The strength of Qatar’s economy is based on the country’s massive oil and gas reserves. As with its Gulf neighbours, the diversification of the economy away from these finite resources is a top priority for the state.

There are more than $66bn-worth of infrastructure projects either planned or under way in Qatar at present”

MEED Projects

Qatar aims to increase the role of its non-hydrocarbon sectors to 80 per cent of the economy by 2015. It is an ambitious time frame.

Rising production of liquefied natural gas (LNG) allowed the Qatari economy to ride out the global economic storm of 2009, posting a real growth in gross domestic product (GDP) of 9 per cent.

Following a decade of massive investment in the energy sector, Qatar is reaching the end of an aggressive programme to become the world’s largest exporter of LNG. It currently produces 54 million tonnes a year (t/y) but by the end of 2010 it will reach its production targets through the addition of two more LNG trains at Ras Laffan, which will lift peak production of LNG to 77 million (t/y).

Qatar’s export challenges

However, building capacity is the easy part and a different set of challenges now await the state. Finding a ready market for the additional LNG volumes while the global economy is still weak will be a struggle.

Gas prices in Asia have halved to about $8 a million BTU from the $16 a million BTU seen in 2008. US prices are just over $6 a million BTU, having recovered slightly this year due to freezing winter conditions.

While US imports are expected to increase slightly in 2010 and 2011, according to the US Energy Information Administration, prices are expected to remain low on the back of weak demand and rising domestic production. This will undermine the rationale of some of Qatar’s new projects, but Doha appears intent on pressing ahead with its plans.

As it does so, it will have to answer some tricky questions about where the additional volumes will be sold and how it will avoid oversupply. Saudi investment house Samba Financial Group estimates that growth in Qatar’s GDP will increase to 18 per cent in 2010 and 13 per cent in 2011, as new LNG trains ramp up production. Samba forecasts that government revenues will surge to almost $50bn in 2010, lifting Qatar’s fiscal surplus of 2 per cent of GDP in 2009 and 2010 to 7.4 per cent in 2011 and 2012.

This is despite a likely rapid rise in the state’s capital spending on infrastructure, aimed at stimulating growth in the non-oil sector. Qatar has the money to move ahead with its new projects.

The country will earn more than $59bn from gas exports this year, up 37 per cent on the $37.3bn it earned in 2009.

The outlook for Qatar over the next few years appears bright. Gas prices may be subdued globally at present, but oil prices are expected to average $75 a barrel in 2010 and $85 a barrel in 2011.

Qatar’s oil production will also increase gradually, as the oil producers’ cartel, the Organisation of Petroleum Exporting Countries eases quota restrictions.

Accompanying the expansion of LNG capacity will be additional natural gas liquids production for export. Production is set to begin in 2011 at the Pearl gas-to-liquids (GTL) project, a $18bn joint venture with UK/Dutch Shell Group.

Shell’s GTL facilities will convert about 1.6 billion cubic feet a day of natural gas produced at Qatar’s North field into liquid fuels such as diesel oil and naphtha. They will also produce about 120,000 barrels a day of condensate and liquefied petroleum gas. 

GDP growth in Qatar

Other sectors, such as real estate, will not fare as well in 2010. Inflation ran at an average of minus 4 per cent in 2009, a sharp reversal of the 15 per cent inflation seen the year before.

The principal downward driver has been real estate, which has seen massive drops in rental incomes. With a raft of new housing projects set to come onstream in 2010, the downward pressure is likely to continue and the sector will remain weak.

On top of its considerable revenues, Qatar has raised about $10bn through sovereign bond issues in 2009 to support its spending plans. But the country’s external debt remains relatively low – only 14 per cent of GDP. As growth increases in 2010 and 2011, this is likely to decline further.

The growing hydrocarbons sector will boost the government’s diversification agenda. With the financial security that will come with LNG expansion, Qatar will have sizeable reserves to invest in new projects. Spending on infrastructure is set to rise rapidly, stimulating growth in the non-oil sector. According to data from MEED Projects, there are more than $66bn-worth of projects planned or under way in the state.