SABB Notes
Research
SABB Notes
March 2008
Qatar:
a gas-fired economy
High growth, high inflation,
big ambitions.
13 March 2008
Dr. John Sfakianakis
Chief Economist
Tel: +966 1 276 4602
Email: johnsfakianakis@sabb.com
This and other publications can be
downloaded from: www.sabb.com
Disclaimer
These Notes should be
read in conjunction with
the concluding Disclosure
appendix and Disclaimer,
which form part of them.
Qatar has the fastest-growing
economy in the Middle East
The gas, construction and financial
services industries continue to boom
But rent, food and wage rises are
fuelling double-digit inflation
Prosperity brings pressures
No GCC country has a faster-expanding economy than
Qatar, with real GDP growth expected to achieve 14.3%
in 2008 and 13.5% in 2009. Indeed, the rate has been
close to 10% for seven years now, during which time
the population of Qatar has risen to 950,000 – around
25% of whom are Qatari citizens, with the rest a mix of
expatriates from various countries.
Qatar’s economy is expected to remain buoyant, as
Qatar’s liquefied natural gas (LNG) industry takes hold
and additional oil capacity leads to increased export
volumes. Output of associated natural gas condensates
will also increase, along with other gas-based industrial
ventures, particularly in petrochemicals. Further
economic growth is being fuelled by an ongoing rise
in domestic demand, mainly due to expansion in the
construction and financial services industries.
Government expenditure will continue to grow strongly
in 2008, as capital programmes in education, health
and transport give the economy a boost. This additional
spending also triggers more private consumption, since
96% of Qatari workers are employed by the state. As far
ahead as 2012, the economic outlook is very strong, with
our forecast for real GDP growth projected to average
over 11% per annum. Fiscally, Qatar will register another
surplus in 2008, even on an oil-price assumption of just
$45 per barrel.
But success comes at a price. Due to sustained expansion,
as well as demand outpacing supply, serious constraints
on capacity have created inflationary pressures. The rise
in inflation in 2007 was again due largely to escalating
rents as a result of housing shortages, as well as high
aggregate demand, and rising wages for both nationals
and expatriates.
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March 2008

Economic Growth

16 100

14
80
12

10 60

(USD bn)
8
%

6 40

4
20
2

0 0
2003 2004 2005 2006 2007e 2008f 2009f

Real GDP (left scale) Nominal GDP (right scale)

Source: Central Bank of Qatar, SABB estimates

Although supply-side pressures could subside in

Stability and security
2008, inflation is still expected to reach 11.5%. In
2009, we expect the supply of housing to achieve a
Given that inflation persists, the authorities in
degree of equilibrium and more new infrastructure
Qatar and across the GCC could attempt to lower
to come on stream. As a result, inflation is
demand pressures by restricting wage increases
expected to fall into the high single digits.
and phasing the implementation of large projects
over the medium term. Qatar can afford to slow
The introduction of a 10% cap on annual rent
down project development as employment
increases for a two-year period was not especially
generation is not the key goal, so much as creating
successful in mitigating rental inflation – and it
labour incentives for Qatari nationals in the private
was phased out in February 2008. Similarly, both
sector. But we still expect that, through 2010,
Abu Dhabi and Dubai have been unable to control
Qatar will see construction projects totalling an
rent rises through capping schemes. But the
estimated $82.5 bn – despite the measures it has
underlying problem of real estate inflation in Qatar
taken to reduce building costs by waiving customs
will be addressed when additional housing units
duty on the import of steel, cement and gravel
come on to the market. The September 2007 price
from outside the GCC.
freeze on wheat flour and wheat products may
even add to inflation, as price freezing
As a result of the construction boom, GCC
could increase demand from consumers, yet
producers have been exporting building materials
discourage suppliers.
to Qatar in search of higher profit margins – which

Inflation Basket Inflation and Money Supply

30 14 50
25 12 40
20 10
15 8 30
%

10 6 20
5 4
0 10
2
-5 0 0
-10 Food, Clothing and Rent, Fuel Furniture, Medical Care Transport and Entertainment,
2003 2004 2005 2006 2007e 2008f 2009f
Beverages Footwear and Energy Textiles and and Medical Communications Recreation
and Tobacco Home Appliances Services and Culture
Inflation (left scale) Money Supply (right scale)
2003 2004 2005 2006

Source: Statistics Department of Qatar Source: Central Bank of Qatar, SABB estimates

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March 2008

Exports, Imports and Current Account

In April 2003, the US Combat Air Operations
Centre for the Middle East was moved from
Prince Sultan Airbase in Saudi Arabia to Qatar’s
90 35
80 30
70
Al Udeib Airbase, south of Doha. Al Udeib acts as
25
(USD bn)

