Qatar’s role as LNG colossus will grow with North Field

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A perfect storm of geopolitics, a high oil price and a sharp rise in EU liquified natural gas demand has created a fiscal nirvana for Qatar.

The International Monetary Fund is projecting a current account surplus as high as 15.4 percent of GDP this year for the emir state.

The Russian invasion of Ukraine and the EU’s decision to ban pipeline imports from Gazprom was a seismic shock for the global liquified natural gas (LNG) market.

The subsequent energy shortage created by the Ukraine war was a geopolitical windfall for Qatar, which has now emerged as a key supplier of LNG to Europe’s industrial constellation – a strategic partner to the Old World as crucial as the US and Australia.

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After the trauma of the Covid pandemic, the global economic cycle has also been benign for Qatar since the lack of a US recession, which, although widely forecast in 2022, did not materialise.

On the contrary, the $26 trillion US economy has reinforced its role as the locomotive of the global economic cycle, thus boosting demand for both crude oil and LNG exports from Qatar.

The colossal losses suffered by the Kremlin, the US Treasury’s weaponisation of the dollar, Germany’s demonstrated resolve to end its energy dependence on the Kremlin and secondary sanctions on Russian state-owned companies that will stunt capex in West Siberian/Sakhalin gas fields means that Qatar’s North Field expansion plans are well-timed. 

The energy shortage created by the Ukraine war was a geopolitical windfall for Qatar

The initiative will raise its production capacity from 77 to 126 metric tonnes by 2026 and come online at the precise moment when demand for long-term, reliable Qatari LNG supplies has assumed a new strategic significance in Europe and Asia. 

So, it is no coincidence that Exxon Mobil, the world’s largest oil and gas supermajor, has agreed a $30 billion investment in the North Field mega-project.

It is also no coincidence that Moody’s just raised Qatar’s sovereign credit rating for the first time since 2007 to Aa2 at par with the UAE and South Korea and, incredibly, a level above the UK as its third-highest investment grade rating. 

After all, Qatar has not sold any sovereign debt in the international capital markets for the past four years because it is flush with LNG exports.

• Qatar’s gas expansion plans to drive budget surplus until 2030
• Qatar’s new LNG discovery to expand output by 85%
• In the Gulf, the age of the petrodollar will not be ending soon

Economic growth in 2024 is projected at 2.5 percent, well below the 4.1 percent growth recorded two years ago when Doha spent $300 billion to host the Fifa World Cup soccer tournament.

The sheer scale of spending on this global mega-event has created overcapacity and low utilisation rates in residential, commercial and hotel markets.

This means that fiscal spending will remain at 1-2 percent in 2024 while high oil and LNG prices continue to generate export windfalls.

In retrospect, the “Big Three” global rating agencies – Fitch, S&P Global and Moody’s – did Qatar a favour by downgrading the emirate’s sovereign credit rating in unison in 2017. This forced Qatar to embrace fiscal discipline and thus slash its public debt-to-GDP ratio from 73 percent in 2020 to 40 percent. 

Qatar’s imminent re-entry into the global bond market with a sovereign green bond is motivated more by making a statement on climate change than any immediate need to access funding from global investors.

Expect the inaugural Qatar “green bond” new issue to be wildly oversubscribed in the GCC and global capital markets.

Economic and geopolitical risks are never far from the horizon in the Middle East. The current Israel-Hamas war in Gaza could escalate into a wider regional conflict that involves Hezbollah, Iran’s proxy militias and even a direct military confrontation with Iran.

This could well trigger global recession risk, as the industrialised West, Japan and the emerging markets found out the hard way in the October 1973 war and during the Iraqi invasion of Kuwait in August 1990.

Qatari LNG tanker shipments to Europe have already been delayed due to the US-led naval flotilla’s air strikes against the Houthi missile depots and launch sites.

Peak gas is not a threat in 2024. But potential recession, the anti-fossil fuel zeitgeist and the huge scale of new LNG mega-projects worldwide could cause a price slump later in the decade.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also an adjunct professor of real estate investing and banking at the American University of Sharjah