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Energy risk outlook for Qatar
February, 2016

Udayan Burma lists the risks that will influence the outlook for the energy sector in Qatar.                                                                      

The continuing oil price plunge has disrupted the finances of most energy exporters in the world. However, Qatar appears to be the least affected by this sudden but sustained downturn in the oil prices. The reasons are not far to seek. Although Qatar is a significant oil producer, there is a weak correlation between the price of its natural gas exports and oil exports. Even at the current oil price, it has managed to break even its budget and may continue to do so in the future thanks to its huge fiscal reserves.

How does the above scenario influence the energy risk outlook for Qatar? For a predominantly hydrocarbon-dependent economy like Qatar the risks that bedevil its energy industry are the same that affect the country as a whole. The pictorial depiction below shows the major groups of risk to which both the energy set-up as well as the country are exposed. 

Energy risk

The energy sector in Qatar is exposed to risks emanating within as well as outside of Qatar.

Domestic risks that may affect the economy in general and the energy sector in particular are mainly centered around the scale and complexity of Qatar's planned infrastructure projects before it hosts the 2022 World Cup soccer tournament.Qatar benefited from an oil price that hovered above USD100 a barrel but in the past six months that fell to about USD60. More than 90 percent of Qatar’s budget revenues and exports stem from activities tied to the energy sector. In such a scenario Qatar will certainly struggle to balance its budget during the next few years leading to the staging of the Soccer World in 2022. Though the short-term growth outlook may appear positive, a continuation of the current downward trend in oil prices will certainly result in a deterioration of the fiscal and external balances. The IMF quoted in one of its recent reports “In sharp contrast to previous years, the budget will be in deficit from 2016 onward and the current account surplus will largely be eliminated.”

The external factors that are likely to affect Qatar’s position as the leading Gas exporter are the emergence of new supplier of LNG from Australia, Indonesia and the shell gas revolution in USA.

Notwithstanding their professed policy of economic diversification, the Qatari government has to be pragmatic about the fact that its economy is still exposed to the same risks that plague all other hydrocarbon-based economies of the world i.e. excessive reliance on hydrocarbons that leaves it vulnerable to changes in levels of global activity as well as fluctuations in international commodity prices.

Political risks

Politically Qatar presents one of the most stable images in the otherwise troubled Middle East region.Unlike elsewhere in the region, leadership transition from the older generation to the younger generation has been smoothly carried out in Qatar. The Royal family has enjoyed a fair amount of popular support thanks to the largesse distributed to the local population. Their backing of the Islamists groups in Egypt, Libya and Syria have also helped silenced their critiques who were trying to brand their policies are excessively westernized.

In spite of the situation in Yemen Qatar’s relationship with Iran is on the even keel chiefly because Qatar and Iran share the world’s largest gas field. This to a great extent has ensured that bilateral relations between both countries have remained cordial and pragmatic. The Qatari energy dependent economy remains vulnerable to cargo disruptions in the Strait of Hormuz, which serves as a transport route for about one fifth of global traded oil and liquefied natural gas (LNG).

However, the energy assets of Qatar face limited external risks thanks to a large extent by an increasingly close strategic relationship with the US, which has withstood concerns about Qatari backing of foreign Islamists. Qatar hosts important US military bases and acts as a US-ally in the region. In return, the US guarantees security and the US military support affords some regional protection and acts as a deterrent against any external aggression.

Qatar also seems to be immune to terrorism thanks to a very docile and contented local population and vigilant as well as agile security system. It is pertinent to note neither the government nor the public and private sector establishments buy any terrorism insurance since they do not perceive this as a risk. The only exceptions are projects which are lender driven and the international financers insist on the assets being protected against terrorism.

Commercial and physical risks

Qatar has enacted a strict moratorium on fresh drilling through at least 2016 in the North field where nearly all of the country’s reserves are located. The Qatar government considers this as a prudent measure allowing in depth studies on the world’s largest conventional non-associated gas deposit. The result of this study is vital to Qatar’s commercial interest since it is concerned at the recent rise in drilling activity by Iran in the SouthPars brought on by the relaxation of sanctions on Iran.

In view of the moratorium the only way to sustain production is to enhance output of the existing facilities. This requires use of the highest level of technology available with International firms which puts Qatar at odds with its own local content-first policy and keeps the door ajar for major oilfield services companies to maintain their presence. Domestic companies are still unable to perform drilling studies using 3 D- or 4 D-seismic technology or provide casing technologies and subsea infrastructure

This above scenario may lead to a clash of interest between the local entrepreneurs and the international firms. This is something that the Qatari government would like to avoid at all cost. This risk has been neutralised to some extent by striking a balance in form of joint ventures such as Al Shaheen Weatherford combining international expertise with local knowledge. Other examples of the international companies successfully collaborating with local corroborates are i) Maersk use of horizontal drilling to convert the Al Shaheen field, previously thought to be unproductive, into a major offshore oil producer and ii) Occidental using technological innovation to maximise production from the Idd Al Sharqi North Dome field- both these ventures in collaboration with QP.

Fresh talks at official level suggest that the North Field moratorium could be lifted in 2016 paving the way for a new round of drilling to sustain and potentially grow production levels in line with Qatar National Vision 2030.

As regards Physical Risks like earthquake, floods etc Qatar seems to be relatively safe. In a recent list of countries graded by natural disaster risk, as measured in the World Risk Index, calculated by the United Nations University for Environment and Human Security (UNU-EHS) Qatar has featured as the country least affected by catastrophic events. This report systematically considers a country’s vulnerability, and its exposure to natural hazards to determine a ranking of countries around the world based on their disaster risk.

Business environment & financing risks

Qatar's safety and stability in contrast to many of the other Middle Eastern countries makes its business environment very conducive to investment particularly in its energy sector. Its pro business image is also further boosted by the fact that the country is an outperformer in the Middle East in terms of its overall Crime and Security Risk rating.

However, the civil wars in Iraq and Syria, the proxy war in Yemen between the Saudi led coalition of Sunni power against the Iran backed Houthis  put some question marks on the stability of the region for investment. Some of the International financers may also be wary of putting their money in a country whose Oil and Gas facilities could become the targets of the Islamic terrorist groups due to its U.S. military bases.

Two of the other risk factors that could further hinder free flow of investment into Qatar’s energy sector are the weak data transparency for an economy of Qatar’s size and strategic importance and labour market restrictions.


As is evident from the above Qatar’s energy risk outlook does look positive in the short term thanks to the political sagacity of its rulers and the pragmatic economic and commercial policies in place so far. However, the key to the future of this export driven economy lies in the success or otherwise of its policy makers’ endeavor to diversify the country’s product portfolio, to protect against shocks in any one market.

The falling oil prices have certainly slowed down Qatar’s diversification plans particularly in the field of petrochemicals. It had to shelve its proposed plans for constructing two of its mega petrochemical complexes, Al Sejeel and Al Karana in Ras Laffan City mainly due to financial squeeze imposed by the drop in its oil revenue. However, this will be offset by the huge investment the country is making in infrastructure which certainly has given its construction industry the much needed boost. To add to it the prospect of the lifting of the moratorium on the energy exploration and production in the North Field in the near future should allow the Qatari policy makers to view its Energy Risk Outlook positively.



The oil and Gas year- Qatar 2014

The outlook for energy: A view to 2040.Bill Colton

Qatar Eyes Gas gains: Qatar Oxford Business Group

“Global experts differ on energy outlook”- The peninsula-16th March 2015

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