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Sunday, October 17, 2021

Report: Qatar’s natural gas revenue could plunge 34% by 2026

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Photo for illustrative purposes only.
Photo for illustrative purposes only.

Qatar will likely collect far less money in the coming decade from the sale of natural gas, the main funding source of its rapid development in recent years, according to a recent forecast.

The prediction was made in a report published by the Columbia Center on Global Energy Policy (CGEP), and comes as Qatar continues to spend heavily on new roads, rail lines as well as power and desalination plants to meet the needs of its growing population and to prepare for the 2022 World Cup.

These public expenditures have largely been paid for with proceeds from natural resources sales, as Qatar has grown to be the world’s largest liquefied natural gas (LNG) supplier.

The CGEP says Qatar’s annual revenues from LNG sales totaled US$56.5 billion in 2013. However, it expects that new LNG development projects around the world, particularly in Australia and North America, will cause Qatar’s pricing power to decline and its revenues to take a hit.

Under one scenario put forward by the CGEP, Qatar’s LNG revenues could plunge 34 percent to $37 billion in 2026.

Preparations

Photo for illustrative purposes only.
Photo for illustrative purposes only.

Qatar has attempted to diversify its economy in recent years by attracting more tourists and positioning the country as a global aviation hub.

Additionally, the current construction boom is coming close to overshadowing the economic impact of the natural resources sector.

However, most of these projects are one-time initiatives that show no signs of being a sustainable, long-term source of wealth, a government report published in December concluded.

The country’s large financial reserves provide it with a significant buffer and the ability to continue spending despite lower revenues, although any income from natural resources would likely put more pressure on politicians to curb spending.

But the CGEP notes that Qatar’s massive natural gas reserves – estimated to be the third-largest in the world – give it the option to force some its competitors out of the market if it chooses to lift a long-standing moratorium on further development.

Pricing power

Qatar has historically used its strategic position between European and Asian markets to help it maximize its natural gas revenues.

CGEP said that Qatar has shifted sales to Europe during periods of low spot prices in Asia, and then toward Asia when demand pushed prices higher.

However, new supplies are threatening this model:

“The advancement of US shale opens the prospect that the United States and possibly other suppliers could compete with Qatar, undermining its ability to exercise pricing power. This could have profound implications for gas prices, gas pricing dynamics, and Qatar’s ability to influence prices. Rather than acting as a ‘discriminating monopolist,’ Qatar may become a price taker in Europe and Asia,” CGEP said.

Still, Qatar is likely to retain a major advantage over most of its competitors – many of whom are developing costly unconventional gas resources – and remain the lowest-cost supplies of LNG, CGEP says. This gives it additional options, the report’s authors say.

Moratorium

A ban on further development of Qatar’s North Field gas reserve has been in place since 2005. Government officials have given no indication when the moratorium may be lifted as they undertake technical studies to determine development strategies.

Qatar Gas
Qatar Gas

If Qatar were to lift the moratorium and announce plans to bring more gas to market, it could “intimidate competitors into deferring competing projects,” CGEP stated.

For his part, Qatar Energy Minister Mohammed bin Saleh Al-Sada said last year that the country’s energy strategy remains unchanged in the face of competition from US shale gas.

Speaking to the Telegraph, Al-Sada said the country has the flexibility and ability to respond to changes in the global gas market.

“Qatar’s role as an undisputed leader in the global energy market is set to remain for years to come.”

Thoughts?

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A_qtr
A_qtr
6 years ago

The $59 Billion revenue is a huge over estimate of the actual gas revenues of the state. The number is more representative of the sale of 100% of all hydrocarbon related sales, that’s oil, gas, LNG, GTL, petrochemicals and such.

Also, commodities prices are dropping and may continue to drop. But several of he qatari projects are 40% or so percent owned by foreign companies in the country like Shell and Total. The shareholding agreements terminate in 10, 15 or 20 years and then the ownership of these compaines becomes 100% for he state. So the drop in prices will be off set in the next decade as the foreign ownership in projects changes hands, or at least decreases.

