<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Qatar Economic & Strategic Outlook – III
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· Global : A day after Hurricane Katrina struck Louisiana and Mississippi, York crude oil futures surged to a record $70.85 a barrel on August 30
· Global : By the decade-end Qatar plans to boost its oil production capacity to one million barrels per day (bpd) from the existing 750,000 bpd. It plans to nearly triple its present annual production for LNG from about 20mn tonnes to 77mn tonnes by 2012
· Global : The government is encouraging setting up of medium and small industries by providing incentives to the local private sector establishments
Global Investment House – Qatar Economic & Strategic Outlook III – Oil & Gas and Industrial Sector - Oil prices have remained strong throughout 2004 and have climbed 50 percent this year due to strong demand, driven by economic growth and tight production capacity in OPEC and non-OPEC countries. New York crude oil futures surged to a record $70.85 a barrel on August 30, a day after Hurricane Katrina struck Louisiana and Mississippi, flooding the city of New Orleans, destroying several offshore oil rigs, damaging refineries and closing pipelines. Hurricane Katrina shuttered production capacity of over 1.4mn b/d of oil and 8.8bn cf/d of natural gas and disrupted refineries with a total capacity of around 3mn b/d when it hit the Eastern Gulf of Mexico on August 29. While a definitive assessment is not yet possible, recovery profiles suggest a potential loss of 38mn barrels of products in September and up to 70mn barrels of crude and NGLs through to early 2006. Apart from this heightening geopolitical tensions also helped in setting a bullish tone. This was despite easing of apparent demand from China and lower expectations for world oil demand growth for the year.
In 2004, London Brent crude prices averaged US$38.23/b, which is US$9.42 higher than the average price of US$28.81/b in 2003. In the first eight months of 2005, oil prices rose steeply and reached their life time high. On August 30, a day after Hurricane Katrina battered US oil facilities on the Gulf coast, New York's main oil contract hit a record-high US$70.85 per barrel, while in London Brent reached an all-time high US$68.89 per barrel – more than double the levels in 2003. However, prices have dropped now to about 16% -17% below their all-time high. The OPEC’s reference basket averaged at US$33.08 per barrel in 2004 and remained above the price band. This higher oil price level makes the OPEC’s price band irrelevant as it had been trading out of the range for over a year. Therefore, as of January 31, 2005, the group decided to temporarily suspend its price band of $22 to $28 a barrel, which was set in March 2000. The OPEC’s basket averaged at $50.38/b till Oct. 2005, versus $35.74/b during the same period in 2004. The OPEC reference basket declined by $3.25 or 5.6% over the previous month to average $54.63/b in October.
A jump in oil prices in the first ten months of ’05, apart from hurricanes, was also attributed to a change in the demand patterns across economies and fears on the lack of spare capacity. However, when looked at on a global basis, one does not see a major acceleration in oil demand to substantiate the extent of price increase in 2005. OPEC’s demand estimates for 2005 have been slightly downgraded to 83.3mn b/d from the estimate of 83.6mn b/day at the beginning of the year. In exception to the effect of hurricane Katrina on the supply scenario, the overall supply has more or less matched the demand growth in 2005. At present, the demand supply situation does not portray an alarming situation, especially considering that OPEC is already producing at higher levels. Also the robust non-OPEC, non-OECD supply growth will partly counter-balance demand gains, and the boost in the ‘implied call on OPEC’ will be easily met by the projected OPEC capacity expansions. OPEC’s spare capacity is estimated to have increased to 8.1% in the fourth quarter of 2005 compared to 4.9% in the corresponding period of the previous year and is expected to be even higher at 12% in 2006.
In spite of having spare capacity for crude production, the scenario is not as comfortable as it looks in the short term due to the damage caused by the hurricanes. The time taken by the refineries to get back to normal operating levels would present a supply deficit situation, especially for the products. Also, natural or man-made calamities, when highly disruptive could stretch capacities to unattainable levels on a longer term basis. For many of the producers, idle capacity can be activated in response to a short duration supply disruption, but is not sustainable on a prolonged basis without incremental drilling and investment. In short, though the situation is not extremely precarious, the fear of disruptive events in the current scheme of affairs could hold the oil prices firm in the medium term.
