Interview: H.E. Abdallah Bin Hamad Al-Attiyeh, president, OPEC; oil minister of Qatar.

Anthony, John Duke

The following interview was done in Qatar in late September 1997 by John

Duke Anthony, president and CEO of the National Council on U.S.-Arab

Relations.

DR. ANTHONY: What are Qatar's

economic objectives?

DR. ATTIYEH: They are to increase

Qatar's prosperity for future generations

through the optimum utilization of its oil

and gas resources, the cornerstone of our

economic development. Energy will

remain at the forefront of our growth. A

related objective is to achieve political

stability in our region based on mutual

respect. Although Qatar is small, it has

done what it can to bring about peace in

the Middle East and in the Gulf in

particular.

Q: What role do Qatar's energy policies

play within the country's overall economic

development?

A: Qatar's energy policies have two

objectives. One is to sustain and, where

possible, increase the level of the

country's oil production. The second is to

maximize the return from our gas reserves.

Our gas reserves are estimated to be fifty

times the extent of our oil reserves.

Q: How are these objectives to be

achieved?

A: Given our technical and

human-resource limitations, we have no choice

but to form alliances with international

partners. We have decided to do this

through production-sharing agreements

and joint ventures. The agreements

concluded thus far have enabled us to

achieve foreign investment and the best in

modern technology for developing our

energy resources. At the same time, the

investors obtain a reasonable rate of return

on, and the prospect of being able to

quickly recover, their investment.

This is the way we are proceeding

with ELF Aquitaine, Occidental and

others. The companies' investments are

being fully offset by the additional

reserves and increased production they

have made possible in existing fields.

We're now at a sustained production level

of 400,00 barrels a day (bpd) and are

headed in the direction of producing over

700,000 bpd by or soon after 2000.

Q: What about gas?

A: In gas, our prospects are exceptionally

bright. We have the largest single

nonassociated gas field in the world. We

are proceeding to develop the field in

accordance with a strategic master plan.

The plan has three parts. The first

involves the early assignment of specific

quantities of gas in order to enhance the

investment prospects of particular projects

to export gas in the form of LNG or

pipeline gas. Second, we are seeking

projects that will bring added value.

Third, we are in the process of expanding

the infrastructure required for such

projects to succeed.

Q: How do you determine which projects

to pursue?

A: The projects have to be economically

feasible. In this regard, it is essential that

there be a guaranteed market; the

long-term demand forecast must be sound.

Q: Other than its increasing role as a

feedstock for the generation of electric

power, what other uses do you envision for

Qatar's gas?

A: We're keen to increase our production

of ammonia, urea, methanol, polyethylene

and other products. The overall objective

is to increase Qatar's role in the world's

gas industries and in the international

petrochemicals business in general. We

are proceeding with the very positive and

substantial involvement of American

institutions. In so doing, we are able to

benefit from their competitive position in

the international marketplace. What we

offer the associated companies and the

downstream customers in return are a

long-term energy feedstock, a favorable

fiscal and legal regime, and flexible

economic conditions.

In Ras Laffan and other projects, our

partners have been impressed by Qatar's

economic and political stability and its

historical commitment to international

partnerships.

Q: Among specialists, there is a

divergence of viewpoint as to whether

Qatar's production-sharing approach is

an aberration or the first step in what is

likely to become a regional trend. Would

you care to comment?

A: In deciding to allow the equity

participation of others through production

sharing and joint ventures, we did so for

very specific reasons. In particular, we

saw three possible advantages. First, it

would enable us to obtain the necessary

investment to search for additional oil

reserves. Second, when new oil reserves

are found, we end up sharing the profits

for a very long time. That's good for both

partners. Certainly, it's been good for

Occidental, which is producing 100,000

bpd as a result. It's been equally good for

Maersk. In addition, Atlantic Richfield

(ARCO) is producing 20,000 bpd, a figure

that will soon increase to 60,000 bpd.

Pennzoil stands to gain in a similar way.

We'll be entering into the same kinds

of arrangements with regard to our gas

production via Qatargas. Qatargas will

soon complete construction of its third

LNG train. (As each train consists of at

least two million tons, this means that

Qatar will soon be producing and

exporting more than six million tons of

gas per annum.) We are the first country

to build two grass-roots LNG projects at

the same time. Rasgas production is

scheduled to leave Ras Laffan in 1999 for

South Korea. All of this is being achieved

through the joint-venture approach.

Additionally, various other projects that

use gas as a feedstock or fuel, such as

petrochemical, gas-to-liquid conversion,

etc., will expand our industrial base.