One more point a lot of the petrochemical projects in Qatar enjoy tax holidays. Tax holidays extend to about half the lifetime of a project, once the tax holiday expires he state will start taxing foreign company revenues from Qatar to the tune of 25% or so percent

Andrew
Andrew
6 years ago
Reply to  A_qtr

With regard to your first comment about $59 billion please read the report. The relevant section begins on page 31. Pay particular note to footnote (23) which is quite clear:
“Note that revenue is based purely on LNG sales; no account is taken of NGL/condensate coproduction revenues.”

If you have better data about Qatar’s LNG exports than the Oxford University based Center on Global Energy Policy then please accept my apologies.

A_qtr
A_qtr
6 years ago
Reply to  Andrew

The center calculated qatars production of LNG times the price of LNG in the market Qatar deliveries too, it does not take into account how much of the sales revenue goes to the state versus shareholders and how much of the revenues is paid in tax, no one knows what’s in these in these contracts except the state and the foreign shareholders… Ministry of finance also does not publish exact figures from LNG OIL Refinries it publishes a total revenue stream from all hydrocarbon sales… So no one really knows except a few state accountants..

Again $59 is a gross revenue but not the full state take of it

Michael L
Michael L
6 years ago
Reply to  A_qtr

The substantive point is surely that Qatars finances are a lot more fragile than many thought and there is little that is sustainable in the current strategy.

Shabzed
Shabzed
6 years ago

My point of concern: Will that increase my housing rent in 2016?

Rapha31
Rapha31
6 years ago
Reply to  Shabzed

No. But your rent will increase next year.

The Reporter
The Reporter
6 years ago

The population of Qatar will not expand forever, and surely after the major infrastructure and WC projects are completed it will at best level off. It’s unlikely that Qatar will become a tourist centre or a financial centre with the strength to replace the income from LNG, and all these new malls are not an indicator of a massive consumer boom but of oversupply driven by vanity. The future must surely be that the bubble will burst with a calamitous effect on the commercial and domestic property market and ultimately the economy as a whole.

MIMH
MIMH
6 years ago

Another report starting the fairly obvious. Qatar has substantial gas reserves still but if no one wants to buy them or demand is limited then your revenue will drop when its your main industry. Qatar has a lot of sand but no one wants to buy it.

The combination of a number of factors are at play here, the huge increase in LNG production worldwide, with many trains yet to come online, coupled with more efficiency in terms of hyrdocarbon use is creating a glut on the market. The real killer will be renewables and once that reaching a tipping point, O&G is dead in the water as a source of easy money. Even now the expanison of solar engery use in Germany has caused a crisis for utilities firms there with the price of electricity dropping to historic lows.

We are not there yet, but when the change comes it will be sudden and violent. Will Qatar be ready?

Michael Fryer
Michael Fryer
6 years ago
Reply to  MIMH

Dead right. Qatar used to be able to sell 845,000 barrels of oil per day in the boom times. That number has fallen and fallen over the years. And with global energy demand stagnant and falling throughout thr world it is now selling 20% less – 674,000bpd (and at a much much lower price).

Oil and gas reserves are only worth what the market will pay.

Xon
Xon
6 years ago

They talk about tourism, but they haven’t done anything that tourists would be interested in. For most things Dubai is decades ahead of Qatar anyway. Qatar was way ahead in early 2000 when they had the palm tree island, Aladdin’s kingdom and other places to have fun. Now the shopping scene is also outdated and outfashioned here.
Knowledge based economy is another failure because not many care about entrepreneurship or investing money here. On top of that you can’t find people who have the right skills or get visas for anyone u need easily. Specially when the Qataris make 5 times more money participating in global warming than they would in innovation or being entrepreneurs. Expats on the other hand get stuck between the sponsors and investors where the ownership goes 51% to the Qatari owner and 20 to 30% to the investor, so why would an expat care to run a business with 19% ownership?
Everything is ridiculously expensive from renting an office to getting accommodation for yourself or your employees.
Its depressing really!

agenius
agenius
6 years ago
Reply to  Xon

oh, come now, why are you so serious!? you need to learn to better appreciate the experience of irony, to see the humour in life’s tragedy. trust me, you’ll live longer

realist
realist
6 years ago
Reply to  agenius

I don’t thing he was serious. He’s just stating the facts. Which I believe is also true.

desertCard
desertCard
6 years ago

Israel needs gas

Anonymouse
Anonymouse
6 years ago
Reply to  desertCard

That depends on what they do with Leviathan and Tamar.

