Mohammed Al Khaldy is responsible for the biggest Private Finance Initiative energy project the world has ever seen. And it ends in Milford Haven. He explains to Wyn Jenkins what the project means for his country, Qatar, and for Wales.
For a man with a $13bn project to worry about, the person who arrives at the St David's Hotel & Spa in Cardiff seems remarkably unprepossessing and relaxed as he gets out of a taxi and enters the lobby of the hotel. While other busy businessmen worrying about far smaller deals often arrive with an assortment of blackberries, mobile phones and briefcases full of documents, Mohammed Al Khaldy arrives with nothing more than unassuming air of politeness.
Mohammed Al Khaldy is the general manager of Qatargas II, the South Hook liquefied natural gas (LNG) terminal that is being built in Milford Haven. The only thing he has brought with him on the train from London is a large and quiet colleague/friend/bodyguard. It is hard to tell which. That, perhaps, is the only sign of the importance of this man to the country of Qatar and, thanks to LNG, now also to Wales.
To understand the significance of what is taking place and being built in Pembrokeshire, it is worth considering the background behind the project and its scale. Qatargas II, as the project is known, is actually a partnership between Qatar Petroleum, ExxonMobil and Total. But Qatar Petroleum holds by far the biggest stake with a share in the venture of close to 70 per cent. This is because it is Qatar's gas being sold. As such, it is also the driving force behind the project for obvious reasons.
Qatar is a small country of less than one million people on the Arabian peninsular. It achieved independence from the British in 1971. But it is one of the richest countries in the region thanks to an abundance of oil and gas reserves. Its only other well known export is probably Al Jazeera TV.
As such, its economic strategy revolves around making the country a world leader not just in the export of oil and gas, but also in terms of solving the technical challenges surrounding the sector. "Qatar has long debated how it should move forward. This is now its masterplan," Al Khaldy says.
A combination of this strategy, constantly improving LNG technology - pioneered by Qatar - and macroeconomic conditions have promted it to increase its gas exports. As oil prices increase, the world is migrating towards using LNG, a fuel that is also cleaner to burn than oil. But there is a shortage of gas in the world and supply chains can be fickle. This was proved last winter when a dispute between Russia and the Ukraine meant the UK came close to running out of gas.
But gas is something that Qatar has in abundance. And the UK, as well as being a potentially huge customer to Qatar, also has, in comparison to most other European countries, a very liberalised regime regarding the supply of energy. This means it is relatively easy for Qatar to sell its gas here. Meanwhile, the UK gets a pretty secure supply of LNG going forward.
"For the UK this ensures a diverse, secure and competitive supply of gas," Al Khaldy says. "If, in early December, the forecast is for a cold winter - two to three degrees below freezing - LNG will be here pumping into the grid and ensuring everything works for one in every five houses in the UK."
The South Hook terminal in Milford Haven is one result of this set of dynamics. It is not the only one. Similar projects are being set up by Qatar to get gas to Texas in the US and Italy. Furthermore, it is not alone in Milford Haven. A second LNG terminal being built by a consortium of BG Group, Petronas and 4Gas. The Dragon LNG terminal will be built on Petronas's existing site in the port and will receive some 4 million tonnes of LNG a year.
When you consider this additional terminal, the importance of LNG to Milford Haven and vice versa becomes even more clear. But the Qatargas II project that ends in Milford Haven is the biggest of all the new LNG terminals, dwarfing anything that has been done previously globally. It is easily the biggest project that Wales has ever been a part of.
It has chosen Milford Haven as its entry point to the UK because of its facilities and historic expertise dealing with energy projects and shipments thanks to the oil industry. But it also adds that the authorities in Wales were supportive - without that backing the project might not have gone ahead.
"It is a deep port that is safe for our ships and with a long history of servicing the existing refineries," explains Al Khaldy. "We were also able to take on an existing site here in the former Esso refinery. I am also glad that we choose Wales for other reasons. The authorities here were very proactive in dealing with us. That helps. You could sense and feel the support from both the Local Authority and the Welsh Assembly. Andrew Davies was very helpful. They were very supportive from the start."
Qatar has 900 trillion cubic feet of proven gas reserves off its coast. To put this in context, this is enough to supply the whole of the UK for 250 years. And that is just proven reserves. There is likely far more gas off its coast, but Qatar is in no rush at the moment to worry about finding it. It is already sitting on the biggest gas field in the world by some way.
