin natural Gas project has been analyzed and counter analyzed by both local and foreign media fraternities. First, the ease of doing in Qatar as a business destination has become critical in attracting foreign investors as Clyde and company (2010) elaborate. Dolphin gas project is one of the largest inland-offshore projects in world history. This is an indication that dynamics being involved in the project such as business interests, political involvements and social implications are a center stage in its existence. This report utilizes a government report concerning the project and the data involved. Additionally the perspective of Dunning’s paradigm of ownership, location and internalization highlights the importance of a domestic country’s involvements (Bryant and David 1991). A recommendation from this research is that more needs to be studied on the long term implications on the project in Qatar Development Vision 2030. Methodology This is a secondary research activity meaning that it is a compilation of sources that have already been collected and publicized by various stakeholders. The methods used include journal analysis, sourcing from internet sources and library searches of print sources. The project has been huge in its operation yet very few people have taken to analyzing it in its deserved magnitude. This research will rely heavily on the sources that the investors, the government and media outlets have. However, critical assessment of the dynamics surrounding the project is going to be utilized in the best way possible. Discussions The Governmental Stakeholders The main partners of the project are all under the Gulf Cooperation Council (GCC) who are brought together by the common idea of product sharing. However, at the time of the project’s inception, Abu Dhabi’s gas was under huge contracts to be supplied to other nations outside the GCC partnership. These could not be reversed since they were both binding and long term. Each of the three countries namely Qatar, Abu Dhabi and Oman has their role and responsibilities according to the agreement. It is almost a coincidence that each of them has hired private and public corporations to carry out intended projects for their interests. The Qatar government is the owner of the natural gas resources since it is located in its territory (Clyde & Co. 2010). The massive reservoirs are produced in Ras Laffan, Qatar and prepared in the country and piped directly under the sea to Taweelah Abu Dhabi, in the UAE. This is a central role since the authorities have given a mandate for its resources to be utilized for a regional benefit. On its part, the United Arab Emirates has been instrumental is investing both the human and monetary resources towards the project. The Abu Dhabi government through its company Mubadala Development Company owns approximately 51% stake at the Dolphins natural Gas company. The company has invested heavily on appraisal and drilling activities toward the project. This agreement is reflected in the agreement termed as the DPSA (Development and Production Sharing Agreement). The companies that have been involved in this project too include the Total Gas limited and others. All the stakeholders share the production and net income from the products such as sulphur, methane and other gas sources for sale. Other long term agreements have seen the company get involved with other smaller companies. Private Stakeholders Two private investors namely Total limited and Occidental limited are minority partners in the dolphin’s gas project. Total owns a 24.5% stake in the project and with it, some of the production and development costs are shared with Mubadala and Qatari Government (www.dolphinenergy.com). The role of total and Occidental is provision of expertise and technical aid towards the project. This is because these companies have built experience and networks in the business for decades. It was necessary to incorporate foreign multinationals that have the qualities for businesses in the project. As a 25 year agreement, the private stakeholders share profits accordingly in return for their expertise aid. Oil and gas being a crucial element in the economy in Qatar and other Arab nations has attracted a careful planning on the processes of involving of foreign owned companies. This has seen laws and regulations put in place to highlight the sharing of this resource with domestic players. Relations of the UAE and Qatar in the project The two countries have fostered a development plan that incorporates not only the economic but the political relationship through the project. Qatar and the UAE have ties that range from financing, production and the two marketing aspects of the project. In the DPSA, both partners agreed that the major financiers would be the UAE government and the companies that were given the contracts to complete the project. The Qatar government on its part would provide the resource from its reservoir. This meant that initial monetary and human resource capitalization was to come from the UAE while the supply originates from Ras Laffan. This has seen a growth of supply to increase from $2 billion standard cubic feet(s/CF) of natural gas per day to about 3.2 s/cf per day. Sources say that the UAE government raised the required 3.5 billion dollar capital through involvement of 25 national and Islamic corporations throughout its country. In terms of production, the two nations have a tying role in the project. The processing firm in Qatar which is Ras Laffan directly links to the receivers at the Taweelah in UAE. During the construction a joint effort between Technip Limited and Jaber Service of UAE and Qatar were directly involved in the project (Klaus, 2008).. The other important relationship between the two nations include the utilization of other byproducts such as propane, condensate and propane are put to commercial use by the two countries. The market dimension is another factor that the two nations have a tight relationship. It is an obvious fact that the demand for the natural gas in UAE is way higher than its counterpart, Qatar. This has been one of the sensitive matters because inside sources say that some influential personalities are reconsidering renegotiating of the project. Relation