Qatar's gas dependence is unsustainable

13 October 2009

The strategy adopted by Doha is a sensible one, but the dangers are substantial and until it overcomes them, it would be wise to be cautious

Qatar’s economy is one of the few success stories in the region this year. Even as other economies stagnate or contract, Qatar’s gross domestic product is expected to grow by 11 per cent in 2009 and by more than 18 per cent in 2010, according to the International Monetary Fund.

But it is still too early to call Doha’s economic policy a wholehearted success. With its economy dominated by revenues from gas – and liquefied natural gas (LNG) in particular – there are clearly risks that the country is over-dependent on a commodity over which it has little price control.

The changes in international LNG prices over the past year illustrate the dangers well. During the peak period in mid 2008, some LNG contracts were being agreed at a price of $20 a million BTUs, but the current price in the US is closer to $3 a million BTUs.

Clearly the government needs to diversify the economy, and the revenues LNG is bringing in should enable the state to do so more easily. But until that happens, Qatar is at risk of creating another economic bubble in the region. The government explicitly recognises this danger in its National Vision 2030, which it published last year. As it says in the strategic plan, rapid growth could deplete the country’s resources and overheat its economy. Diversification is essential.

As Qatar contemplates boosting the output from its existing LNG production facilities and, in the coming years, considers lifting the moratorium on further exploration of its giant North field – the world’s largest gas field – the risks of its current reliance on gas will become even more evident.

The long-term strategy being adopted by Doha is a sensible one, but the short-term dangers are substantial and until it overcomes them, it would be wise to remain cautious.

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