Qatar Receives Ratings Boost As It Makes The Most Of Surging Gas Demand

Fitch Ratings has revised its outlook on Qatar’s AA- credit rating from stable to positive, citing the expected strong growth in the country’s gas exports in the coming years.

Qatar is currently investing heavily in a massive expansion of production capacity at its giant North Field, just as demand for natural gas is surging in key markets around the world.

The ratings agency said on March 28 that it expected the first phase of this expansion to start making a full impact on revenues from 2026, with a second phase kicking in the following year. The higher volumes from the North Field should help to bring down the hydrocarbon price the government needs to balance its budget – known as the fiscal breakeven point – to less than $50 a barrel, from $57-58 a barrel at the moment.

That should leave the government in a very comfortable position, even if oil prices do fall as expected in the coming years.

The decision by Fitch echoes one by Moody’s Investors Service in November, just before the country was about to host the football World Cup.

That tournament brought some unwanted attention to the country’s human rights record. A group of union federations recently said that what progress was made before and during the World Cup is now being diluted.

From the perspective of the Qatari exchequer, the end of the World Cup has meant there is no longer the same pressure to invest heavily in transport, hotels, sports stadiums and other related infrastructure. And while Fitch said the government was “likely to find new spending outlays aimed at diversifying the economy”, it still expects Qatar to run a budget surpluses under its long-term oil price forecast of $53 a barrel.

The expansion of output at the North Field will boost Qatar Energy’s liquefied natural gas (LNG) production capacity from 77 million tonnes a year at the moment to 110 million tonnes by 2025 and 126 million tonnes by 2027. The project is expected to cost some $12.5 billion, which will be paid for, in part at least, by bond issuances.

Nonetheless, Fitch points out that Qatar’s overall debt to GDP ratio continues to fall, having dropped from a peak of 85% in 2020 to around 45% this year and an anticipated 42% next year. With a strong flow of revenues, the government is opting to repay debts as they mature, rather than roll them over. Some $7.5 billion is due for repayment this year and a further $4.8 billion in 2024.

The end of the World Cup has contributed to a slowdown in the local economy – Fitch reckons Qatar’s gross domestic product (GDP) will expand by just 0.7% this year, compared to 4.8% in 2022, the year the tournament was held.

However, it points to the positive impact of a lessening of geopolitical tensions in the region, following the end of the 2017-21 boycott of the country by its neighbours Bahrain, Saudi Arabia and the UAE. Fitch also notes that “Qatar’s importance in global energy markets is being magnified by Europe’s push to reduce its dependence on Russian gas” and that Doha has also successfully positioned itself as a mediator between Western powers and the regimes in Iran and Afghanistan.