60
50
40
30
20
10
0 0
2003 2004 2005 2006 2007e
Exports Imports
(left scale) (left scale)
Source: IMF, SABB estimates
has led to shortages and market distortion in
their own countries. A case in point is Saudi
clinker exports to Qatar, which created price and
quantity distortions in the Saudi clinker market
during 2007.
As is common across the GCC, recession in the
US economy should not adversely affect Qatar’s
expected growth in 2008. High oil prices will
help the GCC remain decoupled, although we do
believe that Qatar will retain its currency peg to
the US Dollar in the period leading up to GCC
monetary union.
Regarding the exchange rate level, we do not
expect a change in 2008, despite forward-
rate signals to the contrary. Qatari exports are
substantially dependent on hydrocarbons, which
makes the case for revaluation less convincing
at this juncture. The need for a continuing focus on
the US Dollar will be lessened by diversification
away from hydrocarbons, by shifts in the relative
strengths of currencies, by changing trends in
the placement of financial assets, and by the
wider geo-political and security situation across
the GCC.
(USD bn)
20
15
10
a logistics hub for US operations in Afghanistan,
as well as the key command centre for ongoing
5
2008f 2009f operations in Iraq. The Qatar facility is the
Current Account world’s largest pre-positioning base for US
(right scale)
military equipment.
Growing markets for
cleaner fuels
With 14% of all known reserves, Qatar is the
third most gas-rich nation, after Russia and
Iran, and is the world’s largest exporter of LNG.
Indeed, most of the natural gas Qatar produces
is exported in the form of LNG – the majority
currently destined for China, India, Korea and
Japan. Through 2012, Qatar will invest more than
$90 bn in the gas sector, which will result in a
tripling of LNG exports. The LNG programme is
driven by several joint-venture projects, involving
Qatar Petroleum and a variety of major foreign
energy firms, headed by Qatar Liquefied Gas
Company (Qatargas) and the Ras Laffan Liquefied
Natural Gas Company (RasGas).
Meanwhile, oil-production capacity is expected to
reach 1.1 mbpd by 2010, after investments worth
$5.5 bn in the Al-Shaheen field. Qatar’s crude oil
exports are mainly directed to Asia (97% in 2006),
but the country’s reliance on crude oil exports
is expected to decline after oil production peaks
around 2010 and exports of condensates continue
Projected Oil and Gas Exports

In 2006, hydrocarbons accounted for 89% of

total exports and 64% of total export revenues. 100

Downside risks to the robust growth scenario

80
(USD bn)

60
for 2008 include lower oil and gas prices and/or 40

a deterioration of geo-political conditions in the 20

0
Gulf. Qatar enjoys a solid defence partnership 2007 2008 2009 2010 2011 2012

with the US, which serves to support the

country’s sovereignty in the face of regional Crude oil LNG Condensates Propane and butane Others

security worries.
Source: Qatar Petroleum, SABB estimates

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Qatar's Contracted LNG Exports (mtpa)

Destination (Supplier) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales and Purchase Agreements

Japan (Qatargas 1) 6.3 6.3 6.3 6.3 6.4 6.6 6.6 6.6 6.6 6.7 6.7
Korea (RasGas) 4.9 4.9 6.8 8.8 8.8 8.8 8.9 7.0 7.0 7.0 7.0
India (RasGas II) - - 2.5 3.8 5.0 5.0 5.0 5.6 7.5 7.5 7.5
Italy (RasGas II) - - - - - - 3.5 4.7 4.7 4.7 4.7
Spain (Qatargas 1) 1.2 1.1 1.3 2.2 2.6 2.9 2.9 2.9 2.9 2.9 2.1
Spain (Qatargas 1) - 0.1 0.8 0.7 0.5 - - - - - -
Spain (RasGas II) - - - 0.6 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Belgium (RasGas II) - - - - - 2.6 3.4 3.4 3.4 3.4 3.4
Belgium (RasGas II) - - - - - 1.5 2.1 2.1 2.1 2.1 2.1
Taiwan (RasGas II) - - - - - - 1.2 2.5 3.0 3.0 3.0
UK (Qatargas II) - - - - - - 4.5 7.7 7.9 7.6 8.0
France/UK/USA (Qatargas II) - - - - - - - 7.7 7.9 7.6 8.0
USA (Qatargas 3) - - - - - - - 3.5 7.5 7.7 7.7
Total SPAs 12.4 12.4 17.7 22.4 24.1 28.2 38.9 54.5 61.3 61.0 61.0

Heads of Agreement
USA (RasGas 3) - - - - - - 1.0 8.1 10.8 10.2 10.2
USA (Qatargas 4) - - - - - - - - 5.3 5.3 5.3
Japan (Qatargas 4) - - - - - - - - - 0.9 0.9
Total HoAs - - 0.4 0.7 0.7 0.7 1.0 8.1 16.1 16.4 16.4
Grand Total 12.4 12.4 18.1 23.1 24.8 28.9 39.9 62.6 77.4 77.4 77.4

