(MENAFN - The Peninsula) By Satish Kanady I The Peninsula
Qatar's surprise announcement to exit Opec on January 1 after 57 years, citing the country's emphasis on expanding its natural gas production is a message that the country remains committed to pursuing an independent path and focusing on a sector where it is already vying for position as the world's largest producer, rather than remaining in an organization that it sees as irrelevant to its growth plan, Institute of International Finance (IIF) said yesterday.
Qatar has ample physical and financial resources to withstand the blockade tensions; apart from the sovereign wealth fund, the central bank continues to amass foreign reserves, IIF noted in its ‘Qatar Country Report.' IIF believes that the regional rift has been a blessing in disguise in a way, since it has spurred the government to reaffirm its objectives of diversification and private sector development and to accelerate its reforms. It is gradually moving forward with legislation to permit 100 percent foreign ownership of firms in most sectors and favorable tax treatment in a bid to attract FDI, as well as fostering the growth of SMEs by expanding their access to financing and opportunities for participation in PPPs. It is partnering with prominent universities to expand its human capital and gradually encouraging greater participation of women in higher education and visible positions in leadership. In addition, it is developing plans to ensure that the construction associated with the World Cup pays long-term dividends even after the games are over.
IIF expects Qatar's growth to pick up from 1.6 percent in 2017 to 2.2 percent in 2018. Construction activity, funded through years of accumulated oil and gas proceeds and overwhelmingly reliant on a migrant workforce, is likely to remain strong and the main driver of non-hydrocarbon growth, with significant work still underway to complete the infrastructure necessary for the 2022 World Cup.
Meanwhile, hydrocarbon activity, which is dominated by natural gas, is set to rise substantially in 2019, following four years of decline. Qatar Petroleum has announced plans to increase LNG processing and export capacity by over 40 percent (from 77 million tons to 110 million tons annually) over the next five to seven years via the construction of four new LNG trains. The expansion is in its initial stages, but seems plausible; Qatar Petroleum issued a tender in October for the first set of drilling rigs, which are expected to come on board in 2019.
Qatar has the world's largest single natural gas deposits in its North Field, and global LNG demand is surging, so the supply and the market are both in place. As a result, growth in 2019 is projected to increase further to 2.9% driven by the ramp-up in natural gas production.
Given that all countries in the GCC are trying to diversify beyond oil, that they are active investors in each others' markets, and that they can learn from each other's successful endeavors to broaden their economic base, a return to normalized diplomatic relations would be mutually beneficial. IIF sees a likelihood that the rift will be resolved in 2019 under pressure from the United States.