Qatar is on the verge of becoming the richest country in the world in terms of GDP per capita as it sees the fruits of its investments in extraction of huge liquefied natural gas reserves. By Stephen Timewell in Doha.

The Middle East may appear in chaos if you are only looking at Iraq but elsewhere in the region the picture is entirely different. In Qatar, the relatively small Gulf state of 740,000 people, the economy is booming, construction projects are abundant and prospects indicate that the country is on target to become the richest country in the world in terms of GDP per capita. While bankers may discuss the shortages in cement supplies, they also note the 81 high rise towers under construction in the West Bay area of Doha, the strong economic growth rate of 8.8% in 2003 and, most importantly, the huge export potential from the liquefied natural gas (LNG) facilities that are now becoming operational and will provide the backbone of Qatar’s future.

While most of the oil-driven Gulf Cooperation Council (GCC) economies are experiencing boom conditions at present, Qatar can claim even more benefits as its long-awaited gas revenues begin to have an impact. At the end of the 1990s, Qatar’s economy faced lean times as the government had to fund the investment in the North Field, the world’s single largest non-associated natural gas field – with proven reserves estimated to be more than 900,000 billion cubic feet, which is 15.3% of the world total. Within the Middle East, Qatar has the highest proven gas reserves, followed by Iran, and the high cost of making these fields productive did lead to some cash flow problems. But, in recent years, as LNG sales agreements have come into force, Qatar has not only diversified its income out of hydrocarbons but considerably strengthened its income potential.

Government support

As a result, Qatar is experiencing unprecedented growth and the booming economy, accompanied by active government support in developing complementary sectors to oil and gas. Doha Bank chairman Fahad bin Mohamed bin Jabor Al-Thani states that Qatar represents the “ideal business model”. And while politicians in the West focus on the problems of Iraq, bankers and businessmen are focusing on the opportunities that are now available in Qatar.

Nominal GDP grew by 8.8% in 2003 to reach Qr70.8bn ($19.5bn). The oil and gas sector is estimated by the Planning Council to have increased by 12.9% to reach Qr42.4bn compared with a 1.9% rise in 2002. And Qatar National Bank (QNB) estimates in its latest economic review that final GDP growth for 2003 may be as high as 10.5%. QNB reports that some of the main factors behind last year’s growth spurt were:

  • the price of Qatar’s crude oil increased by 13.9% to $27.9 per barrel from $24.5p/b in 2002;
  • Qatar’s crude oil production increased by 11.6% to 714,000 barrels per day (bpd), up from 640,000 bpd in 2002;
  • higher LNG exports, which increased by 7.4% to reach 14.5 million tons, from 13.5 million tons in 2002;
  • improved performance from the non-oil sector, with a growth of 3.2% compared with a decline of 0.6% in 2002.

In addition, according to Qatar Petroleum, oil reserves have risen substantially in the past five years, from 3.7bn barrels in 1999 to 14.6bn barrels in 2003. QNB notes that, given an average production of 671,000bpd over the past five years, proven reserves would last approximately 60 years. But oil, which has been the mainstay of the economy until now, may in the future become secondary to the gas and other petrochemical developments that are coming onstream.

The North Field gas projects, Qatargas and Rasgas, offer enormous potential. QNB notes that the expansion of LNG facilities through RasGas II, Qatargas II, RasGas III and Qatargas III is being pursued to meet additional export opportunities. As the table shows, sales and purchase agreements (SPA) have been reached with a number of countries, which at their peak in 2009 will reach 25.9 million tons per annum (mtpa). Also, QNB notes, several heads of agreement (HoA) have been signed and should these turn into confirmed SPAs, total LNG exports would reach about 60mtpa by 2010. Another important aspect of this development is that Qatar petroleum has allocated Qr33bn in its five-year plan, starting this year, for LNG and piped natural gas projects.

Leading gas exporter

QNB concludes: “With the various expansion projects currently under way and expected in the coming years, production capacity will increase to about 62.7mtpa by 2011. Qatar has established itself as the Gulf’s leading gas exporter, delivering around 64 million tons of LNG to customers in the Far East, Europe and the US. In 2003, Qatar exported 14.4 million tons of LNG.”

