Crude Oil Exploration in Qatar - Case Study Example

Oil Crude in Qatar Student’s Name Institution Affiliation Date Introduction Crude oil can be referred to as naturally petroleum that is unprocessed. Petroleum consists of crude oils but under temperature conditions and high pressure it can produce gases, liquids and other solid hydrocarbons1. Qatar is the prevalent exporter of LNG or liquefied natural gas in the globe. The exportation of LNG, petroleum products and crude oil provide a noteworthy portion of the government resources. The first oil exploration was done in 1935 by Anglo-Iranian Oil Co (AIOC). Qatar relies greatly on the energy sector to run its economy. Qatar earning from the sector contribute to the country government revenue to a tune of 49% according to the 2014 statics. In a day, Qatar generate 2.1 million barrel of petroleum and other liquids in the year 2014. In the 2.1 million, 1.5 million consisted of crude oil while 0.6 of the remainder was non crude oils2. Sector Organization The sector of gas and petroleum exploration is controlled by Qatar Petroleum. It is headed by the Minister of Energy and Industry Mohammed Bin Saleh and managing director Saad Al Kaabi. They control all activities that involve storage, production, its transportation and sale of crude oil. Qatar Petroleum is responsible for restructuring the program so as to increase their efficiency through reduction of costs. The measures they take towards restructuring of the sector has impact on the domestic and international business in the energy zone. Exploration and Production There are three major oil fields that account for eighty five percent of the crude oil in Qatar. The most recent discovery was on 1994 at the Al Rayyan field. The increase in supply of the crude oil is due to existing fields. That is normally done through improved oil recovery procedures. The operators have used the improved techniques in various fields such as Dukhan, Idd al-Shargi and Al Shaheen that combines more than 85 percent of the nation capacity. In 2014, crude oil and other liquids was 2.1 million that was 64 percent up from the 2005. The daily production of crude oil in Qatar is 1.5 million daily. The earlier government production capacity of crude oil to a target of 1.2 million per day is no feasible. However, that is even after the heavy investment in more enhanced techniques. The development plan of the Qatar petroleum has sturdy output in the production of crude oil. It has proven uneconomic to further invest in production of more crude oil in the recent price milieu. Imports and Exports It is the third smallest crude oil exporter among OPEC members according to the statistics in 2014. It is only ahead of Libya and Ecuador in the ranking3. Qatar doesn’t import crude oil but sporadically they import petroleum products. That is because of the rising domestic demand that fails to be quenched by the nation’s production. The natural gas that is produced in Qatar is enough for the energy demand of the nation. That gives an opportunity for Qatar to export their crude oil and petroleum products. The tree major terminals that Qatar uses to export their petroleum products include Ras laffan, Halul Island and Umm Said. In 2014, Qatar exported a daily approximate of 595,000 barrels of crude oil. In the year 2014, the crude oil was sent to Asian countries. More than 60 percent of the crude oil was exported to Japan. It should be noted that Qatar has three major crude streams. They include; Al Shaheen, Qatar Land and Qatar Marine. The latter two streams produce lighter crudes while the former Al Shaheen stream produces a heavy blend. The Qatar Land’s has lower sulfur content as compared to Qatar Marine and Al Shaheen streams. Refining and Consumption The refining capacity of Qatar is much greater than its domestic requirement for the petroleum products. That enables the nation to export its refined products. The petroleum consumption of Qatar rose to 230,000 barrel per day in 2013 from 82,000 in 2004. Qatar operating refineries consist of two stations that have a combined refining capacity of crude oil to a tune of 338,700 barrel per day. The output of the two stations is enough to quench the domestic demand of petroleum products in the country4. Political and Economic view of Qatar Qatar has embarked on a mission to restore their economical and political landscape away from a conservative society. There is a lot of modernization in Qatar since 1995 when the Emir, Shekh bin Khalifa took power. He has been in the lead to ensure that Qatar is open to the global markets. The Emir has created stronger links with the US that is built on peace and stability, cultural exchanges and trade and investment. The county is an ardent member of OPEC. Their economic growth and potential to expand is stunning. It is among the countries that has a high GDP of $30,000 in the world. They have diversified their wealth and economic standing to products that are beyond hydrocarbons. However, their economy is driven by resources from natural gas and oil revenues. The country earns resources from oil production. Their capacity is around 800,000 of barrel daily. The oil reserve is estimated to be 14 barrels. In the current production, that can last for more than 50 years. Macroeconomic Snags Inflation volatility – The stable oil prices has led to stability in the economy. In the last five years, inflation has been restrained. The inflation is expected to go up to 3.8 percent in 2015 but