By 2010 it will be exporting 77 tonnes of natural gas a year from these fields. It is already the biggest exporter of LNG in the world. The second biggest is Indonesia, which currently exports some 40 tonnes a year.
Of the 77 tonnes Qatar will produce, 15.6 tonnes or 20 per cent of the total will come through Milford Haven. Once fully up and running, 2bn cubic sq ft of gas will arrive in Milford Haven a day. This alone will ultimately supply 20 per cent of the UK's gas consumption.
To get Qatar's LNG here, a fleet of 14 specially-designed and purpose-built ships will constantly shuttle between Qatar and Milford Haven - a 14-day journey each way, with a ship arriving in West Wales every two-and-a-half days. Even these ships reflect the remarkable scale of the project in the context of what has gone before. The biggest LNG ship operating now is capable of carrying 145,000 cubic metres of LNG. Eight of this new fleet will carry 205,000 cubic metres each and six will be capable of carrying 265,000 cubic metres. The first ships are expected in the autumn.
LNG is actually relatively easy to move around. When cooled to minus 160 degrees centigrade, it liquefies and shrinks to 1,600th of its volume as gas. It is transported in this form. Once in Milford Haven it is emptied from the ships - a process that will take some 18 hours per vessel - and stored in five tanks being built at South Hook, each capable of storing 155,000 cubic metres. Each is slightly bigger than the Albert Hall.
From there it will be warmed and turned into gas before being pumped into the UK's national gas grid. A new gas line is being laid connecting Milford Haven with the main gas lines that exist now in Gloucester. These yellow pipes can be spotted across the landscape of Wales at present and have proved controversial in some areas. The existing gas pipelines covering Wales do not have sufficient capacity to deal with the amounts of LNG coming in from West Wales.
This pipeline, while crucial to the project, is not the responsibility of the Qatargas II consortium, but of the National Grid Gas. Qatargas II's main priority is completing construction work on the South Hook site itself. Contractor Chicago Bridge & Iron Company (CBI) has a £31bn contract to get the South Hook site ready for receiving the gas. This involves building the five storage tanks, a headquarters at the site and all the infrastructure needed, including restoring the specialised jetty at which the ships will dock. This was previously used by the old Esso refinery in the port.
This is a major construction project in any context. Some 1,600 workers are employed in Milford Haven at the moment to build the terminal. And to put the entire $13bn scheme in perspective and when also including the other LNG lines it is building elsewhere in the world, some 80,000 workers globally get up every morning and work on building the various Qatar projects globally. Some 22,000 of these work on the Qatargas II project alone.
"The logistics are remarkable," says Al Khaldy. "We have to get them to site, feed them, facilitate breaks and toilets, etc. South Hook is almost small in comparison." Qatar also recently hosted the Asian games, another big construction project. "The country has been running out of cement."
But while CBI is the main contractor, it sub-contracts out much of the work, something many local firms have benefited from. And the majority of the workers at the site are locally based. Pembrokeshire's level of unemployment has gone from being one of the highest in Wales three years ago to one of the lowest now. The council puts this down to the burgeoning energy sector generally in Pembrokeshire and the work generated by the LNG terminals in particular.
Many companies in the area have benefited from subcontracting work. Because of EU competition rules, however, Al Khaldy is careful to stress that there is no expectation that CBI must use local companies or labour. "But the location dictates things to a certain extent," he says. "Certainly, the majority of the labour force has been found locally. Where Wales can provide, it makes sense to use a contractor locally."
A programme called Energize, an initiative launched three years ago by the Pembrokeshire Business Initiative, has helped this process. It helps local companies develop their expertise in the context of the energy supply chain locally. As success stories it counts members such as engineering company Ledwood, which has won major contracts with both the South Hook and Dragon LNG projects, and Rhyal Engineering, which is making the storage tanks for both sites.
Richard Packman, chief executive of the Pembrokeshire Business Initiative and who is responsible for Energize, also known as the Milford Haven Energy Group, says that the LNG terminals have provided a significant boost for many of its members' businesses. On top of this it means that local companies have gained skills relating to LNG and that can now be exported to elsewhere in the world.
He says Energize has worked closely with contractors such as CBI. "They will call us and ask where they can get a particular service or material and we will recommend two or three of our members," Packman says. "And, if they are not up to the task, we will try and help them up their game."
