Qatar – the biggest exporter of liquid gas in the world

Although Qatar can be compared to Estonia in terms of its area and population, the country has by today become one of the biggest exporters of natural gas and the biggest exporter of liquid gas or LNG in the world.

Qatar only started exporting liquefied natural gas or LNG in 1997, but the quantities have shot up by today – the LNG export capacity of Qatar in spring 2011 was 77 million tons per year. The country has completed its big projects of increasing its liquefied natural gas production capacities and further growth in quantities should come from the technical improvement of the existing equipment.

The graph below gives a good overview of the liquefied natural gas exports of Qatar. For example, the country exported 987 billion cubic feet (20.1 million tons) of liquefied gas in 2005 and 1,800 billion cubic feet (36.7 million tons) in 2009, but this quantity should increase to approximately 3,800 billion cubic feet (77 million tons) by the end of 2011. This means that the liquefied natural gas exports of the country have doubled in the last two years and grown six times in the last ten years.

The increase in the liquefied natural gas or LNG exports has helped the country catch up with the sudden increase in production quantities that occurred in recent years. Qatar can export gas in liquefied form anywhere in the world and focus on the places where the state earns the most income for the gas. The idea at first was to ship LNG by boat to the US, which was supposed to help meet the demand of hungry Americans, but the continuously low natural gas prices in the US mean that it is more profitable for Qatar to supply its gas elsewhere, e.g. the United Kingdom, India, Japan and other countries in south-eastern Asia and Europe. Demand for Qatar’s liquid gas increased immediately in Japan after the earthquake on March 18 – supplying gas over such a distance through a system of pipelines would be practically impossible, especially when there is more than just dry land between the two locations. In addition to these distant places, some neighbours of Qatar have also shown an interest in buying gas from the country, especially Bahrain, Dubai and Abu Dhabi. Four of the six GCC countries – Saudi Arabia, Bahrain, Kuwait and the United Arab Emirates – are importers of natural gas and only two are exporters – Qatar and Oman. As the gas exports of Oman are ca 10% of the gas exports of Qatar, there is no doubt that Qatar is the most influential supplier of natural gas in the region.

Natural gas production and consumption in Qatar according to the US Energy Agency:

There is no reason to fear that Qatar will run out of gas any time soon. The country has the third-largest natural gas deposits after Iran and Russia – Qatar owns 14% of the total gas reserves of the world. Qatar has enough gas for more than 200 years at current production quantities.

The state invests the income earned from sales of natural gas in the diversification of its economy. The country is working on several large projects, which range from airport extension, port expansion, bridge construction (e.g. between Qatar and Bahrain), improvement of roads, railways and other infrastructure to the development of massive property projects. And it’s clear how the state’s money is feeding these projects. Whilst the economy of Qatar grew ca 16% in 2010, the growth forecast for 2011 by the IMF is approximately 20%. And even if we leave out the state’s oil and gas sector, the average annual growth in other sectors will remain between ca 8% and 10% per year.

This growth also feeds the local companies listed on the stock exchange – it was a pleasure to see that the results in the first quarter of 2011 were generally strong in Qatar. Let’s take a look at the financial results of the three large Qatari companies, Qatar National Bank, Industries Qatar and Qatar Fuel Company, which are also included in the LHV Persian Gulf Fund.

Qatar National Bank benefits particularly well from the diverse investments made by the government, as almost 50% of the bank’s deposits and loans are connected to the state. The profit of Qatar National Bank increased 31% in the first quarter when compared to the same period a year ago (from 1.3 billion QAR to 1.7 billion QAR), loans increased 20%, total assets 33% and deposits 36%. The Q1 results of petrochemical and metal processing company Industries Qatar showed a 75% increase in profit – the company’s shares trade at ca 10.9 times of the profit expected in 2011 and offer an attractive anticipated dividend return of almost 4.5%. We were also very happy with the results of Qatar Fuel Company that increased its net profit by 9% when compared to the same quarter last year and is currently expanding its petrol station chain in Qatar – work on 12 new stations has already started and some of them will open in the first half of this year. Procurements for the construction of four more stations have been declared. The oils and lubricants recently launched by the company are popular with the locals and in addition to clients in Qatar, the company has entered into contracts to sell its products in Iraq and the United Arab Emirates. The company also hopes to sign contracts with sales agents in Jordan and Kuwait soon.

Movements of the share of the Qatar National Bank in the last year:

We would like to remind you that all existing and new investors can enter the LHV Persian Gulf Fund, which invests in the energy-rich countries of the Middle East, without the usual 2% entry fee, i.e. free of charge, from 8 April to 8 June (incl.).

Joel Kukemelk

Fund Manager, LHV Persian Gulf Fund

This article is published for informative purposes only and does not constitute a recommendation to sell or buy the securities mentioned.