of UAE and other suppliers in the Dolphin gas’ project The united arab emirates has its industries run by natural gas from external suppliers such as the Qatar government and related companies. Since the demand is growing at a very high rate, the government has set up plans to construct additional wells in these foreign countries to keep the supply constant. The relationship with other suppliers is not as tight as that of the Qatari government because of the magnitude and the constancy of the supply of the product. However, there cannot be a dispute about the project concerning the role of each investor. In each level of extraction, the project outsourced some of the work to foreign companies which include Japanese and Chinese companies to carry out specific duties. The following segment highlights this aspect. Up, Mid, Downstream in This Project With Justifications The three technical terms namely upstream, midstream and downstream are engineering perspective gas or oil preparation. The dynamics of the oil project in the dolphin natural gas projects are not different than the regular gas projects across the globe. Upstream projects means the extraction midstream means the transportation and downstream is used to term the final distribution to the final consumer. This segment gives a detailed account of the three processes and the quantities which the Dolphin’s Natural Gas projects has managed to achieve so far. Upstream The upstream level of gas extraction in the Khuff zone is where the company was mandated to drill approximately 12000 feet or approximately 3600 meters underground. This is about 3 and a half kilometers in search for the wet gas (www.dolphinenergy.com). This gas is termed as wet because it is semi liquid in the form of sulphur, ethane or condensate. The forms are taken up to the surface and stored in the reservoir. The process of preparing the byproduct to the transportable form begins with the introduction of a sublime. Ethane is a product that can be sold to local companies within Qatar that are used for local consumption. The partners in this level of gas production were JCC of Japan and J McDermott of UAE. Midstream This is the actual piping of the natural gas to the intended customer or consumers in the market. Dolphin’s mandate was to create a 48 inch wide pipeline with a length of about 370 kilometers. The projected transportation was to be approximately 3.2 s/cf per day. This was completed in 2006 august. Sources indicate that the entire pipeline in the midstream cost about 440,000 tons of material to be made. A Japanese company Mitsui was given the contract to complete the task. However, because of the magnitude of the project, a separate company was used to outsource the pipes that were used to link the gas pipes from Ras Laffan to the mainland Abu Dhabi refinery. Downstream These include the onshore facilities which are used by the company to load its gas products and supply to the final consumer. As indicated earlier, dolphins Limited created a plant at Taweelah to receive the pipeline. This arrangement was tasked a Qatari and a UAE company in order to create a common platform in the delivery of gas. Secondly, Dolphins constructed a 24 inch or exactly half size pipe from Al Ain to Fujairah which was to serve the downstream purpose. Completed in 2003, this became the pioneer project to land in the UAE from the northern Qatari gas wells. The main customers for the project are all inland corporations from the three countries namely UAE, Dubai and Oman. The first of such arrangement was between the company and Abu Dhabi water and electricity authority or ADWEC in 2005. This is the largest beneficiary of the project with a daily supply of approximately 930 standard cubic feet (s/cf) of gas per day. According to statistics, ADWEC takes more of the gas product than any other company because of an obvious demand that is present in the region. Secondly, the Omani customer is the Omani Oil supply which takes under 200 sc/f per day. This is considering the fact that the company contributed a proportionate sum during construction and producing the project. The Dubai supply company receives approximately 700 sc/f per day of the total production from Dolphin. These numbers reflect the amount of downstream level to be in the range of about 1.8 billion sc/f per day of natural gas. With this kind of money, as hinted above, political interests are bound to arise. The dynamics of the project Qatar and the location of the project Dunning’s paradigm of ownership, location and internalization of natural resource explains the reason a domestic country would want its projects to remain inland. According to Bryant and David (1991), the location of a project is important because there is a direct determinant of the stake in the company and the indirect benefit thereafter. In a report that showed the ease of doing business in the Middle East, Qatar featured highly as a country which was very strategic in attracting foreign investors but careful on the negotiations. For instance, an Oil company could be given a free pass to extract a resource on condition that the majority of its returns are reinvested back and the project itself remains inland. Reports show that by the year 2020 half of the world’s liquefied natural gas will be located in Qatar. This is because the north of the country has unexploited natural gas reserves. In addition to this, the country is located in a perfect place that can be linked to the rest of the world via sea. The Qatar government has carefully planned for the Dolphins and other upcoming gas projects to be located inland and not in investor countries. The main explanation of this strategic step is the structuration theory whereby the owners of resource want to own most of the proceeds of the projects. The Qatar government seems to understand that when a certain project, especially the billion dollar gas project is located in its territory, there are various advantages that are driven from the project. These include the fact that smaller industries from around the big project and utilize the byproduct as Bryant and David (1991) suggest. For instance liquid gas in form of butane and sulfur from the project has successfully created other smaller