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Satyendra Pathak
Doha
Qatar’s renewed Liquefied Natural Gas (LNG) expansion plans could have important economic and market implications over the medium-term and the country’s economy could double in size with nominal GDP reaching $300 billion by 2027, BofA Global Research has said in a report released on Thursday.
“Qatar Petroleum (QP) is planning to increase LNG production capacity in 2027 by 63 percent to 126mtpa. We estimate the economy could now double in size. This is likely to boost sovereign creditworthiness, economic activity and twin surpluses,” the report said.
“We expect the LNG expansion plans to boost real GDP growth and fiscal surpluses to high-single digits and mid-single digits on average over 2021-27. We estimate the LNG investment pipeline could boost non-hydrocarbon real GDP growth by 1.5 percent per annum, bringing it to average 5 percent over the 2022-27 period,” the report said.
“Qatar’s LNG strategy appears to be focused on defending and, in due course, growing its market share. We estimate its existing LNG contract rollovers start from 2022 onwards. Qatar’s structural cost advantage makes it well-positioned to retain its pre-eminent supplier position, while allowing for greater flexibility in contract pricing,” it said.
“The North Field East (NFE) project is a $28.75 billion expansion plan to raise production capacity by 42 percent to 110mtpa by 2027. First gas under the expansion project is to be produced from the first quarter of 2025, and each of the four 8mtpa LNG trains will start operating at 3- to- 6 months intervals such that the project would be fully commissioned by end of 2026 or early-2027,” the report said citing QP officials.
“The second phase of the planned LNG expansion, the North Field South (NFS) project, would further increase LNG production capacity from 110mtpa to 126mtpa by 2027, and would involve a further two 8mtpa LNG trains. The cost of the NFS project is not announced yet and the timeline could slip further, as only the first expansion phase (NFE project) received Final Investment Decision (FID) for now,” the report said.
“The North Field Expansion could allow for capacity expansions in the domestic chemicals sector due to greater availability of feedstock. However, beyond the Qatar Petroleum- Chevron Phillips Chemical (QP-CP Chem) new ethane cracker, we note that there are currently no other capacity additions planned in the chemical sector in Qatar that would utilize gas feedstock from the North Field Expansion. We remain bullish on Industries Qatar (IQ) due to our expectations for a robust fertiliser pricing outlook,” the report said.
“We maintain our ‘Buy’ on IQ mainly due to a continued solid fertiliser pricing outlook in the second half of this year. The shares trade on a 12-month forward price-to-earnings ratio, while offering a 12-month forward dividend yield of 5.2 percent, 20 percent higher than the sector average of 4.3 percent,” the report said.
“Based on our estimates, the fertiliser segment contributes 62 percent to Net Asset Value (NAV), after the mothballing of the steel furnace related to international operations last year, as well as the increase in Qatar Fertiliser Company stake to 100 percent. We estimate petrochemicals and the steel segments contribute 32 percent and 6 percent to the NAV respectively,” it said.
“IQ has no new capacity expansions planned over the period 2021-25. We believe its strong balance, with a net cash position of QR8.8 billion as of the first quarter of 2021 is likely to help it sustain robust dividends, with an average dividend payout ratio of 90 percent over 2021-23,” the report said.
“We are also bullish on Qatar National Bank (QNB), having upgraded our recommendation to ‘Buy’ from ‘Underperform’. We see Qatar entering a period of accelerated growth on the back of multiple factors. QNB, being the national banking champion, should be a key beneficiary, with earnings expected to grow at 15 percent Compound Annual Growth Rate (CAGR) to 2025,” the report said.
More specifically, the report said, it sees Qatar’s economic recovery accelerating in the coming years, with real GDP growth set to reach 7 percent CAGR (2021-25), the highest among the Middle East - North Africa (MENA) markets that BofA covers.
“In particular, we see this driven by accelerating natural gas investments in upstream, LNG and other downstream projects, a strong response to the pandemic with limited new cases, the upcoming World Cup 2022 and in the medium term, possibly improving relations with the GCC which could spur stronger growth opportunities for QNB and other Qatari companies,” it said.
“We have a Marketweight rating on Qatar. The country enjoys a strong balance sheet, with a low breakeven oil price against other GCC countries. However, spreads are tight on an absolute basis making bonds vulnerable to higher UST yields. Downside risks come from lower oil prices and geopolitical risk escalation. Upside risks are primarily linked to higher oil and a decline in tensions with the GCC and Iran,” the report said.