Michael Fryer
Michael Fryer
6 years ago
Reply to  desertCard

Once upon a time Egypt bought gas from Israel. Now Israel is developing the Tamar field and has signed a deal to sell LNG to Egypt.

The two offshore fields are actually so large that there is much debate inside Israel about just how much ought to be exported, and how much ought to be reserved for domestic consumption, energy independence and to keep prices down.

DesertBitc
DesertBitc
6 years ago
Reply to  desertCard

Egypt has always been there to help.

Mehrea
6 years ago

Most of the comments are always posted by expatriates. I wonder if the majority of Qatari are aware of the news. Who cares as long as they are driving SUV’s? Then why would we care? Why are they trying to host the 2022 World Cup? Who convinced the Sheiks? For what? Why would they spend billions for a one month event? Do the Qatari people bother to watch football at this time? And now you are taking about gas sales declining while a lot of money is draining away for mammoth football stadiums which can do nothing to the Qatari people after the event WC2022.

al-Lalal
al-Lalal
6 years ago

Out of control spending is a much bigger concern than declining revenues.

MIMH
MIMH
6 years ago
Reply to  al-Lalal

That is a true statement but we are seeing steps being taken now to reign in the bad habits of the past.

al-Lalal
al-Lalal
6 years ago
Reply to  MIMH

I have read about proposed steps and it all sounds wonderful; however, Qatar does not have the necessary control mechanisms, accountability and transparency to effectively implement those measures.

MIMH
MIMH
6 years ago

Qatar needs to make reforms now while it has the money to prepare for the future, however those reforms will not be accepted by the local population. It is human nature, who wants to share their pie with anyone else, no matter how big the pie is.

The structural reform needed in Qatar is quite simple in theory but nearly impossible in practise.
1. A route to Qatari citizenship for foreigners. You need people to have a stake in your society to invest, to keep their money here and to maintain the population. (This needs to be couple with a reduction in handouts/benefits to citizens)
2. Change the 51% company ownership rule. As in No.1 who wants to invest and dedicate themselve to a business when you have no control? At any time you could be kicked out of the country or lose your business even if you have a silent partner. This situation does not help the sponsor either and does not create entrepenuers.
3. Keep going with Qatar Financial Centre and Qatar Foundation. Its early days but they are laying the building blocks, give them more freedom and watch how quickly they will develop.
4. A new legal system. The current one is broken and needs bringing up to date. Again people will not invest if the laws are not clear or heavily weighted in favour of one group.
5. Break the monopolies. Certain families control whole sectors to themselves. That stifles competition, is bad for consumers and is bad for the economy.

A 5 point plan, but it will never happen. Probably when the money runs out they will try but then it will be too late, no one will want to stay, in fact they will have already left remembering as they leave that they were always expats and this country was not for them. So what for the locals? Well the rich will get out and go somewhere else, the rest will see a drop of living standards which will be harsh at best.

local
local
6 years ago
Reply to  MIMH

1. Disagree.
2. Disagree.
3. Agree.
4. Agree.
5. Agree.

Pete
Pete
6 years ago
Reply to  local

At least try and explain your disagreements.

MIMH
MIMH
6 years ago
Reply to  local

Just to clarify my interest. I have no interest in a Qatari passport or starting a business here. I am just a neutral observer giving my opinion.
I know 1 and 2 do not have a chance of being accepted in the near or medium future, but the time to take action is now.

local
local
6 years ago
Reply to  MIMH

MIMH, I have no objection for someone giving his/her opinion and many times I agree with what you say. I believe in debates and mutual understanding.
In terms of naturalization, as Qataris (at least me) we see ourselves as part of larger identity which is the GCC. We share the same identity therefor it would only make sense to offer skilled GCC citizens the benefits of a Qatari in terms of job salaries and business and land ownership. Last week,Qatar Exchange started treating GCC citizens as Qataris in the stock market. It makes sense to give a GCC citizen our benefits since we belong to the same trade bloc (makes economic sense), and we share the same identity and history (preserves the culture). By doing so, Qatar will fill the gap of the local population without the need of giving citizenship to anyone, and if the citizenship has been given to GCC citizens I assume locals would be fine with it.
Naturalizing expats or other Arabs (Yes we’re different) is something every local would disagree with and won’t be possible not even in the long, long term.