industries courtesy of the project. Secondly, domination of the host country is very likely to arise during negotiations. In other words, the Qatar government can raise or lower its stake accordingly to suit its current and future plans. Because such mega projects are signed for longer periods such as decades, negotiation terms are carefully stipulated through legal firms. Therefore the country whose project is located in its territory, in this case Qatar, will want all the projects be located in its inland. Further benefits to the Qatar government The production and midstream costs are normally taken by the company in question (Klaus, 2008). This means that there is minimum budget that is allocated to the project from the Qatari government’s coffers. Through this, the proceeds from the projects are assured and the cost of running the project is minimal in the long run. Secondly, the environmental and other tertiary concerns are monitored by the investing company. In this agreement, the parties had a clear stipulation that all the costs towards meeting any of the environmental problems that may occur are to be either cost shared or the liability is for the companies involved. Lastly, the government has an option of not renewing the contract after its expiry. This means that after the time limit for the project has come to a close. Therefore, apart from the immense benefits which mother countries derive from the investment of their natural resources, there are more indirect benefits that come with this arrangement. There is political superiority that follows any of these arrangements in the sense that regional matters in terms of products and services are negotiated to the advantage of economically superior countries. These factors justify the reasons why the Qatar government has looked at the keeping all the locations for its resources within its jurisdiction and not outsourcing them. The reasons for international companies’ interest in Qatar Qatar is one of fastest growing Arab nations in terms of economy. This reputation with many other factors has made several companies have interest in this country. Dolphins limited for instance chose the country because of several reasons that range from its strategic location to the location that the country is in. These and other factors make the country not only attractive but viable in doing business. Each of these factors will be investigated and highlighted in depth and breadth in the following segment. Ease of doing business One obvious fact in the Arab world is that doing business with foreigners can be a difficult task. Unless an investor has considerable monetary strength or religious similarity with the country, it becomes harder to get contracts in countries such as Saudi Arabia, Yemen and so on. Reports however, indicate that doing business in Qatar is relatively easier than other countries in the Middle East. The minister in charge of trade in Qatar has the power to grant a foreign owned company to own up to 100% of an enterprise in key sectors such as natural resources, health and education. Total Oil Limited has a stake in the Dolphins project courtesy of this regulation. Additionally, a foreign company must have a minimum of QAR 200,000 and allow at least a domestic company or corporation to have a considerable stake in the company. Location The Qatar gas fields are located north of the country near the sea. The Ras Laffan plant is strategically located in a port city where it is cheaper for the company to link the resources with Oman and UAE port. Total oil which has investments in pipeline resources took opportunity in making the project viable at a convenient place in Qatar. The Financing and Returns from the Project Total oil owns 25.4% of the entire project. This is similar to Occidental Limited’s stake which has a stake as such. Mubadala owns about 51% of the project. This shows that the risk and return factors are spread well by the arrangement. Therefore, total oil chose this project strategically because of these factors which make its investment secure. Political stability Lastly but not least is the political environment of the country. Qatar is a fairly neutral country in terms of politics. National politics are not extreme hence the environment for operation is conducive. Summary This research has focused on the Dolphin gas project in Qatar which involved three companied of GCC. The paper has looked at three major perspectives namely the role of the Qatar government as well as the stakeholders involved. Further, there has been a look at the reason why the Qatar nation has been very firm on wanting the project located in its territory. The application of Dunning’s paradigm of ownership, location and internalization in this issue has been well addressed. Lastly, a discussion which showed the reason that prompt oil companies such as Total Oil to invest in the country. They include the ease of doing business as well as the location and political stability witnessed in the country. Conclusion This paper has provided a perspective which led to the formation of the project and the politics involved between Qatar and the UAE. The literature review recommends that further analyses need to be carried out to establish the long term effect of both the project and the stakeholder in Qatar. It is important to understand that projects of that magnitude are rarely exposed to the eternal world because of the politics involved. However, the Dolphins Natural Gas project has been exceptional in its transparency throughout its operation. Ultimately, the research has achieved the objective of highlighting the intended dynamics. References Bryant, C & David, J. (1991). Giddens' theory of structuration: a critical appreciation. Routledge: New York Clyde & Co. (2010). Doing business in Qatar Overview. Retrieved 4 April 2013 from http://www.qbbf.com/downloads/Doing%20Business%20in%20Qatar%20%28LR%29.pdf Klaus, O. (2008). Dolphin Energy Set To Receive Pipeline Bids. Retrieved 4 April 2013 from http://www.downstreamtoday.com/news/article.aspx?a_id=10632&AspxAutoDetectCookieSupport=1 www.dolphinenergy.com. (2012). Dolphin Energy. Retrieved 4 April 2013 from http://www.academia-research.com/filecache/message/d/e/4951867_de_broch_eng.pdf Read More