Source: Qatargas, RasGas and QNB

to rise sharply, along with increased production of
low-sulphur diesels through GTL technology. We
estimate that by 2012, crude oil will comprise only
24% of hydrocarbon exports, whereas LNG and
condensates will account for 54%.
The creation of a GCC-wide gas grid originating
in Qatar remains a distinct possibility – and Saudi
Arabia would be one of the main beneficiaries.
The Dolphin undersea natural gas pipeline project
is now operational and connects the gas networks

Anticipated Investment Projects in the Hydrocarbon Sector, 2007–2012

Total cost (USD bn) Expected completion

Gas 90.5
Qatargas 2 (LNG) 13.8 2008 (Q2)
Qatargas 3 (LNG) 8.3 2009 (Q2)
Qatargas 4 (LNG) 8.3 2010 (Q4)
Rasgas, North Field development (LNG) 34.8
Dolphin gas project 3.9 2008–2009
Pearl GTL 19.6 2011
Oryx GTL 1.8 2007

Oil 8.2
New Ras Laffan refinery 0.8 2008
Al Shaheen field EPSA 5.2 2009
Al Shaheen refining project 2.2
Petrochemicals 32.1
Qatofin 1.4 2008
Complex with Honam Petrochemical 4.2 2010–2011
Qafco 15.4 2010
QChem2 2.3 2008
Qapco 0.6 2009–2010
ExxonMobil petrochemicals 3.7 2012
Shell petrochemicals 3.6
GE petrochemicals 2.2

Source: Qatar Petroleum, SABB estimates

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March 2008
of Oman, the UAE and Qatar. The second phase
of the project involves increased volumes of piped
gas to the UAE, whilst gas from Qatar to other
GCC destinations is a possibility for the future
– which could help solve the region’s gas supply
problems in an environment of ever-increasing
demand from the power-generation and other
industries. Currently, Qatar remains contracted to
supply 2 mn cu ft/d to the UAE, despite calls for
an increase to 3.2 mn cu ft/d.
By around 2010, we would expect the Government
to have ended the moratorium (introduced in
2005) on new greenfield gas projects – paving the
way for new LNG and, possibly, GTL schemes.
However, the state-owned Qatar Petroleum has
repeatedly expressed its commitment to ensuring
the careful management of the North Field’s gas
reserves.
Looking ahead, Qatar’s profile in the international
gas market is set to rise further as the global
demand for cleaner forms of energy grows – with
Qatari LNG, a relatively clean fuel, likely to
become increasingly popular. Moreover, Qatar’s
role as an additional exporter to Europe is likely to
improve Europe’s energy security by diversifying
its supply to reduce dependence on Russia.
As a feedstock for industrial development,
natural gas is an economically sound alternative
to the crude oil and fuel oil on which many
plants still rely. Qatar’s construction of a 1.2 mn
t/y aluminium plant is well under way – at an
estimated total cost of $6 bn – and it is expected
to commence partial operations in 2009, becoming
fully operational the following year.
Infrastructure and real estate
Infrastructure projects will continue to be a
blessing that creates domestic demand, as well
as a curse that adds strain to the economy. The
New Doha International Airport, for example,
which will have the capacity to handle 50 million
passengers by 2015, is currently in its first
phase of development and will receive $2 bn of
investment by 2009.
Qatar also continues to expand its capacity to
generate power and 2008 will see the completion
of IPP-2, adding 2,000 MW of power at a cost
of $2 bn.
By 2010, Qatar hotel-room availability in the
luxury sector is set to exceed 8,500 rooms.
Meanwhile, the country’s house-building
programme has gathered significant momentum
since the change in property legislation in 2004
which, for the first time, allowed foreign nationals
to buy one or more houses for 99 years, renewable
for a similar period, in selected housing projects.
Saudi investments in the real estate sector
currently amount to an estimated $1.1 bn and
rising. Construction on the first of these, the
$2.7 bn Pearl-Qatar project, began in 2004
– and on completion in 2009, it will offer luxury
accommodation for 40,000 international residents,
as well as schools, shops, restaurants and several
marinas.
Work on a larger project has also started: the $6 bn
Lusail development will eventually house around
200,000 people. Finally, work on Al Khor multi-
residential scheme is also under way, with an
estimated total project cost of $5 bn.
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Sovereign wealth Singapore’s Raffles Medical Group. It also made a

joint-investment with Dubai International Capital
The Qatar Investment Authority (QIA) was to secure a 3.12% stake in EADS. In the UK,
established in 2000, under the control of the Qatari investments include the acquisition of four leading
Government. It has invested assets of $65 bn chains of nursing homes for approximately $5 bn.
– predicted to rise to $105 bn by 2010.
Within its own country, QIA has a 50%
Besides the recent investment in Credit Suisse shareholding in the Qatar National Bank and
(less than 3%), QIA has acquired a near-10% owns 50% of Qatar Telecom. We expect that
holding in the Nordic Exchange OMX, almost QIA will continue to diversify its investments
24% of the London Stock Exchange and 5% in throughout the region and the world, as well as
within Qatar itself.

