Qatar – Hilda Mulock Houwer, Global Advisory Leader, Energy and Natural Resources
Hilda Mulock Hower talks about the future of gas and its impact on Qatar.
Ever since nationalization in the 1970s, Western oil majors have worked hard to get their foot back in the door of the petroleum sector in the Middle East, but now this is set to change. After years of courting NOCs and governments in the region, the results are disappointing. They face intense competition from Asian NOCs and, when they do win deals, the terms are often not attractive enough. Their focus is changing, with more supermajor investment dollars heading back to unconventionals in North America, where terms are stable and opportunities abound.
The NOCs of the Gulf Cooperation Council (GCC) and Iraq, too, are shifting gears. They are turning their attention eastwards, where the bulk of their exports will be headed for years to come. They want to lock in that market. They are also realizing that their Asian customers can provide a more holistic investment package. There are, definitely, emerging trends that point to a closer Gulf-Asia energy relationship.
As Asian markets increasingly absorb more of the Middle East’s oil supplies, oil trade is being divided into eastern and western hemispheres. The growing trade interdependence between the Middle East and Asia is fundamentally changing the geopolitics of oil. Gulf exporters are concerned about security of demand and markets, and this is driving closer energy relationships with their Asian customers.
What are your thoughts on the future of gas in the GCC?
Qatar has increased its exports to Japan as it has increased LNG imports to cover for lost nuclear power. We expect this trend to sustain until around 2016 when newly contracted LNG supplies will cover Japanese demand. Major new LNG export agreements from Qatar due to start over the coming years have been signed with China, Argentina and Thailand, as well as with traditional customers. We expect other Asian markets such as India and Pakistan to be an area of growth over the longer term. While we expect gas production to grow slowly in Qatar, the decision to halt the expansion of LNG export capacity will keep exports steady over the course of our forecast, with rises in output being directed to the domestic market. As you can see, Asia still dominates Qatari long-term contracted exports, and will likely do so for the foreseeable future.
In a price environment where host governments are able to demand more from investors, the idea is on the rise globally of leveraging access to the upstream against investments in national development. This type of investment is better suited to Asian NOCs, which are able to manage large-scale projects and have a lower cost capital. They are also able to partner with manufacturing and service companies from their home country.
We should expect a closer and stronger relationship between Asian NOCS and their Gulf counterparts. It makes sense in a context where Gulf exporters want to lock in their growth markets, maximize economic development windfalls from investments in the oil sector, and yet offer limited financial incentives to investors. There is a complementary set of objectives. But it is still uncertain what shape these partnerships will take in the future.
A more strategic approach to the relationship is likely to emerge in both the gulf and Asia. In view of the interest in job creation and infrastructure development in the Gulf, we may see more bundled investments by Asian NOCs. Asian NOCs can also partner with service companies and EPC providers from home to deliver integrated projects.
Oil trade and investment between the Gulf and Asia are becoming mutually strategic and attracting diplomatic focus from both sides. We expect business and diplomacy to be increasingly intertwined, Bilateral trade and investments agreements will impose partners on NOCs in both Asia and the Gulf, which have strived to establish their commercial autonomy from political interference. They will struggle to control as much as possible the terms and the delivery of deals made with their Asian NOC counterparts.
GCC exporters want better access to the Asian downstream markets and more crude storage facilities there. Middle East exporters will be increasingly dependent on markets eastward. By 2030, something like 60 percent of the world’s oil trade will take place within the Asia region between Asia and the Middle East.
This economic strain impacts the national energy industry in two ways. First, the obvious remedy to the budget crunch is to pump more oil and gas, which can pose technical challenge to the NOCs. Second, the energy industry is called on to create more jobs for nationals and opportunities for the private sector.
How would you summarize KPMG’s presence in the Middle East and, following your recent experience in Abu Dhabi, what were the motivating factors behind your establishment in Qatar?
KPMG has a long history in the Middle East, opening the first office in UAE back in 1974. Regionally, the company has always had a strong focus on the energy sector, with specialists in audit, advisory and tax. In advisory, we specialize in transactions, risk and compliance. In addition to this, we have recently started building up our management consulting practice around the oil and gas industry, focusing on operational excellence, technology enhancement and project execution. This is of great strategic importance for KPMG on a global level and why I have been relocated here. We want to communicate to our client base the commitment that KPMG has to the region, and its importance on the global oil and gas map. As a result of this increase in activity in the region, we are aggressively recruiting talent, especially around our management consulting practice. So, the reason I am in Doha today is due to the vast opportunities presented by the country’s transformation.
What gives KPMG its reputation as one of the global leaders in oil and gas consultancy?
