Qatar’s tremendous Liquefied Natural Gas (LNG) extension plan is supposed to boost the country’s Gross Domestic Product (GDP), according to the statement published by BofA Global Research. Moreover, the country’s economy is also expected to observe a surplus of QR12.5bn hit by higher oil prices.
In addition, BofA Global Research, in one of the reports, stated that “Qatar’s conservative 2021 budget and strong policy response to the COVID-19 crisis maintain a cyclical recovery. Qatar will become the swing Liquefied Natural Gas (LNG) generator moving forward, with a market share focus and more resilient pricing. Further, the report noted that “We assume its LNG expansion schemes to increase real GDP growth and fiscal excesses to high-single digits and mid-single digits on average above 2021-2027”.
Moreover, Qatar is moving full steam ahead with its energy sector expansion plans. The country has begun an ambitious plan to increase LNG capacity. The two-phase North Field Expansion project will increase Qatar LNG capacity from 77 million tonnes per annum (mtpa) to 126 mtpa by 2027, representing a 64 percent increase. The first stage of expansion will incorporate expansion of LNG capacity from mtpa to 110 mtpa by 2025. On the other hand, the second phase will accept LNG capacity to 126 mtpa by 2027.
We predict a QR12.5 billion surplus in the fiscal balance in 2021, owing primarily to a higher-than-expected oil price. According to the report, the lag effect on corporate taxes, including Qatar’s petroleum, should limit revenues slightly, and VAT will not be implemented until 2021.
Overall, spending in 2021 is expected to fall by 7.5 percent year on year compared to the 2020 budget, frequently on capital expenditure cuts. The following partly indicates the completion of some significant infrastructure projects, added by the report. Moreover, a strong policy response from the concerned authorities and government has guarded the local economy against the most damaging effects of the COVID-19 outbreak. Qatar has already begun observing the progressive lifting of the restriction forced to curb the disruption of the pandemic, which will foster the economy. The first stage of the lifting of restrictions has already come into force from May 28.
Economic growth to stimulate
The online report stated that the country’s proposed boost in LNG capacity would predict well for the overall Gross Domestic Product or GDP. It must increase activity through expanding hydrocarbon real GDP growth over 2025-2027 and non-oil original GDP growth through more eminent investments over 2022-2027.
Further, based on typical GCC economic multiplier forecasts, we evaluate the LNG investment pipeline which may boost non-hydrocarbon real GDP growth by 1.5 ppt per annum, bringing it to an average of 5% over 2022 2027, said by Bank of America. Higher activity will allow the economy to double in size, with low GDP reaching $300bn by 2027, from $145bn in 2020.
Besides, the report evaluated a fiscal balance average of 2% of GDP over 2021-2027. They are moderately increasing over the same period to stand at an excess of just under 5% in 2027. On the financial balance front, the main drivers and sensitivities are a medium-term oil price assumption of $60 per barrel, a blended LNG export price reflecting an average of 25% reduction in costs for contracts due to collision in the period 2022-2027, and current spending growing pretty much in line with negligible non-hydrocarbon real GDP growth.
QP is proceeding with its two-phase plan to increase LNG production capacity. Bank of America stated that it would sign most project-related agreements by the end of the year. Overall, the two phases would increase Qatar’s LNG production capacity by 63 percent in 2027 to 126 million tonnes per year (mtpa). Furthermore, the North Field East (NFE) project is a $28.75bn development plan to increase production capacity by 42% to 110 mtpa by 2027.
The extension project will see the creation of gas from the first quarter of 2025. According to the QP officials, each of the four 8mtpa LNG trains will begin working at three to six-month intervals so that the project will fully be commissioned by the end of 2026 or early 2027. According to the Bank of America report, the joint LNG expansion plans would stand at $43bn, depicting a notable 24% of 2021 GDP and 73% gross capital formation.