it is a manageable situation. The chief risk in this stance is influenced by volatility of oil prices. That is seen in the projection of inflation in the Ministry of Finance in Qatari that expects 3% inflation in 2014 and 3.4% in 2015. The US Dollar has put limits on the ability of the Qatar bank to use interest rate to handle inflation5. The inflation can be managed by Qatar Central Bank by intensifying the capital markets and widening their liquidity framework. That will increase the strength of monetary policy that will aid battle the threat of potentially unstable inflation. Diversification of government resources – There is a vision 2030 goal by the Qatar government to fund 100 percent of their project with revenue derived from non-hydrocarbon. The extent and magnitude of the diversification job is colossal. The growth of non-hydrocarbon has a striking rate of 12 percent in the period of 2008-2013 but that is subdued by a 20 percent increase in revenue from petroleum products that include crude oils. The gap can be reduced by introducing reforms to the revenue base in order to diversify their resources and revenue6. Management of government expenses – There are a lot of contracted project including the 2022 World cup that will happen in Qatar. The contracts run to a tune of $100 billion of infrastructure inform of pre-execution contracts in the next three years. The government will manage about 40 percent of the projects. To manage such kind of contracts, Qatar ought to develop the best expenditure and forecast management capabilities. That will aid to control the cost overruns that are connected with infrastructure projects. A notable amount of financing the projects is derived from the sale of crude oil. Workers Strike In 1950s and 1960s, there was a number of unrest by oil workers in the refineries companies. That was majorly due to varied working hours and wages that led to the introduction of labor rules and conventions in the State of Qatar. The strikes were also attributed to firing of workers due to minor mistakes. The unrest has however been stopped by the introduction of a labor department that seeks to address issues affecting the country. Business situation in Qatar There is great of hope among the business community in the country of Qatar. The country is seeking to have high skilled populace through transformation of hydrocarbons wealth. The wealth that is derived from resources such as crude oil is well utilized for the growth of the country’s economy. Contracts are awarded in fair and just manner while the level of criminal activities is reduced. The industrial standards in Qatar are favorable in the export of their products. They have no foreign exchange in the control of their products thus contributing to a steady currency. Their financial institutions such as Qatar National Bank are well-capitalized. In addition, the country allows foreign ownership in the field of energy, infrastructure, health and exploitation of resources to up to 100 percent as long as the Qatar Government gives its approval. Demerits of its Growth Qatar is an up-and-coming market in crude oil business7. Thus, has its share of growing pain. The growth of the economy is sometimes faster than the formulation of the necessary laws and procedure so as to safeguard the operation of the business. There is also the skyrocketing cost of rent due to economic growth and the increase of foreign workers in Qatar. However, their relation with the US provides assistance that addresses the problems that accrue to the State of Qatar. The US Qatar Trade The exports of the US to Qatar in 2004 amounted to $423 million. The growth of the exports has increased to up to 200 percent in a period of five years. Among the greatest contributors of the growth is the world demand for petroleum products8. The benefits that Qatar derives on its collaboration with the US include petroleum drilling, gas turbines and radio communication equipments. The US also accrues advantage from their relation due to the diversification and remarkable economic growth. The high quality furniture from America is useful in Qatar’s hotel and residential growth, expansion of education and construction of hospitals. The IT and telecommunication devices from the US is on high demand due to Qatar modernization and upgrade, education and initiatives to adapt e-government. The largest component of exports to Qatar is the American automobiles and vehicles. The cars from US are popular in Qatar. Opportunity of growth The largest reserves of oil in Qatar are found in Dukhan field. However, there are other vital fields such as Bul Hanine and Maydan Mahzam. There will be drilling of more than 119 new wells in the two fields that will assist to boost the production of oil in Qatar. The major player in the new development consists of companies such as Total, Royal Dutch/Shell, Maersk Oil and Chevron Texaco. To realize this, the companies are supported by American energy experts. They have predicted a rise in the prices of oil. The thirst for crude oil and other products by the American makes the Qatar and US relationship tight. Rules that guide crude oil business in Qatar There are rules and regulations that guide both domestic and foreign companies that operate in the country. The paper summarizes the rules and guidelines. The rules also guide on the crude oil business in the state of Qatar. Tax – There are other business that goes hand in hand with exploitation of oil. Such companies