Lower cost producer Qatar well placed to weather sustained fall in LNG prices, says Samba
Qatar is well placed to “weather a sustained fall in LNG prices” as it is a “much lower cost producer” than Australia and has an industry that can “operate strategically”, a new report has shown.
Although Qatar is “much better insulated” from lower oil prices than some of its neighbours, they will still present “some challenges” for Qatar, especially if prices do not recover in line with expectations, Samba Financial Group has said.
The estimated full-year Qatar export figures for 2014 show that oil revenue accounted for 18% ($19.7bn) of the $118bn in hydrocarbon revenues. The main export revenue earner is of course LNG, which garnered $55.4bn in earnings – the rest was from condensates, propane, butane and refined products.
Although there is no global LNG spot price, it is worth recalling the dynamics at play which will determine the price of Qatar’s main export over the next few years.
According to the report, Qatar exported 77.4mn tonnes of LNG in 2014, compared to Australia’s 20.8mn. By 2020 some analysts believe Australia will have an export capacity of 85mn.
“Geographically, Australia has the upper hand, being ideally placed to tap the lucrative emerging Asian markets; currently Qatar’s top export destinations are Japan, South Korea and India,” Samba said.
The report noted that global oil prices have shifted downwards again as a pickup in the US rig count (a proxy for investment in the shale oil sector) has combined with soaring production growth from Saudi Arabia, Russia, Canada, Brazil and even China. The only serious cutbacks in the pipeline are from international oil companies (IOCs), which have shelved investment plans in the challenging terrain. At the same time, the demand outlook is mixed, with China’s shift into less commodity-intensive sectors, such as domestic services, a potential drag.
“Given the uncertainty over how US shale oil will react to lower prices, and that Opec has surrendered its role as a swing producer, downside risks to the outlook loom large –indeed the futures market see Brent nudging up to only $65/barrel by 2020. That said, global oil demand does still appear to be increasing at a healthy rate, and our view is that, allied to projected dips in non-Opec supply, this will support a gradual increase in Brent from an average of $58/b this year, to $62/b in 2016. By 2020 prices should be back above $90/b in nominal terms,” Samba said.