Oil Fired

With predicted budget deficits turning into extravagant budget surpluses, and welcome news on growth, the economic statistics are looking very robust these days in Qatar. Unsurprisingly, it is the hydrocarbons sector that is behind the upwardly mobile numbers, with more news this week of expansion in this area - particularly in the liquefied natural gas (LNG) field.



First of all though, the statistics. On November 9, the Qatar National Bank (QNB) revealed its forecasts for GDP growth this year. According to QNB, the figure would likely be around 18%, significantly up on the last five-years' average of 15.7% and a massive figure in comparison to general world growth.



Behind this expansion, the QNB said, was a simple reality: oil prices. These averaged $32.50 per barrel in the first six months of this year, with the second half of 2004 likely to see an average price in the $40-50 range. This, along with an increase in output, has showered all the Gulf's oil producing states with revenue this year, with Qatar being no exception.



The effect of these surging oil prices was also evident in another set of figures released this week.



Qatar Central Bank (QCB) statistics published in al-Sharq on November 15 showed that for the fiscal year 2003-4, the country's financial authorities had originally been aiming for a budget deficit of some QR1.72bn ($472.66m).



However, when the dust settled on the year's accounting, it turned out that in fact Qatar had produced a QR3.95bn ($1.09bn) budget surplus instead.



Similarly, the QCB and the country's authorities had been looking forwards to a deficit for the 2004-5 fiscal year too, yet now it seems this will likely turn into an even bigger budget surplus.



Once again, the reason for the massive overshoot is the swollen price of oil and gas. In the 2003-4 period, revenue from these amounted to a record QR18.48bn ($5.08bn), some 63.4% of Qatar's total income. The original budget estimates had been based on an assumed oil price that was way lower than what the market - and a variety of geopolitical factors - eventually provided. Similarly, for 2004-5, with oil prices now around $50 a barrel, the surplus is likely to be even higher.



The QCB also showed how the revenue and expenditure streams broke down in the 2003-4 period. Actual revenue between April 2003 and March 2004 was QR29.16bn ($8bn), 35.1% up on the initial revenue estimates and 2.3% more than the actual revenue in 2002-03. Income from investment was QR8.07bn ($2.22bn), some 27.6% more than it had been in the 2002-3 period. At the same time, public expenditure rose by 10.6% to QR25.21bn ($6.92bn), while government expenditure on salaries and wages fell by 1.2%, year-on-year, to QR5.91bn ($1.6bn).



The massive boost in the budget resulting from high oil prices may also offset one worry in recent months, which has been the weakness of the dollar and the comparative strength of the euro. With oil priced in dollars, Washington's policy of letting the dollar slide in order to ease the financing of its own massive current account deficit has had a knock on effect - particularly too in those Gulf Cooperation Council (GCC) states like Qatar which have pegged their currencies to the dollar, in preparation for launching a common currency in 2010.



Meanwhile, the strengthening euro - the Qatari riyal has depreciated some 30% against the single currency since the dollar slide began two years ago - has also hit businesses. Imports from the EU are more costly, with these price rises being passed on to consumers. With some 40% of Qatar's imports coming from eurozone countries, this is no small problem.



With the dollar now hitting record lows against the euro and recent statements by US Treasury Secretary Jon Snow that gave no indication of any imminent move to halt the slide, the problem looks set to continue. However, with income rocketing thanks to high oil prices, the mood is still positive on Doha.



Record profits from oil and gas also, naturally enough, allow for greater investments, and there was news on this front too this week. Expectations, it seems, were also exceeded with the Qatargas-1 station, as Faisal Mohamed al-Suweidi, deputy board chairman and general manager of the Qatar Liquefied Natural Gas Company (Qatargas) announced in Barcelona on November 14. The facility, which Qatargas operates along with Axon Mobil, will produce some 10m tonnes of LNG annually, rather than the 9.5m it was originally thought capable of, thanks to various technological improvements.



This placed the plant well on the way to fulfilling Qatar's stated aim of supplying Europe and North America with a third of their total LNG requirements - some 190m tonnes - by the year 2015. With Qatar's huge natural gas reserves - among the largest in the world - this seems no over-ambitious idea.



Qatargas is also now assessing various sites along the coast of the Gulf of Mexico to establish two facilities for unloading LNG for the North American market.



All of which should do more good for Qatar's balance of trade and budget surpluses. With economic growth also returning good double-digit figures, the country seems well placed to overcome the continuing slide of the greenback.