In recent years, Qatar's oil exports have closely followed the rise and fall of world oil prices. This has created a budgetary risk for the state, which still relies on oil for more than 40% of its income, despite the fast-rising importance of gas. Not surprisingly, the economic managers of the tiny Gulf state have therefore learned to like predictability, even in boom times. In a recent exclusive interview, Minister of Energy and Industry, Abdullah Bin Hamad al-Attiyah told the OBG he would prefer to strive for price stability in the oil market, for the good of both consumers and producers, rather than ruthlessly attempting to maximize short-term gains.
Al-Attiyah, who also serves in the critical post of Qatar Petroleum (QP) chairman, said that the Organization of Petroleum Exporting Countries (OPEC) had played a key role in stabilizing international prices in recent months.
"Thanks to the wise and prudent policy of OPEC, of which Qatar is an active member," he said, "the price band of $22-28 per barrel has in general been successfully achieved."
But rather than automatically taking its cue from OPEC, Qatar takes multiple factors into account in determining its own oil export policies. "Our oil production and export policy not only depends on oil prices, but on many other factors, such as OPEC quotas, the depletion
rates of our oil resources, and our contractual commitments to our partners in production-sharing agreements," Al-Attiyah said. Dismissing the term "cartel" as an unwelcome hangover from the 1970s, the minister said that OPEC had come to recognize the value of working in closer consultation with international oil companies as well as governments of oil-consuming countries.
The country's 2003-2004 budget assumes an average oil-export price of only $17 per barrel, indicating a degree of caution not always seen in previous budgets. Total spending this year is set 2% higher than the estimated outcome for 2002-2003, also suggesting a more realistic
fiscal approach this year. Such prudence should "reduce the need to make substantial adjustments during the year", according to Luc Marchand, an economic analyst with the London-based ratings agency Standard & Poor's (S&P).
The current budget, due to end March 30, also forecasts continued expansion in the liquefied natural gas (LNG) industry. LNG exports are partly fuelled by rising demand in the US market, which would be inaccessible to Qatar via the conventional pipeline method.
Al-Attiyah points to LNG, along with the newer GTL, or gas-to-liquid technology, as important elements in a strategy to de-link overall petroleum export revenues as far as possible from swings in specific markets. "Our crude oil reserves are modest," he said, "but we have abundant natural gas reserves represented by the North Field, which needs to be developed in a diversified manner - with LNG, GTL and pipelines - to satisfy expanding world demand for gas."
After a period of heavy investment, "LNG exports are now fetching Qatar as much as oil sales," an economist at the government-controlled National Bank of Qatar told the local Gulf Times recently. "Such exports have largely contributed to restoring balance to the country's fiscal system and to spurring growth."
Diversification efforts also include heavy investments in downstream industries, partly with an eye to import substitution, but mainly to take advantage of cheap feedstock. Chemical fertiliser production - currently monopolized by the state-owned Qatar Fertiliser Company
(QAFCO) - is a prime example.
Qatar is not a major oil producer in world terms, although its reserves of crude oil, at 23bn barrels, can be expected to last for more than 100 years, according to S&P. In terms of gas reserves, however, Qatar's 925 trillion cu feet (tcf) of natural gas place it second only to Russia, with 1,680 tcf. "At the current pace of gas production, Qatar's reserves could last for more than 300 years," Marchand added.
While the state uses its oil and gas revenues to look after its fewer than 200,000 citizens, the economy remains dominated by the public sector, which accounts for about 70% of GDP. Qatar Petroleum (QP) is the dominant name in both petroleum production and industrial
ventures, though the state-owned firm works closely with local and foreign joint-venture partners in all its lines of business. QP, which remains both efficient and profitable, "is driving the economy with rapid growth in construction, services, petrochemicals and other
downstream industries," Marchand said.
Along with the project rise of investment income related to LNG, the budget calls for higher spending, mainly on infrastructure projects such as schools, roads, the sewerage system, the refurbishment of Doha, and other facilities for the 2006 Asian Games. Allocations to
major capital projects are set to grow by 43%, to $1.7bn in the current fiscal year. The government originally predicted a deficit of about 2.3% of GDP.
But S&P, assuming an actual average price of $25.2 per barrel for Qatar's oil, projects a budget surplus of about 5.9% of GDP. "Preliminary figures on 2003/2004 budget realization suggest that this surplus could even go up to 8% of GDP. Consolidating the balances of the government and QP, Standard & Poor's projects the public sector to record a surplus of 12.3% in 2003-2004, compared with 10.6% in 2001-2002," Marchand said.
While gas has, in the past, been subject to longer-term contracts than oil, the rise of LNG - which allows shipping of small quantities, as needed, by tanker - raises a new spectre of price swings. Yet market stability is critical given the heavy initial investments that LNG production requires. "Any natural-gas development project is capital-intensive, which necessitates a reasonable level of energy prices for such projects to be viable for all concerned - the resource owner, the developer and the end-user," Al-Attiyah said.
Meanwhile, as new LNG projects spring up in Qatar and elsewhere, is there any risk of outpacing demand and saturating the market? "No, not at all," the minister said. "We don't see any risk, because we are not outpacing demand; our projects are being, and will be, developed according to market demand. We are targeting markets where the need for gas is increasing." US and European markets will need more energy in the coming 5-7 years, while new demand is expected to arise in the Far East and South Asia. Construction projects now underway in Qatar are well timed to meet this demand head-on, Al-Attiyah said. "As the demand for energy is increasing, and as we progress in developing our LNG projects," he said, "we are becoming very competitive with other suppliers."
GTL products, meanwhile, are also bound to become viable for export before too long. In the case of LNG, plant-construction costs have dropped year after year. A similar trend is expected with GTL plants. "The effect," Al-Attiyah said, "will be a further reduction in the
production cost of GTL products compared to where they are at this point in time."
Good news for this fast developing technology - and Qatar.