Sitting pretty on plentiful gas

19 Jul

Sitting pretty in BeirutBEIRUT: With a population of little more than 850,000 and oil and gas money pouring in, the tiny state of Qatar is oozing with confidence about the future. And like it’s larger Gulf neighbors, Qatar is busily attempting to use its petrodollars to diversify into tourism and financial services. Leaving aside the question of whether the entire Gulf can support all these holiday resorts and banks, Qatar’s efforts to reform itself are worthy of examination.

To begin with, Qatar has one of the highest per-capita incomes in the world ($36,476). Qatar has recorded steady growth over the past three years thanks to oil and gas, the main source of income for this Arab Gulf state. Qatar’s real gross domestic product (GDP) is projected to rise by 6.7 percent in 2005, after a growth of 7.0 percent in 2004. Inflation in Qatar has accelerated somewhat over the last two years, and is projected at 4.1 percent for 2005.

It is estimated that Qatar has one of the largest gas reserves in the world and the government plans to spend $75 billion to develop its hydrocarbon assets over the next five years.

Following the coup in 1995, Qatar initiated a number of new policies aimed at increasing oil production, locating additional oil reserves before existing reserves become too expensive to recover, and investing in advanced oil recovery systems to extend the life of existing fields. To accomplish this, the government in recent years has improved the terms of exploration and production contracts and production sharing agreements (PSA).

Qatar Petroleum and ExxonMobil signed an agreement in October 2003 for the construction of RasGas II. The facility will comprise two liquefaction trains – the largest ever built.

The first of the two trains is expected to begin commercial operation in 2008 or 2009.

Much of the LNG produced at Qatargas II will be exported to the U.S. through terminals to be built on the Gulf of Mexico, under the 25-year agreement

The government was forced to borrow heavily from the international markets to finance the exploration and development of natural gas along its coast. This investment proved to very rewarding for Qatar as revenues climbed tremendously since the 1990s.Experts believe that Qatar can easily write off its $17 billion foreign debt in few years. Due to new revenue streams from rapidly increasing exports of liquefied natural gas (LNG), as well as its very small population, Qatar has not experienced the erosion of per-capita GDP that has been seen in Saudi Arabia and some other Gulf oil exporters in recent years.

With proven reserves of 910 trillion cubic feet (Tcf), Qatar’s natural gas resources rank third in size behind Russia’s and Iran’s. Most of Qatar’s natural gas is located in the offshore North Field, which is the largest known non-associated natural gas field in the world.

Qatar recorded a large budge surplus in 2003/2004.

Government budget allocations for the 2004/2005 fiscal year increased by 22 percent, continuing a policy of spending heavily on infrastructure development.

As in the case of most oil producing countries, Qatar reaped a lot of benefits from the enormous demand on oil and gas following the invasion of Iraq more than two years ago.

The rulers of Qatar were also able to use part of the oil and gas revenues to invest in major real estate projects.

The tiny state is expected to build one of the largest airports in the world at a cost of $5 billion.

There is a real estate boom with rents spiraling upward, and 37 five-star hotels are being built along the Pearl Qatar, a $3.5 billion luxury land and reclamation project with freehold ownership.

Qatar officials say that they don’t want to follow the footsteps of Dubai which has become the financial and business center in the Middle East.

But officials are determined to attract tourists from Europe and the Middle East by building fancy hotels, beach resorts and recreational facilities.

Qatar has held numerous business conferences in the past three years and the capital Doha successfully hosted a meeting of the World Trade Organization five years ago.

The Gulf state enjoys political and security stability despite the alarming rise in terrorist activities in Saudi Arabia and other Arab states.

This stability is seen as an added value for any investor. The government is also considering offering new incentives to foreign investors.

But despite the attempts to diversify sources of revenues, oil and gas account for more than 85 percent of export earnings and 80 percent of the country’s GDP.

As in the case of most Arab Gulf countries, Qatar will continue to enjoy handsome revenues from oil and gas for many years to come.

By Osama Habib

Source: The Daily Star

Photo credit: Paul Saad (( ON/OFF )) via / CC BY-NC-ND

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