END TO ENERGY CONSTRUCTION BOOM COULD

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000604

SIPDIS

E.O. 12958: DECL: 08/24/2018
TAGS: ENRG ELAB EPET EINV ECON QA
SUBJECT: END TO ENERGY CONSTRUCTION BOOM COULD
FUNDAMENTALLY ALTER DEMOGRAPHICS

Classified By: Classified By: Amb. Joseph LeBaron, reasons 1.4 (b) and
(d).

--------------
(C) KEY POINTS
--------------

-- Qatar's current gas-industry construction boom will soon
end, or at least pause, leading to an exodus of hundreds of
thousands of laborers, according to Qatar Chemical Company
(Q-Chem) Deputy General Manager Don Lycette.

-- But demand in Qatar for a new generation of skilled
workers will increase, as mega-projects boom here. The
demand for skilled workers is still greater than supply,
forcing companies to raise wages to retain laborers they have
trained, Lycette said.

-- Natural gas feedstock for Qatar's industrial projects is
now all committed, he added. It could take nine years before
prospective future projects begin producing gas.

--------------
(C) COMMENTS
--------------

-- Demographic projections for Qatar are subject to factors
beyond the energy sector. These factors include massive
civil infrastructure development projects underway, and, in
the longer term, Qatar's uccess at diversifying its economy.

-- That sai, Qatar's moratorium on new North Field gas
develpment until at least 2011 will certainly limit the
potential for further industrial projects in tha sector,
thus potentially reducing the need for undreds of thousands
of workers in Qatar.

END KEY POINTS AND COMMENTS.


1. (C) Qatar Chemical Company (Q-Chem) Deputy General Manager
Don Lycette told the Ambassador during an August 20
introductory meeting that his company is short of workers and
would be building more, faster, if they could find additional
skilled labor. (Note: Lycette is a secondee from Chevron
Phillips which is a 49 percent owner of the Q-Chem joint
venture with Qatar Petroleum. He has over 14 years of
experience working in the petrochemical industry in the
Middle East. Q-Chem has about 900 employees working on
several petrochemical projects in Mesaieed Industrial City,
south of Doha.) Lycette said most skilled construction
supervisors are in their 50s or older but that the Gulf's
current construction boom is forming a new, younger
generation of skilled labor. Describing the desperate search
for labor by construction contractors, he remarked that
companies were "finding Chinese farmers and turning them into
welders."


2. (C) Lycette echoed the observation from other Embassy
business contacts that most current construction contracts in
Qatar are behind schedule and over budget. He noted that
most laborers come to Qatar on one-year contracts and because
of the demand for them around the Gulf and in other parts of
the world, companies are having to raise wages to retain
laborers after their initial contracts are up. Lycette
cautioned, however, that living conditions in labor camps in
Doha are still "awful." He estimated there are work
stoppages or labor problems every eight weeks on average,
though these are usually by small groups which are quickly
broken up. Lycette judged that the Qataris keep much tighter
control on labor than other Gulf states and quickly arrest
and deport the leaders of any disturbances.


3. (C) Turning to Qatar's LNG-fueled economic growth, Lycette
assessed that major industrial developments will soon end
because there is no more gas feedstock available. With
current gas production at over 30 million tons per annum
(mta) and with ongoing projects bringing total output to 77
mta within 3 years, he believes Qatar may leave the North
Field gas projects moratorium in place well after the
official 2011 deadline. The Ras Laffan-based gas projects
and the associated petrochemical and industrial projects in
Ras Laffan, Mesaieed, and Doha's industrial area will be
mostly finished in the next 2-3 years. At that point,
"hundreds of thousands" of laborers could quit Doha for lack
of work. Lycette projected there would then be a long void
of no new industrial projects coming on line, as even if new
gas extraction ventures are announced in 2011, they would
take six years minimum to complete and start producing
feedstock for associated industries.


4. (C) Lycette concluded by noting that Qatar had locked

DOHA 00000604 002 OF 002


itself into long-term gas contracts at prices which are cheap
by today's standards. For example, Q-Chem has a 25-year
feedstock agreement at less than USD 2 dollars per million
btu, which is about one-fifth the current price for gas in
Texas. (Note: This echoes Occidental Qatar President Ed
Hanley's August 21 comment to the Ambassador that Qatari
officials are not happy they have locked themselves into a
low price for gas exports under the Dolphin project to the
UAE and Oman). As a 51-percent owner of Q-Chem, Qatar
Petroleum still benefits from the deal, but they are likely
to be tougher in future contracts. Lycette noted that unlike
Saudi Arabia, QP "nickels and dimes" its foreign partners on
contracts and associated services. He attributes this to a
younger generation of Qataris who are trying to "make a name
for themselves" by bringing in larger profits for the company.

LeBaron