Qatar to continue double digit growth as LNG buoys economy

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As the financial crisis continues to reach around the globe leaving most economies reeling in its wake, the Gulf state of Qatar is hoping that its substantial natural gas reserves will cushion it from the worst of the fallout. While other gulf economies face slowing growth rates, Qatar hopes that its vast gas reserves will allow it to weather the storm more easily than its regional neighbours.

“Selling gas gives a much better outlook for Qatar than the rest of the GCC countries,” says Philippe Dauba-Pantanacce, a senior economist at Standard Chartered Bank. “They have been doing a lot of heavy investments in terms of gas production, and they are yielding the benefits now.”

Qatar boasts the third largest gas reserves in the world after Russia and Iran, and is the world’s largest exporter of liquified natural gas (LNG). Experts predict that Qatar’s economy could grow by more than 10% in 2009, bolstered by projected strong expansion of gas exports and assisted by a potential drop in inflation. Such growth seems particularly remarkable when one considers that GDP growth in the United Arab Emirates,  is projected to dip under 3%.

“Qatar’s economic growth will be the strongest in the region by some margin,” insists Simon Williams, HSBC’s chief Middle East economist. “The industrialisation process in Qatar is advanced, the infrastructure build-out programme has momentum, and financing is secured for many of the key projects.”

This growth is expected to help Qatar push forward with in excess of $222bn worth of projects, as it strives to move away from its dependency on energy and become a ‘knowledge’ economy.

While the oil price collapse has weighed heavily on other Gulf states partially dependant on oil exports for their revenues, economists say the slide will have no impact on Qatar’s gas exports, which are based on long-term, locked-in price contracts. Most of its growing LNG exports are sold on long-term contracts, many linked to a lower reference oil price than currently projected for 2009, and are thus not expected to be adversely affected by the current slump in oil prices, according to analysts. With new LNG facilities scheduled to come on stream from producers RasGas and QatarGas, Qatar’s aim is to more than double its production capacity of 77 million tonnes per year by 2010.

Qatar is expected to print the strongest GCC current account surplus in 2009, above 30% of GDP. The recently completed $5Bn Dolphin Project, a good example of a “cash cow” project for the island nation, has now started pumping gas from Qatar to the UAE via an undersea pipeline.  The UAE has the fastest growing gas demand in the Middle East due to a rapid expansion in power and industrial projects and its gradual switch to gas as a cleaner source of energy. From around 21.2 billion cubic metres in 2000, the UAE’s gas demand surged to 34.1 billion cubic metres in 2005 and is projected to soar to 42.9 billion cubic metres in 2010, to 51.9 billion cubic metres in 2015 and nearly 63.2 billion cubic metres in 2020, according to the Ministry of Energy. Qatar’s North Field is the centrepiece of this project, with the pipeline carrying up to 30 million cubic metres of natural gas per day from Qatar to the UAE for a period of 25 years.

“In terms of top-line economic performance, Qatar is going to be one of the most strongly performing economies around the world next year,” says Robin Bew, editorial director and chief economist at the Economist Intelligence Unit. “But it’s important to point out that doesn’t mean it has dodged the economic bullet.”

“In terms of revenues coming into the economy, they are going to see a relatively more stable revenue base and that should help them going forward,” says Robert McKinnon, managing director of research at Al Mal Capital. “So they should be able to continue a lot of their infrastructure spend, and in terms of the GCC it would be probably the safest place to invest in the coming year.”

While global oil producers are contemplating ways to prop up crude prices, it would seem that gas producers don’t share the same agenda, for now. Gas and LNG are globally traded on 25-year, long-term take-or-pay contracts driven by a formula, wheras oil is traded on spot contracts. Major gas exporters have met informally for several years at the annual Gas Exporting Countries Forum, a group which includes Russia, Iran, Qatar, Venezuela, Nigeria, Algeria, Egypt, Indonesia and Libya, as reported by Graham Stack in his East of Europe blog.  However Iran is pressing for a formation of an OPEC-like gas cartel to set global prices, whereas Qatar & Russia seem to be more concerned with “reaching strategic understandings” on export volumes, schedules of deliveries, and the construction of new pipelines. They also plan to jointly explore and develop gas fields and coordinate start-ups and production schedules.

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