Qatar LNG sector set for less volatility in 2015, says StanChart

By Pratap John

Chief Business Reporter

Qatar’s key liquefied natural gas sector is likely to see less volatility in 2015 than the oil sector, as most of the country’s LNG is sold on long-term contracts, a new report has shown.

Being the world’s largest LNG producer, Qatar has an output capacity of 77mn tonnes annually, said Standard Chartered bank in a report. The country accounts for almost one-third of global LNG trade, and more than 80% of its exports go to Asia.

“We expect Qatar to be among the best-insulated GCC (Gulf Co-operation Council) countries from a projected drop in oil prices and potential output cuts. Qatar is less sensitive to oil price moves, as 50% of its hydrocarbon revenues come from the gas sector and LNG exports,” StanChart said in its country report, which is part of its “Global Focus – 2015–the Year Ahead”.

According to StanChart, Qatar would take smaller cuts than some of the larger oil producers later in 2015 due to its lower oil output levels.

The bank sees a “buoyant” growth outlook for Qatar and forecasts GDP growth at 5.4% in 2015 versus 5.5% in 2014. The moderating outlook for oil markets is likely to affect the hydrocarbon sector only moderately, largely through oil.

“Qatar remains well positioned to undertake long-term investment plans. The key drivers of long-term growth are National Vision 2030 (the country’s long-term development plan) and the FIFA 2022 World Cup.

“Infrastructure investment is taking centre stage. Qatar has awarded numerous infrastructure projects in 2014 to prepare to host FIFA 2022 and to address long-term infrastructure needs arising from rapid population growth. We expect spending to increase further in 2015. Population growth is one driver of long-term investment. The government forecasts that the population could rise to 3.8mn by 2030 from around 2mn currently.

“Under Qatar’s national development strategy, an estimated $183bn of investment is planned between 2011 and 2016. We estimate that almost $27bn of key infrastructure projects have been awarded in 2014. We expect project spending to reach $34bn in 2015,” Standard Chartered said.

StanChart said the Middle East’s economies boomed in 2014 on the back of increased spending on infrastructure projects.

“Although GCC economies are taking active steps to diversify, government revenues are still highly dependent on hydrocarbon proceeds. The drop in oil prices in 2014 raises the question of whether GCC governments can keep raising government spending year after year without facing fiscal pressures.

“The answer is that they probably cannot, and fiscal policy will have to be reassessed. We expect oil prices to rebound in 2015. Additionally, our client surveys in the GCC suggest optimism for 2015.”