The Reporter
The Reporter
6 years ago
Reply to  local

I’ve copied that to my PC and will simply paste it as a comment to any future DN news articles asking why expats don’t identify with Qatar. It’s just missing words like “Kafala” and “NOC” and “Exit-Permit” to be 100% perfect but I think it gets the message across..

MIMH
MIMH
6 years ago
Reply to  local

I understand where you are coming from but although GCC citizens have the closest culture there would still be huge resistance from Qataris and the GCC Governments whose citizens tried to swap. The amount of distrust amongst the ‘brothers’ in the GCC is quite amazing.

Looking at it as an outsider, Qataris have more in common with Europeans these days than non-GCC Arabs.

local2
local2
6 years ago
Reply to  local

I agree with all 5 points; especially when you consider the long, long run.
We are a very new state and are just in the beginning phases; for now what we have is sustainable in 60 years or more maybe not so much.
Well said madam/monsieur MIMH

local
local
6 years ago
Reply to  local2

I respect your opinion, it’s just weird that I haven’t met any local in my life that would agree with first two points MIMH mentioned. After all, this is the Internet.

local2
local2
6 years ago
Reply to  local

I respect yours as well.
This may surprise you but some of us are different and have different opinions…shocking I know 😛
Also, I would have to disagree a little with your comment below.
The culture of for example, Oman, is quite different than the other GCC nations. We are not homogeneous in identity or history.
We do however share economic, trade and regional allegiance and priorities.

MIMH
MIMH
6 years ago
Reply to  local

On the first point when discussing with my Qatari friends their first reaction is shock and horror. After I explain my reasoning they are open to the idea. That is still along way from agreeing to it but open to the possiblity.

LBHK
LBHK
6 years ago
Reply to  MIMH

Couldn’t have said it better. All these things would make this a great dynamic country but as you say it will never happen. There are too many vested interests in favour of the status quo.

Michael Fryer
Michael Fryer
6 years ago
Reply to  MIMH

Regarding point 2 – this is news out from the UAE today:

The United Arab Emirates is at an advanced stage of drafting a foreign investment law that would allow 100 percent foreign ownership of businesses in some sectors, theeconomy minister said on Monday.

Sultan bin Saeed al-Mansouri, speaking at an international investment conference in Dubai, did not specify the sectors or say when the law might be passed. The process of drafting and enacting major laws in the UAE often takes years.

But the initiative may mark a more aggressive push by the Arab world’s second biggesteconomy to attract investment. At present, foreigners generally cannot own more than 49 percent of any UAE firm unless it is incorporated in a special “free zone”.

A new companies law, anticipated to take effect within months, was originally expected to relax this restriction, but that reform was dropped because of strong opposition from some Emiratis who feared they could lose out to foreigners.

Mansouri said on Monday, however, that the UAE was determined to diversify its economybeyond oil and saw foreign investment as a key way to do this.

“Economies face pressures from changes in the international environment, including the drop of the oil price,” he said.

While Mansouri did not say how the new foreign investment law would work, it may require fully foreign-owned firms to transfer technology in sectors that are strategically important for the UAE. Officials have previously said they are keen to attract technology for industries such as aerospace.

New foreign direct investment (FDI) in the UAE rose 25 percent to $13 billion in 2014, Mansouri said, adding that the government aimed to raise FDI to 5 percent of gross domestic product in coming years. GDP was 1.540 trillion dirhams ($420 billion) last year, he said.

Observant One
Observant One
6 years ago
Reply to  MIMH

Who would want citizenship anyway? I’d rather put pins in my eye then be identified as a human trafficking slaver!

angry young man
angry young man
6 years ago

Qatar needs to grow up. It stays secure in its bubble. No qatari cares for any of the expats. Why should I bother for them. Tourism here.. Probably rwanda has now tourism

MIMH
MIMH
6 years ago

A number of my Qatari girlfriends care for me, so that statement is not true.

Ray
Ray
6 years ago

Exactly which part in this country is meant for tourists?? Villagio?? they should start building Amusement parks, Zoos and Aquariums etc.

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