In our industry, there are many areas where you can unlock value for a client. One area we intend to excel is Sustainable Value Improvement (SVI). We create transparency by creating a single factual baseline of financial, organisational and operational performance, with a clear link to the benefits. We provide challenge and practical insights through qualitative and quantitative analysis, and providing external perspectives and we offer a practical focus, quantifying the hard economics, business risks and implementation complexity of each opportunity. Finally we drive the level of ambition by providing an unconstrained view of the value potential throughout the full value chain . Indeed, we have built up a global track record in this field, and the experience and expertise are what we want to bring to the Middle East region.
Major projects are also a primary area of focus for us, and our capital project experience demonstrates that a variety of typical project risks, issues and challenges are to be expected in Qatar with planned investments of cUSD 37.1. A focus area must be to increase the predictability of desired project outcomes in terms of quality, time, cost and return on investments.
Who are the major clients of KPMG in Qatar?
Qatar Petroleum is the national oil and gas company of Qatar and is an important strategic client for us. Other clients include the major IOCs, to whom KPMG is linked either locally or globally. Petrochemicals is currently a very interesting segment for us, and the coming diversification of the supply chain should bring with it some exciting opportunities for us.
E&P in Qatar is becoming increasingly reliant on the application of new technologies to increase extraction rates. Generally speaking, which types of technology are primarily being requested in Qatar?
In Qatar oil and gas sector, a big technology technology driver is gas to liquids (GTL) which involved many Qataris which have been trained and further developed to operate GTL successfully . In order to continue the momentum in developing and fostering new technologies, Qatar needs to create an appetite in their younger generation for technology, and make them appreciate its importance, in order to build on the targets for Qatarization. Education programs should match the demand for technology in the oil and gas sector today. At the end of the day, it is all about looking across the whole value chain. Technology-wise, is time to take further steps: to be more environmentally friendly, smarter, and look at opportunities both from the supplier and the client.
Qatar is buying oil and gas fields from Brazil to the Congo as the world’s biggest producer of LNG sees fewer energy developments at home due to the moratorium on expansion at its North Field. Qatar Petroleum International’s USD 1 billion purchase of 23 percent of the Parque das Conchas oilfield from Shell in Brazil is the latest of three foreign deals in the past year. It also completed the acquisition of 15 percent of Total E&P’s Congo unit in December, injecting USD 1.6 billion into the venture. QPI also teamed up with Centrica in April to buy gas fields in Canada from Suncor Energy Inc. for USD 981 million.
Qatar will be unable to boost exports as a result of the North field moratorium, the largest gas reservoir in the world. However, Qatar is due to complete the Barzan gas development, which supplies the domestic market, by next year. Qatar also doesn’t plan to build more domestic LNG plants after it started up the last of 14 two years ago, increasing annual capacity to 77 million metric tonnes from nothing 15 years ago.
Slowing domestic energy investment is due to the fact that the country needs to fund USD 200 billion in infrastructure before hosting soccer’s 2022 World Cup. The slowing growth may lead to “modest” budget deficits from 2015 through 2017. This as the country invests in new soccer stadiums, roads and a USD 35 billion rail and metro system.
Apart from the moratorium on the North field, what are the other major challenges facing the Qatari oil and gas sector today?
Another trend affecting the energy industry in the Gulf is the structural weakness of its labor force. These economic challenges may surprise, since the GCC has seen mostly high rates of economic growth, thanks to high oil prices and higher production levels. But this positive data hides economic difficulties faced by nationals. The private sector has shown strong job creation, but participation of nationals in the workforce is limited.
Governments, shaken by the strong tides of the Arab Spring throughout the region, have employed more young nationals in the public sector. The International Monetary Fund estimated that public spending in the GCC increased by 20 percent in 2011 from the previous year. It follows from this spending spree that the cost per barrel needed to balance budgets is at a historic high and rising further.
Your have been working for more than 22 years in the oil and gas industry. What do you want to achieve with KPMG in Qatar that you have not achieved for KPMG elsewhere?
In our region, KPMG aims to be recognized as a cluster of professionals that can provide sound business advice. This involves having a global methodology and technology that is coupled with local content and delivery methods.
We do not intend to invest in a thousand people in oil and gas, since the region is not large enough to absorb this. Instead, we aim to build pockets of excellence around precisely those two things we want to be known for: operational excellence, execution of projects and technology enhancements.
Qatar has a huge agenda to follow and achieve. It is wonderful to see a country that wants to develop and transform so fast and it gives me the opportunity to assist Qatar with executing their strategy. That is why I am here. We already have the strategic vision. Now it is time to bring the execution tools.
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