Qatar: Macro Data and Forecasts

2003 2004 2005 2006 2007e 2008f 2009f

GDP
Nominal GDP (USD bn) 23.2 32.1 42.4 52 63.8 74.1 89.4
Real GDP (%) 6.5 6.5 9 9.6 13.8 14.3 13.5

Expenditure on GDP (% real change)

Private consumption 6.4 33.6 28.3 16.0 14.5 12.5 10.0
Government consumption -1.1 -3.7 12.5 10.0 8.5 8.2 8.1
Gross fixed investment 84.3 3.1 51.0 12.5 12.7 10.1 8.8

Population and income

Population (mn) 0.7 0.7 0.8 0.85 0.9 0.95 1.2
GDP per capita (nominal) USD 33.141 45.850 53.192 61.173 70.884 78.157 74.569
Recorded unemployment (average %) 2.5 2 1.5 0.9 0.7 0.6 0.5

Fiscal indicators (% of GDP)

Central Government revenue 35.4 47.9 42.4 42.3 44.1 43.2 38.8
Central Government expenditure 31.5 31.4 31.2 33.6 34 34.9 32.2
Central Government balance 3.9 16.5 9.2 9.7 7.5 8.3 6.6
Net public debt 41.3 27.9 19.5 15 12.7 11.2 9.8

Prices and financial indicators

Exchange rate QR : USD (end-period) 3.64 3.64 3.64 3.64 3.64 3.64 3.64
Consumer prices (end-period %) 2.5 7.1 8.9 12.8 12 11.5 9.8
Broad Money supply M3 5 20.8 42.9 39.6 43.3 35.1 29.7
Lending interest rate (average %) 4.7 4.9 6.4 7.3 7.7 7.7 8.1

Current account (USD bn)

Goods exports 14.7 20.7 27.4 38.8 50.3 65.6 79.3
Of which: Crude oil 7.5 9.7 14.1 17.8 22.7 26.1 24.8
LNG and related exports 4.6 6.5 8.7 13.3 18.2 20.8 19.9
Goods imports 6.7 8.3 13.3 21.3 26.7 36.4 48.1
Current account balance 5.9 7.1 14.2 16.4 22.3 27.5 30.2

External debt (USD bn)

Debt stock 13.4 15.6 22.4 28.6 33.1 39.5 44.6
Debt service paid 3.9 1.9 2.8 3.1 3.8 4.1 4.8
Principal repayments 3.4 1.6 1.8 1.8 1.9 2.1 2.6
Interest 0.4 0.4 0.8 1.3 1.7 1.6 1.7

International reserves (USD bn)

Total international reserves 3.0 3.4 4.6 5.4 10.2 11.9 12.4

Net foreign assets (USD mn)

QCB 2.873 3.359 4.555 5.410 6.496 7.398 8.102
Source: IMF, International Financial Statistics, Qatar Central Bank (QCB), SABB estimates and forecasts
e: SABB estimate, f: SABB forecast

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Notes

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Disclosure appendix
Analyst certification
The following analyst, who is primarily responsible for this report, certifies that the opinion(s) on the subject security(ies)
or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal views and that no part of their
compensation, was, is or will be directly related to the specific recommendations or views contained in this research report:
Dr. John Sfakianakis.

This report is designed for, and should only be utilised by, institutional investors. Furthermore, SABB believes an investor’s
decision to make an investment should depend on individual circumstances such as the investor’s existing holdings and other
considerations.

Additional disclosures
1 This report is dated as at 13 March 2008
2 All market data included in this report are dated as at close 11 March 2008, unless otherwise indicated in this report.
3 SABB has procedures to identify and manage any potential conflicts of interest that arise in connection with its Research
–––business. A Chinese Wall is in place between the Investment Banking and Research businesses to ensure that any confidential
–––and/or price-sensitive information is handled in an appropriate manner.

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March 2008

Disclaimer
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that information to be reliable. However, SABB does not guarantee its completeness or accuracy. The opinions expressed are subject to change
without notice and SABB expressly disclaims any and all liability for the information contained in this report.

The report only contains general information. It should not be construed as an offer to sell or the solicitation of an offer to purchase or
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information contained in this report.