Doha
Qatar’s renewed Liquefied Natural Gas (LNG) expansion plans could have important economic and market implications over the medium-term and the country’s economy could double in size with nominal GDP reaching $300 billion by 2027, BofA Global Research has said in a report released on Thursday.
“Qatar Petroleum (QP) is planning to increase LNG production capacity in 2027 by 63 percent to 126mtpa. We estimate the economy could now double in size. This is likely to boost sovereign creditworthiness, economic activity and twin surpluses,” the report said.
“We expect the LNG expansion plans to boost real GDP growth and fiscal surpluses to high-single digits and mid-single digits on average over 2021-27. We estimate the LNG investment pipeline could boost non-hydrocarbon real GDP growth by 1.5 percent per annum, bringing it to average 5 percent over the 2022-27 period,” the report said.
“Qatar’s LNG strategy appears to be focused on defending and, in due course, growing its market share. We estimate its existing LNG contract rollovers start from 2022 onwards. Qatar’s structural cost advantage makes it well-positioned to retain its pre-eminent supplier position, while allowing for greater flexibility in contract pricing,” it said.
“The North Field East (NFE) project is a $28.75 billion expansion plan to raise production capacity by 42 percent to 110mtpa by 2027. First gas under the expansion project is to be produced from the first quarter of 2025, and each of the four 8mtpa LNG trains will start operating at 3- to- 6 months intervals such that the project would be fully commissioned by end of 2026 or early-2027,” the report said citing QP officials.
“The second phase of the planned LNG expansion, the North Field South (NFS) project, would further increase LNG production capacity from 110mtpa to 126mtpa by 2027, and would involve a further two 8mtpa LNG trains. The cost of the NFS project is not announced yet and the timeline could slip further, as only the first expansion phase (NFE project) received Final Investment Decision (FID) for now,” the report said.
“The North Field Expansion could allow for capacity expansions in the domestic chemicals sector due to greater availability of feedstock. However, beyond the Qatar Petroleum- Chevron Phillips Chemical (QP-CP Chem) new ethane cracker, we note that there are currently no other capacity additions planned in the chemical sector in Qatar that would utilize gas feedstock from the North Field Expansion. We remain bullish on Industries Qatar (IQ) due to our expectations for a robust fertiliser pricing outlook,” the report said.
“We maintain our ‘Buy’ on IQ mainly due to a continued solid fertiliser pricing outlook in the second half of this year. The shares trade on a 12-month forward price-to-earnings ratio, while offering a 12-month forward dividend yield of 5.2 percent, 20 percent higher than the sector average of 4.3 percent,” the report said.
“Based on our estimates, the fertiliser segment contributes 62 percent to Net Asset Value (NAV), after the mothballing of the steel furnace related to international operations last year, as well as the increase in Qatar Fertiliser Company stake to 100 percent. We estimate petrochemicals and the steel segments contribute 32 percent and 6 percent to the NAV respectively,” it said.
“IQ has no new capacity expansions planned over the period 2021-25. We believe its strong balance, with a net cash position of QR8.8 billion as of the first quarter of 2021 is likely to help it sustain robust dividends, with an average dividend payout ratio of 90 percent over 2021-23,” the report said.
“We are also bullish on Qatar National Bank (QNB), having upgraded our recommendation to ‘Buy’ from ‘Underperform’. We see Qatar entering a period of accelerated growth on the back of multiple factors. QNB, being the national banking champion, should be a key beneficiary, with earnings expected to grow at 15 percent Compound Annual Growth Rate (CAGR) to 2025,” the report said.
More specifically, the report said, it sees Qatar’s economic recovery accelerating in the coming years, with real GDP growth set to reach 7 percent CAGR (2021-25), the highest among the Middle East - North Africa (MENA) markets that BofA covers.
“In particular, we see this driven by accelerating natural gas investments in upstream, LNG and other downstream projects, a strong response to the pandemic with limited new cases, the upcoming World Cup 2022 and in the medium term, possibly improving relations with the GCC which could spur stronger growth opportunities for QNB and other Qatari companies,” it said.
“We have a Marketweight rating on Qatar. The country enjoys a strong balance sheet, with a low breakeven oil price against other GCC countries. However, spreads are tight on an absolute basis making bonds vulnerable to higher UST yields. Downside risks come from lower oil prices and geopolitical risk escalation. Upside risks are primarily linked to higher oil and a decline in tensions with the GCC and Iran,” the report said.
