Qatar's commodity empire

10 September 2012
Go with what you know - that seems to be Qatar's motto as it unveils ambitious plans to dominate the global resources sector.

Not content with being home to the world's third largest natural gas reserves and the largest producer and exporter of liquefied natural gas, apart from being an important OPEC crude producer, Qatar is making a big play to acquire stakes in resource and hydrocarbons companies.

The resource sector is just one of the many focus areas for Qatar's sovereign wealth funds. profile on Qatar Investment Authority shows a who's who of blue-chip company that Qatar has a stake in.

These include: Volkswagem AG, Porsche SE, Lagardere, Agricultural Bank of China, Harrods, Barclays, Iberdrola and Canary Wharf Group, among others.

But, while the other blue-chip investments highlights Qatar's penchant for trophy assets that are underperforming, the play for resource assets shows its strategic effort to corner a significant segment of that sector.

Qatar has reportedly bought a stake in 3% France's Total SA, and has been interested in acquiring stake in Italy's Eni, according to media.

It has also reportedly invested up to 5% in Royal Dutch Shell, and according to MEES, the country is planning to be the oil giant's largest stakeholder.

Shell earned Qatar's trust after spearheading the country's gas-to-liquids project. Pearl GTL is the world's largest plant to turn natural gas into cleaner-burning fuels. It is making steady progress in ramping up production, after selling first commercial shipment of GTL Gasoil in June 2011, according to Shell.

The USD18-billion project was widely seen as Shell's big bet on Qatar's natural gas sector, which seems to be paying off.

A stake in Shell allows Qatar great access to The Hague-based Anglo Dutch company's resources and technology expertise that span the globe. Shell is planning to begin exploring in the U.S. Arctic, which allows the company access to millions of largely undiscovered oil and gas deposits.

The company also recently started the United States largest refinery in partnership with Saudi Aramco, and while the project has run into logistical issues after just a few days of commencement, in the long-term it allows Qatar a stake into Shell's significant interest in the resurging American energy sector.

Shell is also active in the Russian Arctic to exploit natural gas reserves and oil deposits.

In addition, Shell appears to have exclusive access to shale gas development in China, whose shale gas reserves are estimated to be the largest in the world.

According to Shell, some of its key projects under construction include:
United States: Mars B Field is located in the Gulf of Mexico. Production is set to start around 2015 and will eventually produce 100,000 barrels of oil equivalent (boe).

United States: Shell is also developing Cardamom oil and gas field in the Gulf of Mexico. The Cardamom project is estimted to produce 50,000 boe a day.

Malaysia: The Gumusut field offshore Malaysia lies in deep water, with Shell taking a 33% interest.

United States: Shell owns 50% of Motiva; the remaining 50% is owned by Saudi Aramco, which recently expanded the Port Arthur Refinery in Texas by 325,000 barrels per day (bpd), taking total capacity to 600,000 bbl/d.

Global: Of special interst to Qatar is Shell's floating liquefied natural gas facility (FLNG) - the first in the world. "This will help to unlock new energy resources offshore and has the potential to revolutionise the way natural gas resources are developed," the company says.

Shell also has massive investments in Canadian oil sands, and is developing a liquefied natural gas in the west coast of the country with Asian partners. In addition, its investments in Nigeria, offshore Brazil apart from its interests in Europe, give it's the breadth and scope Qatar is looking for in its investments.

While Qatar is currently the pre-eminent LNG supplier, rival Australia's LNG sector is expected to takeover its production by 2020. Shell has LNG and natural gas projects in Australia, which is ideal for Qatar's long-term planning and matches the Gulf country's ambition to have a strong presence in virtually all the key hydrocarbon resources.

More contentiously, Qatar has invested 12% in resources giant Xstrata, which has made the country a key obstacle to resource company Glencore's USD36-billion bid for the Swiss company.

Zug, Swiss-based Xstrata is widely seen as one of the largest producers of alloy used in steel. It is also the largest exporter of 'seaborne thermal coal' and the world's fourth largest global copper producer. The company is also seen as the one of the lagest producers of nickel, cobalt and zinc, giving Qatar influence in the commodity and metals sector across the world. Equally crucial for Qatar is Xstrata's technological expertise in mining which makes it a very attractive proposition for the Gulf state.

Qatar's battle with Glencore to get a better bid for Xstrata also suggests the country is no longer willing to be a silent investor but may aspire to be a more activist stakeholder in future. That's a clear break from Gulf sovereign wealth funds which are historically seen as quiet, deep-pocketed investors. That may change as Qatar continues its march as one of the world's most influential investors.

Qatar's near-insatiable appetite for strategic assets seems likely to continue as the country benefits from strong natural gas revenues.

"Key to this financial strength are the revenues flowing to the state from increased hydrocarbons exports," notes Andrew Gilmour and James Reeve, deputy economists at Samba in a report. "These have more than tripled between 2005 and 2011 when they reached $98 billion, driven by a surge in exports of LNG, condensates, propane, butane and refined petrochemicals. Strong oil prices have also boosted oil earnings despite some reported troubles with maintaining output levels. While future levels will fluctuate with price movements, Qatar can now look forward to total export earnings of around $100 billion a year."

The country also has USD171-billion in total foreign assets, with external debt reaching USD130-billion, according to the Institute of International Finance and Samba data.

While Qatar's economy benefits immensely from long-term contracts for its LNG deals, it will be worth keeping an eye on the country's rising external debt.

"Qatar's external debt has risen rapidly in recent years, jumping from $20 billion in 2005 to nearly $130 billion in 2011," wrote the Samba analysts. "Much of this reflects increased government and bank borrowing stemming both from the 2008-09 global crisis, and from the rising infrastructure funding needs of the NDS [national development strategy]."

Such a fiscal cushion ensures Qatar's drive to build a formidable natural resources empire will only gain traction at least in the medium term.

© 2012

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