Al Khaldy says that these benefits to the local economy were anticipated by Qatargas II and were discussed from the very beginning - when the project was first mooted to the Welsh Assembly and Pembrokeshire Council. He says the local authority was very interested in the economic benefits the project would bring to the area. As well as the abundance of work during the construction phase and 100 full-time jobs that will be created as a result of the terminal, there will be a major knock-on effect for many local companies that can benefit from the scheme.
"People don't necessarily understand what LNG is and what this means for the UK," he says, a comment that also explains his willingness to complete a four-hour round trip from London to do this interview. "Gas at the moment comes from the North Sea. So what is happening in this part of the world is very new."
He argues that having a major gas supply on the doorstep will benefit Pembrokeshire in other ways.
At present, West Wales is at the farthest end of the UK's gas supplies, meaning pressure is weak in the region.
This situation has now been reversed.
As such, the area is suddenly very attractive to other energy companies.
A planning application has already been made by RWE npower for a £3800m, gas-fired power station in the area, which would generate a further 1,000 jobs during construction and 100 full-time jobs once built, as a direct result of the new LNG terminals.
And other potential power plant developers have been linked with building further projects in the area.
It is economic knock-on effects such as this that are getting Pembrokeshire council excited about the area's economic prospects. "When you consider the amount of oil already coming through here, the new LNG terminals and everything else going on, it is not that unrealistic to see us becoming the new energy capital of the UK," says Tony Streatfield, head of inward investment at Pembrokeshire Council. He is also responsible for managing a new energy technium for the area designed to accommodate energy entrepreneurs and research based around the area's burgeoning energy sector.
Al Khaldy estimates that in various ways the LNG terminals will contribute £3180m to the local economy in West Wales during the project phase, which goes to 2010, through a combination of employment, sub-contracts and purchasing agreements. "The biggest gas terminal in the UK will be in Milford Haven and there will be many knock-on effects from such a major infrastructure project." After that it depends what the area is able to make of it.
An engineer by profession, Al Khaldy previously spent 19 years in oil and gas upstream projects including working on phase 1 and 2 of the North Field gas development in Qatar. He was then heavily involved in designing the Milford Haven venture. Then, two-and-a-half years ago, they asked him to run it.
As such, Al Khaldy has personal responsibility for the construction of the South Hook site and will manage it once it is built. He is currently based in London, where Qatar Petroleum has its headquarters near Marble Arch. But once its Milford Haven headquarters is completed in the summer, some 30 staff will relocate to West Wales, including Al Khaldy himself. This is the second group to have relocated, the first lot having arrived in October 2006.
Part of Al Khaldy's challenge going forward, however, will be the logistics of running an operation that has three critical points, all in different parts of the world. While the gas arrives in Milford Haven, the major buyers for it are based in London. Meanwhile, Al Khaldy is also required to spend a lot of time back in Qatar, reporting back to the Qatar Petroleum board and ensuring things are running smoothly that end. He says his biggest worry about the project is delays. "Inflation is running at 3 per cent and any delay means we lose money. 3 per cent of $13bn is quite a lot," he says.
He plans to spend 40 per cent of his time in West Wales, 40 per cent in London and 20 per cent in Qatar going forward.
He seems content with the idea of spending a lot more time in West Wales. He explains that he was brought up in rural Qatar and is not keen on the busy city lifestyle associated with London. "It is a good lifestyle here and some of the values are similar to Qatar: things like family values and job security are important here. It is not the same, but I am from a rural part of Qatar and elements of the culture here remind me of home."
And, if the predictions of Pembrokeshire Council are realistic, what better place for a representative of a country set on becoming the energy capital of the world to be based than Milford Haven - a port that believes it can become the new energy capital of the UK.
"I believe the idea of this becoming an energy capital for the UK is realistic," Al Khaldy says. "More than 20 per cent of the gas will come through here and more than 20 per cent of the oil is already coming through here. Energy companies are looking to build new power plants. The port is going to be a very busy place."
Also in: June 2007
-
Back to the original plan
Insurance company Admiral Group ranks third in our ranking of Wales' top 300 companies. Henry Engelhardt, its founder and chief executive, tells Wyn Jenkins this is just the start - it is only now taking its simple approach to motor insurance global.
-
Embrace the "vulture capitalists'
The venture capital and private equity industry has been dragged over the coals in the media of late. Wyn Jenkins examines the implications for Wales - a country desperately in need of more investment of this type.