Qatar’s liquefied natural gas (LNG) expansion plans are expected to boost real economic growth and fiscal surpluses to high-single digits and mid-single digits on average over 2021-27, according to a report by Bank of America.
The LNG strategy of Qatar appears to be focused on defending and, in due course, growing its market share. The country’s structural cost advantage makes it well-positioned to maintain its leading supplier position while allowing for greater flexibility in contract pricing. The structurally low production costs of Qatar provide a key advantage and its pricing strategy is starting to exhibit more flexibility.
Further, the report said that Qatar’s planned boost in LNG capacity would benefit the overall gross domestic product (GDP). The country should enhance activity by promoting hydrocarbon real GDP growth over 2025-27 and non-oil real GDP growth through higher investments over 2022-27.
“We estimate the LNG investment pipeline could boost non-hydrocarbon real GDP growth by 1.5ppt per annum, bringing it to average 5 percent over the period 2022-27, based on typical GCC fiscal multiplier estimates,” the report said.
The higher activity would allow the economy to double in size, with nominal GDP reaching $300 billion by 2027, from $145 billion in 2020. The report projects that the fiscal balance to average 2 percent of GDP over 2021-27, gradually increasing over the same period to stand at a surplus of just under 5 percent in 2027.
The key drivers and sensitivities on the fiscal balance front are a medium-term oil price assumption of $60 a barrel, a blended LNG export price that reflects an average 25 percent reduction in prices for contracts due for rollover in the period 2022-27 and current spending growing broadly in line with nominal non-hydrocarbon real GDP growth.
Qatar Petroleum (QP) is moving forward with its twin-phased plan to increase LNG production capacity. It would sign the bulk of project-related deals by the end of 2021. Altogether, the two phases would raise Qatar’s LNG production capacity in 2027 by 63 percent.
The North Field East (NFE) project is a $28.75 billion expansion plan to raise production capacity by 42 percent by 2027. The expansion project would see the production of gas from the first quarter of 2025, and each of the four 8mtpa LNG trains will start operating at three-to-six month intervals such that the project would be fully commissioned by end-2026 or early-2027, according to QP officials.
The second phase of the planned LNG expansion, the North Field South (NFS) project, would increase LNG production capacity from 110mtpa to 126mtpa by 2027 and would involve a further two 8mtpa LNG trains.
The combined LNG expansion plans would stand at $43 billion, representing a large 24 percent of 2021 GDP and 73 percent of gross capital formation, according to the Bank of America report.