The importance of these figures lies in the extraordinary growth of LNG exports during the coming five to seven years. Given the huge demand for LNG from Japan and Korea, which are absorbing most of Qatar’s current output, and the prospect of at least four times current export volumes over the next five year or more, it is no surprise that all eyes are focused on what can be done in Qatar. The country’s ability to not only produce but also effectively market LNG sales to Asia giants and new markets, such as India, has been described as a breakthrough and creates an important growth platform for the economy. One banker says: “Qatar is a small player in Opec but gas is very different and the long-term contracts are the key.”

Prospects aplenty

But gas sales are not the only growth prospect. Qatar Fertiliser Company (Qafco) is now the largest producer of fertiliser in the Middle East with total production in 2003 reaching 1.44 million tons (mt) of ammonia and 1.78mt of urea. In 2003, Qafco’s net profit rose by 154.4% to reach a record Qr599.2m and, with exports to 20 countries and access to cheap feedstock, fertiliser looks to be another high growth export area. “Qatar has the best fertiliser outlook in the world,” says HSBC’s Doha chief executive, Kevin Smorthwaite.

In other areas, projects abound. The $2bn new Doha International Airport, the Qr1.5bn Hamad Medical City and 2400 acre multi-institutional ‘education city’ provide opportunities in new areas. Tourism is another important new area and a plethora of hotels are under construction to be ready for the Asian Games in Doha in 2006, which will be a catalyst for more infrastructure development. Qatar Airways, for example, is undergoing major expansion and, with food concessions now available to it along with cheap fuel, it represents a formidable competitor in the international airline market and a useful lending opportunity for banks.

The government is fully committed to a wide range of expansionary spending and genuinely appears to have the income to support its aggressive ambitions. Its 2004/05 budget calls for a 21.6% increase in expenditure to Qr28.4bn, which includes a 44.3% increase in spending on major public projects (up to Qr8.9bn). While the budget aims for a Qr2.2bn deficit, the revenue figures work on a assumption of an oil price of $19 p/b, which seems bound to be far too low given current prices of about $40 p/b. Hence the budget, despite more increases in spending, is still likely to produce a healthy surplus, enabling the boom economy to continue unabated.

Is this booming economy a bubble waiting to burst? The index for the Doha Securities Market (DSM), like other GCC markets, performed brilliantly in 2003, rising by 69.3% with trading activities increasing threefold and a 264.6% rise in the value of shares traded to reach Qr11.7bn. Property prices are also soaring. But with the high oil price and low interest rate environment, it is no surprise that investors are looking to their home market where real opportunities exist.

Vibrant picture

Although outsiders may consider that there are significant political risks in the region, and the political turmoil in Iraq and neighbouring Saudi Arabia is undeniable, the picture for Qatar looks very different from Doha than it does from London. Locals can see the vibrancy of the oil and gas sector and, as in other states in the GCC, funds are flowing back into the country partly as a reaction to the events of September 11, 2001 in the US and partly because of opportunities available.

The major rating agencies have also given their support, upgrading Qatar in 2003 citing strong projections for GDP growth, continued fiscal prudence and a decrease in the government’s debt and debt service burdens. Moody’s noted that in early 2003 Qatar’s total direct government debt (internal and external) amounted to $9.2bn (48.9% of GDP); the level of debt peaked in 1999 at 58% and is now expected to decline. Also bankers refer to the presence of the US military in the country as a stabilising force and another positive factor in terms of attracting foreign direct investment.

Sound fundamentals

Although it is easy to be cynical about the boom in Qatar’s economy in such a volatile part of the world, the fundamentals behind the surge are sound and not dependent entirely on the vagaries of the oil price. In what is a relatively small country in population terms, the possibilities of the gas sector are truly enormous and the government as well as the private sector seem well placed to take advantage of the opportunities there and also exploit associated developments.

Qatar is not a bubble about to burst; it is a lucky country blessed with considerable assets that appear to be well managed and provide considerable opportunities.


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