A Reliant Partner


Economic News

22 Jul 2010
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Though international oil and gas prices have fallen steeply resulting in the economies of many countries in the Middle East facing negative growth and large-scale cut backs in energy projects, Qatar stands out as an exception.

Though the country's hydrocarbons sector and the economy it underpins will not enjoy the same heady rates of growth seen over the past few years – with GDP estimated to have expanded by 18% in 2008 – predictions suggest that the economy will grow by around 9% this year.

Much of this growth will come through Qatar's increased gas exports. With proven reserves of 25trn cu metres and production capacity expected to reach 77m tonnes by the end of the decade, Qatar has positioned itself to be the world's leading supplier of liquid natural gas (LNG) for the foreseeable future.

Though gas prices have dropped over the past year, this is expected to have less impact on Qatar's overall economy than falling oil prices on some of its neighbours. This is due to the fact that many of the export contracts it has with overseas clients are long-term deals, rather than the more usual spot contracts in the oil industry.

Another factor in Qatar's favour is its ongoing programme of increasing output, meaning it can maintain earning levels even if prices fall simply by selling more gas at a lower price.

There have been some claims that the international LNG market could see a glut this year, as the global recession pushes down demand and production increases. With Russia looking to ramp up output and break into the Asian market – a traditional stronghold of Qatar – as well as other gas production projects due to start this year in Indonesia and Yemen, competition is increasing.

Though there could be a brief period of oversupply, Faisal Al Suwaidi, the chief executive of Qatar Gas, believes the recovery of the global economy will bring about a balance.

"I would be lying if I said I wasn't worried about the short-term outlook, but in the longer term the world will need this gas," Al Suwaidi said in an interview with British daily The Times on April 6.

Though there may be concerns over pricing levels and oversupply, Qatar can look to the future with optimism, with clients lining up to secure imports. An increasing number of these new customers are in Europe, as the continent becomes increasingly disenchanted with Moscow as its main supplier, and Qatar is set to be one of the main benefactors from the recurring spat between Russia and Ukraine, which has seen pipelines running across Ukrainian territory into Europe closed twice in two years.

On April 16, 

Qatar Gas signed a 20-year agreement, due to come into force in 2014, to supply Poland's state-owned gas company Polskie Gornictwo Naftowe i Gazownictwo with 1.4bn cu metres of LNG annually, equivalent to 10% of present consumption. Currently, Poland imports around one-quarter of its gas needs from Russia and like many European countries saw supplies disrupted in January after Moscow turned off the taps during its latest pricing dispute with Kiev.

Bulgaria, another country that experienced supply cuts in January, could become the latest in the line of clients for Qatari gas imports, the subject being discussed during talks held in mid-April between Qatar's ruler, Sheikh Hamad bin Khalifa Al Thani, and Bulgarian President Georgi Parvanov.

Sofia also suggested the proposal of building an LNG terminal on Greece's Aegean coast to allow shipped gas to be unloaded before being piped to Bulgaria itself and other customers across Europe, a move that would further expand Qatar's export reach.

Established customers too are looking beyond the current economic crisis and are seeking to secure additional supplies. One of these is India, which Qatar is already contracted to supply 7.5m tonnes annually. On April 20, the Qatari deputy prime minister and minister of energy and industry, Abdullah bin Hamad Al Attiyah, told local media that India was seeking to increase its imports to feed a new regasification terminal under construction in Kochi.

Al Attiyah stated that one of the reasons India was looking to Qatar to meet its additional needs was down to the country's reputation for reliability.

"Since we began supplying to Petronet, there was no disruption in our LNG cargoes to India. We remain committed to being a reliable supplier and supplier of choice," he said.

It is this reliability as a supplier that is increasingly making Qatar the preferred choice for energy-hungry importers. With the country not using gas as a weapon of diplomacy as Russia has done; not being subject to sanctions or political concerns as is the case with Iran; and putting conditions on sales that Algeria, which is calling for the right to sell directly to consumers in some European markets, has done, Qatar has earned its reputation as a dependable business partner. It is this standing, along with reserves estimated to be able to maintain production at proposed levels for 100 years, that will aid the country's economic growth.

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