Qatar – Oil & Gas Sector
Qatar's North Gas Field is the largest non-associated gas field in the world, with proven reserves estimated at over 900 trillion cubic feet (tcf), equivalent to about 162 billion barrels of oil (over 15 per cent of the world total). These reserves will be sufficient to support planned production of natural gas for over 200 years. Currently oil and gas sector make up more than 62% of Qatar's economy. The recent development of projects to produce and export natural gas in the form of LNG, piped gas, gas-to-liquid (GTL) and investments in petrochemical and fertiliser industries bear testimony to the fact that Qatar has been trying to diversify its revenue base by reducing its historic dependence on oil export revenues.
By the decade-end Qatar plans to boost its oil production capacity to one million barrels per day (bpd) from the existing 750,000 bpd. It plans to nearly triple its present annual production for LNG from about 20mn tonnes to 77mn tonnes by 2012. It is expected that out of the planned 77mn tonnes of annual production a third will go to the United States, a third to Europe and the rest to Asia. The State-owned Qatar Petroleum (QP), which manages the country's oil, gas, fertiliser, petrochemicals and refining enterprises in Qatar and abroad, has initiated and developed two major LNG projects with foreign shareholders for the purpose of utilising the North Field gas for exports in the form of LNG. These projects are Qatargas (Qatar Liquefied Natural Gas Company) and RasGas (Ras Laffan Liquefied Natural Gas Company). Expansion of LNG facilities through RasGas II, Qatargas II, RasGas III, and Qatargas III is being pursued to meet additional export opportunities. Sales and Purchase Agreements (SPA) have been reached with a number of countries, which at their peak in 2007 will reach 29.9mn tonnes per annum (mtpa). Several Heads of Agreement (HoA) have also been signed, and should these turn into confirmed SPAs, total LNG exports would reach about 77.2mtpa by 2012.
There are number of other factors that have contributed to making Qatar a success story in the world of natural gas in such a short period of time. Qatar is committed to innovation and the adoption of world-class technology in the hydrocarbon sector. These innovations in turn will dramatically reduce the unit cost of producing LNG. So the country is enhancing the competitiveness of its product. To further reduce costs, Qatar - together with the world's leading shipbuilders - is developing a new generation of large LNG tankers. In January 2005, Qatar Gas Transport Company (Naqilat), the world's largest company in LNG transportation, had its IPO. It is expected to have the world's largest fleet of LNG tankers and the largest carriers in terms of capacity.
In addition to the Far East, Qatar has developed a market for its gas in the European Union. By 2010, Qatar is expected to supply 28 mtpa of LNG to the EU market alone. The success so far achieved reflects Qatar’s commitment to innovation and the adoption of world-class technology in the hydrocarbon sector.
Apart from the oil & gas sector the government is also encouraging industrial and services sector by providing various incentives. New investments in this decade are expected to rise to over $40bn in petrochemicals, fertilizers and other energy sector projects. The vast growth in the energy sector generates and creates the need and the opportunities for special services. The opportunity to invest is now in the service sector to support existing industry, envision and implement a sustainable competitive advantage. Investment opportunities are limitless, sectors such as the chemical, petrochemical and fertilisers are prime examples which would support the further development of the other economic sectors. Qatar is open to foreign participation in joint ventures through technology supply, market administration and equity participation. The state-owned Qatar Industrial Development Bank (QIDB) announced on May 28th that it had financed 28 small and medium scale industries, in the light industrial sector, to set up manufacturing facilities in 2004.
The government is encouraging setting up of medium and small industries by providing incentives to the local private sector establishments. Qatar offers free plots, tax holidays and exemption from customs and excise on export and import of goods and equipment. Locally manufactured goods get preference in government purchases. During the first half of 2005, 96 new industrial concerns offering 3,295 job opportunities were created in Qatar, with total investments reaching QR900mn (US$247.17mn). In the first three months of 2005, the Qatari Ministry of Energy and Industry granted a total of 68 industrial licenses. 34 of these licenses were distributed for the creation of new concerns, 11 for expansion of current operations and 23 licenses for changes in existing concerns. Higher oil and gas prices which have led to higher expenditure by the government in various infrastructure projects along with the generous incentives for the private investors have increased substantially the industrial activity in Qatar. Greenfield projects and joint-venture investments have been receiving substantial boost from the government and also receives good response from the foreign investors.
