PAK-QATAR COOPERATION FOR MUTUAL BENEFITS
SHABBIR H. KAZMI
Mar 22 - 28, 2010
At present, Pakistan suffers from one of the worst energy crises in the history. On the one hand demand for oil, gas and electricity has exceeded supply and the country does not have resources to expedite exploration and production of fossil reserves and enhance power generation capacity on the other.
Cooperation between Qatar and Pakistan bodes well for both the countries. Qatar can provide much needed capital as well as oil and gas to Pakistan. Direct investment in oil and gas projects and downstream industries of Pakistan offer opportunities to earn modest return on investment. In order to understand the potential it is necessary to understand Qatar's economy and then find ways to develop synergy.
Qatar, a former pearl-fishing centre and once one of the poorest Gulf States, is now one of the richest countries in the region thanks to the exploitation of large oil and gas fields since the 1940s. Qatar can be rightly termed as the Saudi Arabia of natural gas. Qatari's wealth and standard of living can be compared with those of Western European states. Qatar has the highest GDP per capita in the Arab world according to the International Monetary Fund and the second highest GDP per capita in the world according to the CIA World Factbook. With no income tax, Qatar, along with Bahrain, is one of the countries with the lowest tax rates in the world.
Qatar has maintained its economic growth over the last many years. Qatari authorities throughout the latest financial crisis tried to protect the local banking sector with direct investments into domestic banks. The drop in oil prices in late 2008 and the global financial crisis reduced Qatar's budget surplus and slowed the pace of investment and development projects in 2009, but GDP growth still registered more than 9% for the year and will likely rebound in 2010.
Economic policy is focused on developing Qatar's no associated natural gas reserves and increasing private and foreign investment in non-energy sectors, but oil and gas still account for more than 50% of GDP, roughly 85% of export earnings, and 70% of government revenues.
Oil and gas have made Qatar the second highest per-capita income country and the world's second fastest growing economy. Proven oil reserves of 15 billion barrels should enable continued output at current levels for the next 37 years. Qatar's proven reserves of natural gas exceed 25 trillion cubic meters, about 14% of the world total and third largest in the world.
The Qatari economy is, to a very large extent, dependent on income derived from the exploitation of oil, natural gas and subsidiary industry, which accounts for more than 90% of annual exports. Cheap energy has led to the development of a steel and iron industry, and healthy gas reserves have led to the establishment of chemical, fertilizer, and petrochemical industries. Cement is also produced in Qatar.
The Qatar Financial Centre (QFC) provides financial institutions with world class services in investment, margin and no-interest loans, and capital support. These platforms are situated in an economy founded on the development of its hydrocarbons resources, specifically its exportation of petroleum. It has been created with a long term perspective to support the development of Qatar and the wider region, develop local and regional markets, and strengthen the links between the energy based economies and global financial markets.
UTILIZING LOW COST GAS
Pakistan, an energy deficient country, is surrounded by countries like India, China and Afghanistan, which also have limited/scarce energy resources. Gas offers the most cost efficient and environment friendly option. Pakistan intends to import gas and has two options, import of liquefied natural gas (LNG) or pipeline. Since Pakistan enjoys proximity with Iran, import of gas through pipeline may be the best proposal.
Pakistan is also working on an LNG terminal and Qatar has the potential to become a major provider of LNG. To get some say in the management Qatar can also take equity stake in the project and/or help Pakistan in mobilizing the resources. Export of gas from Qatar to Pakistan can also facilitate already working chemical fertilizer plants of Pakistan to expand their installed capacities. One of the reasons for hardly any addition of new production capacity is limited supply of gas and GoP's unwillingness to maintain uniformity in price for at least ten years.
During year 2009, Pakistan imported over 1.5 million tons of urea, up 18% compared to 2008. Though expansion at Agritech and Engro is going on and Fatima fertilizer has also started production, the country still needs to add two million tons urea production capacity to achieve self sufficiency in urea production. Uninterrupted supply of urea at attractive cost is necessary for achieving food security and also accelerating GDP growth rate.
In past, one of the Pakistani urea manufacturers explored the option of setting up a fertilizer unit in Qatar but failed in making it a reality. The only problem was gas price. Since a decade has passed and many of the ground realities changed revisiting the project may not be a bad idea. Pakistan offers a ready urea market growing at above 10% per annum.
Pakistan's strategic location also allows it to become energy corridor. Since the country has an elaborate gas transmission and distribution network additional quantity of gas can be injected and delivered to India and China. The system could be further revamped to handle the additional supplies.
Refineries operating in Pakistan need BMR and additional refining capacity is also needed to produce exportable surplus. Though, work on a few refineries is going on it needs to be expedited. Pakistan has a mid-country refinery and one pipeline each for carrying black and white oil products dispatching refined products to India, Afghanistan and China and even to Iran offering win-win situation for both Pakistan and Qatar.