The third benefit is that, in the

process, we obtain valuable technology

and human-resource training and

development.

In sum, we're committed to the

joint-venture, production-sharing approach with

highly qualified and competitive

international partners. In the eyes of our

people, this is a big improvement over

previous arrangements. In the past, some

used to say that "foreign companies came

to the region only to suck our blood and

then leave." Doing it this new way holds

out the prospect that we'll all be winners.

Q: What were the principal reasons for

past delays in arriving at such a bold,

strategic decision?

A: In the 1980s, there were a great many

people, chief among whom were those

associated with BP, who concluded that

such projects couldn't happen. Instead of

proceeding with just one company, we are

developing our energy resources in close

association with more than half a dozen

American, Asian and European partners.

Q: Some ask, "Why haven't more

European and Japanese companies won

contracts? "

A: We have European and Japanese, in

addition to American, partners. We

choose our partners based on the offers

and the economic prospects of the projects

in addition to the attitude of the company

concerned.

When I was a university student in

Michigan, there used to be a saying,

"What's good for General Motors is good

for the U.S." We have similar sayings in

Qatar. We say, "What's good for Qatar

Petroleum Corporation and Qatargas is

good for Qatar."

Q: Some petroleum analysts have pointed

out that the Organization of Petroleum

Producing Countries (OPEC) acts as a

constraint on what is possible in terms Of

any significant expansion of Qatar's

production, given that the current

OPEC-determined quota for Qatar is 400,000

bpd. Do you agree?

A: Whatever Qatar's future oil-production

capacity may be, its output is likely to

remain only a very small percentage of

OPEC's overall quotas. As it is, Qatar has

the smallest percentage of any OPEC

country. We don't anticipate any

difficulties in this area. OPEC has a

history of respecting the special needs and

interests of member countries whose

production capacities, like ours, are so

much lower than the others.

Q: Does Qatar intend to become involved

in the emerging energy industries of

Central Asia or the Caucasus?

A: Not at this time. Our commitment is

solely to projects related to the

development of our own energy resources.

Neither are we in the business of

providing economic assistance to such

countries. This being said, we remain

interested in exploring further the

prospects for building pipelines that would

carry our gas to Pakistan, India and China.

In the same vein, we're also looking at the

Philippines.

Q: Could you provide insight into how

Qatar deals with the portion of its offshore

gas field that extends into Iranian

territory?

A: Iran is talking with Royal Dutch Shell

and France's Total about ways to develop

its share of the field, which Tehran calls

the South Pars field. People are wrong to

worry about whether we're in competition

or dispute with Iran over the field's

development and production. The field's

reserves are so great that they are expected

to serve Qatar's and Iran's needs for the

next 100 years.

Q: What about Israel's interest in Qatar's

gas?

A: Enron, via one of its affiliates, was

prepared to buy five million tons of

Qatar's gas per annum. Of this amount, it

intended to sell two million tons to Israel.

An agreement to this effect was signed

with Israel's Labor government. The

agreement provided for a certain amount

of the gas to be exported, first to Jordan

through its port at Aqaba. The remainder

would go to markets elsewhere in Jordan

and to customers in the West Bank and

Israel.

We signed a Memorandum of

Understanding to this effect. But then the

Labor government fell, Likud came to

power, and the new Israeli minister of

energy, Ariel Sharon, canceled the

agreement. The reason he gave was that he

thought he could buy gas on better terms

from Russia, Turkmenistan and other

countries. But recently Sharon canceled

the deal he was to have had with Russia.

Q: In what ways is Qatar privatizing its

oil industry?

A: In a way, one can say that it is already

privatized. That is, QGPC is administered

autonomously. It's run as a profit-making

company, without any government control

or interference. Yet, at the same time,

QGPC is 100-percent owned by the Qatar

government.

The answer to the question is a little

complicated. For example, in financing

our gas-development projects, which are

the responsibility of Qatargas and Rasgas,

the government doesn't borrow at all. In

financing our oil development, QGPC

borrows money on its own account; the

government itself is not the borrower. For

example, not long ago, QGPC, for the first

time, borrowed $400 million for a project

that cost $1.2 billion. The money was

borrowed, or one can say it was

"expensed," through the mechanism that

financed the project. The decision to do

so was based on the project's economic

merits.

Q: Could you be a little more specific as

to how projects that cost billions of dollars

are financed by sources other than the

Qatar government?

