Qatar Looks to Natural Gas for Recovery : Tiny Emirate Began Tapping World’s Largest Reserve This Week

Qatar started drilling to tap the world’s biggest natural gas reserves this week in hopes of ending the recession in its economy caused by the oil market crash of 1986.

The emirate’s North Field, 50 miles offshore in the shallow waters of the Persian Gulf, holds an estimated 350 trillion cubic feet of natural gas. The first phase of its development over the next three years will cost $1.3 billion, Qatar General Petroleum Corp. executives told Reuters.

Petroleum officials said Qatar does not expect to start exporting the gas in the foreseeable future due to unstable market conditions but will use it to broaden its industrial base.

“There are various plans to use the gas in expanding domestic industries, especially in building an aluminum smelter,” said an oil industry executive in Doha.

Platforms Erected

Two steel platforms have been erected over the field, and a drilling rig will start work this week, officials said. They expected it will take two years to drill 16 production wells.

Qatar, with a population of around 250,000, is a small oil producer within the Organization of Petroleum Exporting Countries with estimated output in July of 330,000 barrels per day. Its oil revenues plunged from $3.7 billion in 1985 to around $1.5 billion last year due to the decline in world oil prices.

A budget deficit equivalent to $1.68 billion for 1988 is being met largely by drawing on up to $10 billion of reserves accumulated during the oil boom of the early 1980s.

Since oil prices are not expected to recover to the levels of eight years ago, Qatar is now fully dedicated to diversifying its economy, oil and banking sources said.

Petrochemical, fertilizer and steel plants are already in production, and the government is studying two plans to build an aluminum smelter to run on natural gas to earn foreign currency in the 1990s, when the oil wells start to dry.

For Local Use

Qatar officials in charge of the North Field project said that under the first phase of development, most of the natural gas would be produced for local use. The first phase is vital as Qatar would run out of onshore natural gas, now used to run local industry including power and desalination plants, in the next few years.

In the second phase of the project, Qatar hopes to sell gas to neighboring Gulf states. Then it hopes to export gas to Japan and Europe.

Qatar General Petroleum is working on ways to finance the first phase with the help of First Boston Corp.