Qatar oil prices 2013

Budgeted $65
Breakeven $66

With speculation increasing that Emir Sheikh Hamad bin Khalifa Al-Thani is planning to hand over leadership to his son, Crown Prince Sheikh Tamim bin Hamad, Qatar could soon undergo its first transition of power in almost two decades.

Structured handover

Doubts have circulated for some time about the health of the emir and it is rumoured that he and his prime minister, Sheikh Hamad bin Jassim al-Thani, are planning a structured handover to the next generation of Qataris.

A leadership transition would bring to a close a remarkable chapter in Qatar’s political and economic development that, since 1995, has seen the small peninsular state rise to become the world’s largest exporter of liquefied natural gas (LNG) and richest nation, with average per capita income of $99,731 in 2012. It has also seen Doha assume an influential position in global diplomacy, negotiating in regional conflicts, while its sovereign wealth fund has made headline-grabbing acquisitions the world over.

Analysts anticipate that under Sheikh Tamim, Qatar would focus more on domestic matters, in particular delivering an ambitious pipeline of infrastructure projects and furthering economic diversification.

Oil dependence

Doha is aware that too much of its revenues derive from a single unsustainable resource. According to Qatar National Bank (QNB), more than 60 per cent of gross domestic product (GDP) in 2012-13 will come from hydrocarbons exports. As a result, state energy firm Qatar Petroleum is now turning its attention away from oil and gas production to develop downstream projects.

Qatar’s oil economy is expected to grow by just 0.4 per cent this year, before shrinking by 1.1 per cent in 2014

For example, the company is planning two major petrochemicals developments at Ras Laffan Industrial City, with a combined budget of almost $14bn. The schemes will add about 6 million tonnes a year (t/y) of new production capacity to the current output of 9 million t/y.

The main driver of economic growth in the coming years will be the non-hydrocarbons sector. The Washington-based IMF is forecasting non-oil GDP growth of 9 per cent in 2013 and 9.5 per cent in 2014.

Now that Qatar’s LNG expansion programme has finished, the oil economy is expected to grow by just 0.4 per cent this year, before shrinking by 1.1 per cent in 2014.

Construction boom

The construction sector will provide most of Qatar’s non-oil growth. The country has an immense pipeline of infrastructure projects estimated to be worth $183bn that it has committed to deliver ahead of the Fifa football World Cup, which it will stage in 2022.

The largest of these is the Doha metro scheme. The network will cover a distance of about 216 kilometres and will have 100 stations. Good progress is already being made on the project, with Qatar Railways Company (QRail) awarding design and construction contracts totalling $5.4bn in May. A light rail system is also planned to link the new Hamad International airport with central Doha and the various stadiums that are being built to host the World Cup.

Economists are forecasting an increase in consumer price inflation to 3 per cent in 2013 and 4 per cent in 2014

Executing all the planned schemes will require huge amounts of materials and man power. The concern is that this could lead to rapid cost inflation and an overheating economy as 2022 draws nearer. Consumer price inflation in Qatar has been less than 2 per cent for the past two years, but economists are forecasting an increase to 3 per cent this year and 4 per cent in 2014.

For now though, overall, Qatar’s economy is in a strong position. The banking and finance sector is performing above expectations and recording healthy profits. QNB posted a net income of $2.3bn last year and its assets totalled more than $100bn at the end of 2012, making it the largest and the most profitable bank in the entire Middle East and North Africa region.

Exchange upgrade

The rate of non-performing loans in the Qatari banking sector at about 2 per cent of total loans is also the lowest in the region. The country’s stock exchange, meanwhile, received a boost in June, when index compiler MSCI announced that it would be upgrading Qatar from frontier market to emerging market status in 2014.

The upgrade represents a significant milestone in the development of Qatar’s financial services industry, and would also provide a fitting final achievement for the rule of Sheikh Hamad. His first emiri decree, six days after he assumed power in 1995, was to approve the establishment of a formal stock exchange. The Qatar Exchange today has a market capitalisation of more than $140bn.