A: Qatar's policy, quite simply, is that any

project that cannot finance itself will not

be approved. Because our partners

represent enormous - in some cases

giant - institutions, our view is that if a

particular project is economically sound,

then our partners ought to be the ones to

come up with the necessary financing. If

they can't or won't, then we won't do it.

Q: What percentages do Qatar's different

oil fields contribute to the country's total

petroleum production?

A: The Dukhan Field, which is the oldest

and lies along the southwest coast,

currently produces 270,000 bpd; it will

soon be raised to 330,000 bpd. The

rest - 130,000 bpd - comes from Bul Hanine,

Medan Mehzam, Idd Al-Shargi North.

This will be increased dramatically with

the development of the offshore field

being operated under the

production-sharing agreement.

Q: What's the possibility of Qatar's

supplying the industries of Dubai or other

emirates with gas?

A: There's the possibility of an agreement

between Qatar and Dubai in partnership

with ARCO. Dubai needs some 800

million cubic feet per day of gas.

Elsewhere in the GCC region, there are

other possible opportunities. For example,

Kuwait uses lots of crude oil for

electricity, which is more expensive than

gas. So, if we succeed in working out

something with Dubai, it's possible that

we could expand the arrangement to

include Bahrain and Kuwait as well.

Q: Why not?

A: Yes, why not?

Q: And Pakistan?

A: That's a separate project. It needs

more work.

Q: What about water? A year ago, a

Qatari cabinet official told me that Qatar

was interested in the possibility of

building a pipeline that would bring water

from Iran to Qatar. He said the water

would not be used for strategic purposes,

such as drinking water, but, rather, for

recharging aquifers that supply Qatar's

industrial needs. Is this idea still being

considered?

A: We continue to explore various

possibilities, including being able to bring

water one day via the Shatt al-Arab. We

also continue to weigh the pros and cons

of building additional desalination plants.

In terms of water-purification technology,

a continuing challenge is how to lower the

cost of treating brackish water and sewage

water. At present, it's possible to recycle

such water to what is called the "third

grade." However, in order for people to

be able to drink it, it needs to be recycled

to the "fifth grade." Yet the technology to

do this now is too expensive.

Q: Isn't Phillips Petroleum interested in

helping out in this area?

A: We are talking with Phillips mainly

about its possible involvement in

developing our gas industry. But it's true

that Phillips has a division that deals with

water issues. Something might develop.

With regard to other liquids, we are

exploring the possibilities for Qatar to

become the first country to convert gas to

high-quality diesel fuel on a commercial

basis.

Q: The fact that Qatar is the headquarters

for the Gulf Organization for Industrial

Consultancy (GOIC) is no coincidence, in

light of the pioneering industrial uses to

which Qatar has put its gas resources for

the past quarter century. Do you foresee a

significant future for gas-fueled

industrialization in Qatar or anywhere

else in the GCC region?

A: Economically speaking, a country

should stick to the areas in which it has a

comparative advantage. It makes sense

to industrialize only if one doesn't have to

import the necessary raw materials. In

Qatar's case, its comparative advantage is

that it has abundant amounts of the fuel

necessary for producing ammonia and

urea for markets in South, Southeast and

East Asia.

Not only in this way, but also

geographically, we are ideally situated to

be able to assure Asian customers of

Qatar's being a long-term source of supply

for these products. We intend to develop

faster and further in this direction. By

the year 2000, we expect to be a major

player in the world of petrochemicals.

Q: What can you say about the official

side of Qatar-U.S. energy cooperation?

A: Last June, when the Emir, H.H. Shaikh

Hamad, visited the United States, I

accompanied him to the meeting we had

with Department of Energy Secretary

Pena. It was a very good meeting.

We're very satisfied with the bilateral

agreement we signed in support of

cooperation between us in the field of

energy.

Q: In your role as president of OPEC,

need one be concerned with any of the

recent and present trends within

international petroleum markets?

A: The oil market - for whatever else it is

in terms of demand, supply and cost - is

also a psychological market. In my view,

the futures market plays a very negative

role in this regard. For example, there

have been times when prominent oil

analysts have one minute said Iraq is

coming into the market and a few minutes

later said the opposite. This kind of thing

makes it very difficult to maintain market

stability. One needn't name names, but

there are otherwise reputable entities that

do this quite regularly. When their reports

frequently contradict each other in such a

compressed time frame, it's not unusual to

see prices go up 30 cents and down 50

cents within the same hour.

The seasonality of certain demands,

the availability of supplies, and economic

growth trends - these are additional

factors that influence the market. But

sometimes, there's no question that the

impact is entirely illogical. That's why I

say that the market is often more a

psychological one than an actual one.