By Pratap John/Chief Business Reporter
Natural gas revenues will become Qatar’s main source of revenue from the fiscal 2014/2015, if oil prices remain depressed, a new report has shown.
Like most GCC economies, Qatari government has traditionally derived most of its revenue from oil (52% of hydrocarbon revenue in 2013), points out PwC.
“With the oil price down more than 40% since June 2013, our analysis indicates that if oil prices remain depressed, natural gas revenues will become the government’s main source of revenue from the fiscal year 2014/2015. With a continuous strong demand from its main LNG export partners in Asia and new gas field developments, LNG has the potential to partially offset the impact of a prolonged period of low oil prices on the Qatari economy,” said PwC Qatar managing partner Stephen Anderson.
PwC assessment has been driven by three key factors. First, Qatar’s dominant global position in the LNG market, being the largest exporter as of 2013 and having the 3rd largest proven reserves.
Second, the decoupling of natural gas prices from oil prices, starting in 2008/09 with the US shale gas revolution and more recently in the LNG market, and third, increasing popularity of natural gas over other fossil fuels due to its lower carbon emissions.
Natural gas prices mirrored oil prices until the shale gas revolution, the report said. Since then the natural gas market split into three regional markets- the US domestic market; the European pipeline market; and the LNG market targeting mainly Asian demand.
The price difference between these regional markets exacerbated following the
2011 earthquake in Japan, which led to the closure of the majority of its nuclear power plants, PwC said.
Asia now accounts for 73% of world LNG imports and pays up to $18/mBtu, compared to $10-$12/mBtu in Europe and around $4/mBtu in the US market.
Qatar benefits from these price differentials with 62% of its LNG exports directed to Japan, South Korea, India and China alone.
While the LNG market is characterised by long-term contracts, which reduce price sensitivity to changes in demand, a lift of gas export bans in the US and new capacity build up in Australia, that some forecasters expect to overtake Qatar as the biggest LNG exporter by 2019, are likely to lower the price difference.
Going forward, Qatar will need to consider whether it wants to maintain its 32% market share by lifting its moratorium on the North Field and bringing on stream new projects such as the Barzan field.
