‘Today,’ said Abdullah Al-Attiyah, ‘I feel unhappy and disappointed.’ Al-Attiyah is the Energy Minister of Qatar, and what is upsetting his equanimity is the price of gas. Unlike the price of oil, which has been rising relentlessly, the price of gas is no higher than it was last year – and is below the price seen in 2005.
He should worry! Tiny Qatar, with a native population of less than one million people, owns 15% of the world’s known gas reserves. Its giant North Field contains proven reserves of more than 900 trillion cubic feet, making it the world’s third largest gas owner after Russia and Iran. Much of this is turned into liquid form, through a process of chilling, and sent by ship to all corners of the world.
This tiny Gulf state is already the biggest exporter of liquefied natural gas (LNG). But its exports are set to triple by 2012, as ships set sail for the first time to the UK, France, and the USA. By then over 70 LNGas carriers will embark on 500 round trips per annum, each carrying cargo valued at $25m.
Qatar ’s hydrocarbon assets and production are all owned by the state, so it is a very wealthy state indeed. In 2002/3 total government revenues were $8.1bn, but in the current year they will be nearly $20bn. Try as it might, the government has been unable to spend all this money, and habitually runs a budget surplus.
This is in spite of a quadrupling of spending on capital projects in the last five years. Aside from investing heavily in the energy and petrochemicals sector, the government has financed the construction of the new Doha International Airport, and four new ‘cities’.
These are the Hamad Medical City, which includes a 300-bed hospital, a dialysis unit, and laboratories; Education City, a 2,500 acre campus on the outskirts of the capital, Doha; Energy City, which is the Gulf’s first hydrocarbon industry business centre; and Entertainment City, a mix of hospitality, leisure and recreational facilities, described as ‘a fusion of traditional Arabic hospitality and contemporary leisure lifestyles.’
How Qatar is creating demand
Qatar is also doing its bit to boost demand for its principal product. It has vowed to fuel its national airline fleet, which by 2015 will have doubled in size to no fewer than 110 aircraft, with je t fuel derived from LNG, and is talking to Rolls Royce and General Electric about the development of gas-fired jet engines.
This is the backgound to a new company launched by fund manager Epicure. Called Epicure Qatar Equity Opportunities plc (EQEO), this has been formed to invest principally in Qatar, and it has got off to a strong start.
Having been traded on AIM since July 31st, the shares have already gained 14%, while for the more adventurous there are warrants (with the symbol EQEW). This is the first time that UK investors have been given the chance to invest in a fund focused on Qatar, and although I should alert you to the fact that the fund managers will take 20% of any profits through the usual over-generous and one-sided performance related fee structure, the fund looks tempting and has certainly been launched at an opportune moment.
In common with other stock markets in the Middle East, the Doha stock exchange index declined in 2006, and spent much of this year moving sideways. Now, though, it is starting to surge ahead, and has gained 16% in the last month.
The Doha Stock Exchange only commenced trading in 1997, and today has about forty listed companies. About half of the market’s capitalization is accounted for Qatar Telecom (QTEL), Qatar National Bank (QNBK) and Industries Qatar (IQCD), the latter a holding company with interests in Qatar Fertiliser, Qatar Steel, Qatar Fuel Additives, Qatar Petrochemical and Qatar Vinyl.
Given that it is all in the hands of the State, it is impossible to invest directly in the oil and gas sector. But Epicure argues that all other sectors will benefit from the state spending that will be fuelled by rising revenues from LNG exports, and this much at least seems assured.
So, even if the gas price stubbornly refuses to follow the lead of oil, Mr Al-Attiyah should not have too much to worry about. And if he ever feels too depressed, my advice would be to call up Alastair Darling, the man who is worrying not whether the rising price of gas will boost an already healthy budget surplus, but how on earth he is going to finance a looming deficit of £38bn. Now that is something to be unhappy and disappointed about.
This article is taken from Garry White’s free daily email ‘Garry Writes’. For more information please Garry Writes