Maritime matters

Qatar holds the third-largest reserves of natural gas in the world which has already attracted massive investment. It is estimated that by the year 2011, Qatar will export 77 million tonnes of LNG annually to global markets, making Qatar the world’s largest exporter of LNG.

Nakilat Inc. was established to provide wholly-owned Qatari midstream shipping capacity for the transport of Qatari LNG, thus linking the upstream and downstream components of the value chain.

Nakilat will provide the vital link that connects the significant upstream investment described above with gas markets and customers around the world.

This is consistent with the operating philosophy of full-chain integration where Qatar Petroleum and its upstream partners seek to achieve significant involvement in all segments of the LNG value chain.

As part of that progression, and in order to create a vehicle for private investment in the LNG industry to Qatari citizens, Nakilat’s activities are currently purely focused on the transportation of LNG to global markets.

Ownership is held 50% by its founding shareholders and 50% by the public as a result of an IPO in 2005.

The company is building an impressive fleet of state of the art vessels to transport LNG produced from Qatar’s gigantic North Field, the world’s largest non-associated gas field with approximately 15% of the world’s total proven reserves, to global markets. By 2010, Nakilat expects to own up to 54 LNG vessels, making it one of the largest LNG ship owners and transport companies in the world.

With its range of gas-based export projects and an expanding portfolio of gas expansion schemes, Qatar has proved as one of the most adaptable Gulf States in opening its doors to foreign direct investment. Nakilat is one such example of this investment opportunity.

Oil & Gas Middle East spoke to Muhammad Ghannam, Nakilat’s managing director and man at the helm, about the company’s achievements to date, and aspirations for the future.

“Our decision to enter the global LNG chain in 2002 was taken when the first major LNG trains in Qatar with ExxonMobil and QP was announced, which was followed by two trains for Ras Gas and one more train with ConocoPhillips and Shell. So we were looking at 6 mega-trains coming on stream with a capacity up to 77 million tonnes per annum,” Ghannam explains.

“The Nakilat business model is built around the principals of being flexible and stable. The company was established as an investment vehicle to promote investment opportunities for the average Qatari person. Qatar is really promoting opportunities for its people to save and invest for the future,” he says.

The company reached an amicable agreement with QatarGas and RasGas that they would sign 25 year charters on the vessels, with extension options.

“We determined the rate of return that we wanted to give to our shareholders and this was a mutually beneficial arrangement. This is important because it’s a very secure investment for our shareholders. As soon as we sign the construction contract with the yards in Korea we also sign the 25 year charter agreement back-to back, so the risk to us once we deliver the ships is really zero, because the revenue from the charters starts to flow immediately.”

Since inception, Nakilat has formed a number of joint ventures with international shipping companies, with non-operating equity interests, ranging from 20-60%, in 29 LNG vessels.

These international shipping companies include global giants such as Maran Gas, Teekay, OSG, MOL, Mitsui & Co, NYK, K-Line, among other major shipping brands.

In addition, Nakilat has contracted to build 25 wholly owned LNG vessels that will be operational in 2008-2010.

“The 28 delivered ships we own in partnership are already delivered and operating, with a further one to come. The remaining 25 ships we will own 100% outright.”

All of Nakilat’s fleet has been built in South Korea’s specialist yards.

“The decision to go with the Korean yards stemmed from exhaustive research which examined yards from all around the world. QatarGas and ExxonMobil found that the Korean Yards met their requirements for safety, price, quality and specification as well as the delivery schedules,” says Ghannam.

From the liquefaction plants to the terminals and tankers, Ghannam says its all part of Qatar’s grand vision of to dominate the LNG market. “Shipping is like the pipeline for our industry so this tonnage capacity is what is needed in order to reach the potential of the rest of the infrastructure which has been put in place to meet the targets set out by Qatar.

The LNG market is growing very fast. Qatar will support roughly 30% of the global LNG market and it’s a market that’s growing in size. LNG offers a clean burning energy and that makes it a very popular fuel of choice around the world and a fuel of the future.

Outside of chartering the ships Nakilat has been able to build up a solid base around all marine activities with the grand aim of establishing a successful shipping and maritime service industry for Qatar.
 

Despite its strong purchasing position, Ghannam says the company has never considered becoming an LNG ship trader.

“Buying and selling vessels isn’t the business we’re in, we are committed to our core areas. Having said that, we are interested in looking into transporting more of Qatar’s by products such as liquefied petroleum gas, sulphur and getting into other shipbuilding services, starting initially with tugboats and service vessels so that we can provide a broad maritime infrastructure for Qatar.”

Part of this will include a vast repair and fabrication facility, as well as further vessel ownership and operation covering liquid petroleum gas (LPG) carriers and sulphur vessels.

“We are in the process of starting operations at a world class drydock facility which can accommodate the largest LNG vessels operating today. We are looking to complete the drydock facility next year and we are also entertaining the idea of building offshore structures including rigs and platforms, as well as a small facility to repair and fabricate tugboats.”

Shell has been selected as a strategic partner to provide key knowledge transfer services, and operate Nakilat’s vessels during the company’s infancy.

In terms of shipping volume capacity, when the 54th ship is delivered Nakilat will be the single largest owner of a dedicated LNG fleet in the world.

The corporate model is certainly impressive and has proved adaptable to the needs of Qatar’s grand LNG export vision. Challenges remain for Ghannam and his team, but the future for Nakilat couldn’t be brighter.