Qatar is among the countries that will reap the greatest benefits from the global energy crisis.
As most governments are struggling with soaring energy prices, Qatar—the world’s largest liquefied natural gas (LNG) exporter—can sit back and contemplate a bright future.
“The economic outlook for Qatar is very positive,” says Joseph Abraham, group CEO of Commercial Bank of Qatar, the country’s largest private lender. “While high energy prices are seen as a negative in Europe and the US, they are conversely a financial positive for major hydrocarbon exporters such as Qatar.”
Despite inflation and looming recession abroad, Qatar’s GDP growth is expected to reach almost 5% in 2022. In November, international ratings agency S&P Global raised its long-term foreign and local currency sovereign credit ratings on Qatar from AA- to AA with a stable outlook.
“The upgrade reflects structural improvements in the Qatari government’s fiscal position,” noted the agency in a prepared statement.
“Qatar has the lowest fiscal breakeven oil price among the GCC countries, and the current high gas prices mean that the government is in a very strong fiscal position,” adds Abraham. He sees the extra revenue helping the authorities address some structural imbalances and further fueling growth. “In the short term, the government is prudently repaying local bank debt, which has led to some lending growth restraint. However, in the long term, higher gas prices will lead to increased investment in the economy.”
Like all Gulf countries looking to break free from the oil rent, Qatar is keen to become a global hub for everything from business and tourism to art, diplomacy, finance and trade. To attract foreign capital and talent, Doha has completed massive infrastructure investments and instituted a set of liberal reforms, including new labor laws, a residency program for real estate investors, full foreign ownership of companies and new public-private partnership rules.
Already one of the wealthiest countries in the world, with a GDP per capita of $73,000, Qatar is expected to grow even richer as it more than doubles gas production with the North Field expansion project—the world’s largest natural gas field, which holds approximately 10% of global reserves. By 2028, the new facilities should increase Qatar’s LNG output by about 64%, from 77 million to 126 million tons annually.
Winter Is Coming
Qatar didn’t have a market for all that extra gas for a while. But with the war in Ukraine, international buyers are rushing to Doha to secure future access to gas fields and other hydrocarbon-related infrastructure.
During his investor presentation in September in New York, Patrick Pouyanne, CEO of French energy company TotalEnergies, was clear about his company’s strategy: “Less Russia, more Qatar.”
A few days earlier, the company signed a $1.5 billion deal to acquire a minority stake in the second phase of Qatar’s North Field. TotalEnergies would have been glad to buy more, the CEO told the press, but competition is fierce, with only a quarter of the North Field open to international investors.
Companies from all over the world entered the bidding process. In June, Qatar selected five foreign firms to participate in the first phase of the project: France’sTotalEnergies, US-based Exxon Mobil, the UK’s Shell, Italy’s Eni and US-based ConocoPhillips. This fall, only three majors secured investments in the second phase: TotalEnergies, with 9.375%, Shell with 9.375% and ConocoPhilips with 6.25%.
“Most of the leaders of the world have just discovered the words LNG,” said Pouyanne at the time, who invested $3.5 billion this year alone in the North Field. “For security of supply, there is a price.”
Growing Demand
For Qatar, the future looks bright. Analysts predict that global LNG demand will double to over 700 million tons annually by 2040. Europe alone—which relied on Russia for 40% of consumption before the war in Ukraine—would need to purchase about 200 million tons of LNG over the next decade.
Change is happening fast. In the first eight months of 2022, Europe’s LNG imports jumped 65% compared to the same period the previous year, the International Energy Agency reported in its latest World Energy Outlook report.
During the same period, Saad al-Kaabi, CEO of QatarEnergy and Qatar’s minister for energy, became one of the most powerful men on Earth. Demands for urgent LNG supplies came from Paris, London, Berlin, Warsaw, Rome, Madrid, Brussels and Bratislava. Sometimes Al-Kaabi said yes, but mostly he reminded his international counterparts of previous commitments.
Until now, most of Qatar’s energy output was purchased via long-term contracts with Asian countries such as Japan, South Korea and China, which were looking to replace coal. These trade partners have also been long-time investors in LNG infrastructure. In 2020, Qatar signed a $20 billion deal with Korean companies Daewoo, Hyundai and Samsung to manufacture over 100 LNG vessels—the largest LNG ship order in history.
Qatar wants to be seen as a reliable business partner and will not break away from these deals. As a result, only about 15% of the current production can be rerouted to Europe.
“Qatar absolutely is committed to the sanctity of its contracts,” al-Kaabi told Japan’s economic magazine Nikkei Asia in October. “The volume we have committed to Europe will go to Europe, but we will not be taking away from Asian buyers and diverting it to Europe.”
Of course, Europeans are also looking for gas elsewhere—in the US, Australia, Norway and Algeria—but Qatar’s is cheaper to produce and easier to move around. Even if it requires additional investment to build new LNG terminals to offload the gas and distribute it across the continent, in the long term, Europe’s demand for gas will be sustained by the energy transition.
Until the continent can rely 100% on renewable energies, LNG is one of the cleanest fossil fuels available. Moreover, Qatar has committed over $200 million in new technologies to deliver the lowest carbon-footprint LNG on the planet. In October, al-Kaabi said his company was on the way to becoming the largest trader of LNG in the world, beating Shell.
To ensure that future supplies don’t slip through their fingers, European diplomats who often turned their noses up at Qatar—criticizing it for human rights abuse and terrorism financing—have recently increased friendly visits to Doha. In September, Charles Michel, president of the European Council, even flew in to establish a new permanent delegation.
By increasing production and allowing Western companies to buy into its facilities, the tiny emirate is building long-term trade relations and laying the groundwork for partnerships and a network of geopolitical influence stretching from Asia through Europe to the US.
For now, the war in Ukraine is very favorable for Qatar, bringing immediate extra revenue through higher hydrocarbon prices and boosting long-term prospects with new gas contracts.
But hydrocarbons still account for 90% of Qatar’s exports and 80% of government revenue. Hence, “oil price volatility,” “the eventual decline in global hydrocarbon demand” and “geopolitical developments could be major headwinds,” warns the International Monetary Fund in its latest Article IV assessment.
While it sells fossil fuels to the world, Qatar is trying to build energy sovereignty at home by investing in sustainable infrastructure. In October, Sheikh Tamim bin Hamad Al Thani, the emir of Qatar, inaugurated one of the region’s largest solar farms—1.8 million photovoltaic panels that can produce up to a tenth of the country’s peak electricity demand. One of the most polluting countries in the world, Qatar has committed to reducing greenhouse gas emissions by 25% by 2030.
But no matter its financial power, Qatar still sits in a risky environment and has to adapt to Middle East’s complex geopolitics. From 2017 to 2021, Bahrain, Egypt, Saudi Arabia and the UAE boycotted the emirate. Today, the North Field expansion plan could raise new tensions, as the offshore reserves sit at the border with Iran. “Disruptions in expanding gas production … are main downside risks,” further notes the IMF.