include those that operate in transportation and communication sectors. They should know that operating a business in Qatar requires some tax. However, there is no personal income tax. There are also some tax exemptions mostly on those activities that has a direct impact or significance to the people of Qatar. Those activities are those that incorporate technology that is modern and also those that achieve a strategic goal of the state9. Documentation – There is a requirement of goods that are shipped in to Qatar. Those documents include commercial invoices, packing lists and shipping document. The legalization of the documents is normally done in the embassy of Qatar. Such goods include machinery for exploration of the oil10. Importing and Exporting of crude oil – For any cargo entering Qatar, they have to pay 5 percent as custom duty. The normal period that it takes to clear goods by air is 1 to 2 days and 2 to 4 days by sea. Banking – There are a total of 15 banks in Qatar. There are regulations that controls and administer regulations. There is a lot of confidence on the banking systems of Qatar. Before foreign investors invest in the banking industry they have to get permission from the government. The bank facilitates the interaction and trade of petroleum products. Labor – Foreigners must have a valid work permit that has been issued by the Qatar Department of Labor. The labor law stipulates the rights of employees and employers; it gives priority of getting jobs to the citizens of Qatar; and poses obligations to employees and employers. Driving – The foreigners can get a six month temporary driving license to operate in Qatar. That is done after the certification of a passport and original driver’s license from the country of nationality. However, there is a requirement of an eye exam. Land – The foreigners are not allowed to own land in Qatar. That is however not binding to real estate project such as the Pearl of the Gulf. The US firms has a privilege of renting land in a long-term relationship of more than 40 years11. That is to enable them complete certain projects. Conclusion The crude oil provides a notable revenue and resource basket in the State of Qatar. The state relies mostly on the energy sector to run their economy. However, the non hydrocarbon also provides a significant portion of the government revenue. The Qatar petroleum regulates all the sector of the petroleum production. After years of turmoil, the country is back to political and economic stability. The macroeconomics snags include inflation volatility, diversification of government resources and management of government resources12. The paper has looked on how each of the following hurdles can be managed. There is also the demerit that comes with the growth of the economy such as lack of enough laws and regulations to guide the growth of crude oil exploration. The paper also analyze on the possible opportunities of growth. The US Qatar trade relation is also explored in depth. We have also looked at the rules that guide crude oil business in Qatar. There are benefits of crude oil business to Qatar. Firstly, it enlarge the revenue stand of the State of Qatar. There is financial goal that is met by exploitation of both hydrocarbons and non-hydrocarbon. Secondly, Performance based budgeting. The increase in government expenditure is chief to the diversification efforts of the Qatar government. That assists the government to manage inflation. The government should introduce a metric in the process of budgeting so that there is linkage of national planning with budgeting of fund. The ministries and the banks have the responsibility for the implementation of performance based budgeting. That includes an IT system to keep an eye on performance through indicators. The reforms in the budgetary performance should be guided by international standards and best practices. The strategy should be inspired to the specific context and capabilities of the Qatar Government. The benefits of this topic to the learner is that it has enabled us understand how the petroleum business operates in the State of Qatar. It has also highlighted on challenges and opportunities of growth in the country as a result of exploration of crude oil. The paper has also discussed on rules and regulations that governs the trade. Lastly, the paper has highlighted on areas of improvement in performance of the crude oil business. References Abu Khalifeh, H., Belhaj, H., & Haroun, M. (2014, November). Investigation of Asphaltene Deposition Tendency. Graham, G. M., Bowering, D., MacKinnon, K., McCall, M., & Stalker, R. (2014, May). Corrosion Inhibitor Squeeze Treatments-Misconceptions, Concepts and Potential Benefits. Kilian., L (2006). Not all oil price shocks are alike: Disentangling demand and supply shoks in the crude oil markets. Matsumoto, K. I., Voudouris, V., Stasinopoulos, D., Rigby, R., & Di Maio, C. (2012). Exploring crude oil production and export capacity of the OPEC Middle East countries. Energy Policy, 48, 820-828. Naifar, N., & Al Dohaiman, M. S. (2013). Nonlinear analysis among crude oil prices, stock markets' return and macroeconomic variables.  Rithuan, S. H. M., Abdullah, A. M., & Masih, A. M. M. (2014). The Impact of Crude Oil Price on Islamic Stock Indices of Gulf Cooperation Council (GCC) Countries: A Comparative Analysis. Tsui, K. K. (2011). More oil, less democracy: Evidence from worldwide crude oil discoveries*. The Economic Journal, 121(551), 89-115. Read More