Finbarr Sexton, Partner, Ernst & Young Qatar
What brought Ernst & Young to Qatar in the first place?
Ernst & Young was actually the first amongst the big four firms to set up operations in Qatar. We arrived in the 1950s; effectively at that point of time in Qatar there were no other of the big four firms active in the country. In 1952, the backbone of our clientele was BP and Shell in terms of the developments in which they were involved in the Dukhan field. Indeed, the backbone has always been the oil & gas industry. Ernst & Young has grown in Qatar from then on to a fairly sizeable company. Obviously, we have emerged as a very important player in the Middle East region. Today, we have about 350 staff in Qatar alone, and quite a lot of those are serving the oil and gas industry in one role or another. We have a long-standing relationship with most of the oil and gas companies, the IOCs that have come here to set up.
Asia is the main destination for the export of LNG. How would you assess the importance of Qatar’s multilateral relations with Asian economies, notably with Japan, South Korea and India?
Japan does not plan things one year ahead. Japan tends to plan 10 to 20 years ahead. Asia as a whole has always been looking for reliable suppliers that could actually supply markets not for a five-year period but rather a 25-year period and even beyond that. With Qatar’s oil and gas reserves and the reserves that are contained in the North field, Japan for instance identified very early on, back in the early 90s, the potential that Qatar had and still has in being a very reliable supplier. At that point of time, it was easy to conclude 25-year contracts, knowing that it is not going to be a 25-year relationship, but it could easily be extended to a 200-year relationship. The reliability and the security of supply were amongst the key attractions that Qatar held – and still holds – in the eyes of Japan and South Korea. Qatar actually holds a unique geographical position, being able to supply Asian as well as European markets. It can easily divert its exports to different countries depending on market demands. But certainly Qatar and Japan have a very strong trading relationship. On the one hand, Qatar is selling gas to Asian markets; on the other hand, Qatar is buying engineering and EPC expertise from those markets. This is a strong and healthy relationship.
What is your view concerning the impact that the Eurozone crisis and the regional political instability related to the Arab spring may have had on the global LNG market and how can Ernst & Young be an advisory to companies that feel the repercussions in relation to those events?
The Eurozone crisis has obviously dampened the economies of most developed countries and consequently less performing economies. Industrial production is going down. Oil and gas are essential elements in driving industries. So, if demand is down, it obviously impacts on the ability of suppliers to supply to those markets. The crude oil market and the gas market are going through interesting times at present. Prices continue to be high, even though they are dropping at the moment. From a Qatar perspective, the Eurozone crisis is unfavorable and the uncertainty in the region as a whole is a cause for serious concerns.
What would be the main obstacles to Qatar’s global leadership in the gas industry?
Australia probably represents the biggest threat to the Qatari LNG industry, being much closer to the Far East markets than Qatar. So there are inherent challenges with Australia bringing on supply. The US is also likely to become a gas exporter with very substantial quantities in the future. It is therefore likely that prices will come under a lot more pressure in due course. These will be the main issues for Middle East suppliers. Demand may fall and prices may come under severe pressure because of cheaper supplies coming from other producers.
Qatar is a market that went through rapid development over the last 15 years. There were a lot of opportunities in terms of project works. The facilities were being built, so we did a lot of work with doing cost reviews on the EPC projects, helping with internal audits, processes of the various companies. This market has now changed from a project market to operation and maintenance. What most companies are trying to achieve now is to reach efficiency in terms of their operational and maintenance costs. We see a lot of facility maintenance companies coming in. QP and the LNG projects are outsourcing their O&M functions to the facility maintenance companies. But how much can you afford to outsource, how much can one afford to let go? You may lose your expertise; you may lose your maintenance history of assets. We assess this as a risk they are taking. Obviously, it is very cost-effective. But in the long run, you have to answer those questions. Should you need at some stage to bring in internally the maintenance, you may have difficulties doing it yourself. So, that is one of the risks that we see.
Qatar is the new Promised Land and investors tend to be very attracted to settle down in the country. How do you guide them through this challenging market?
Entering this market may be difficult, a contractor or an IOC cannot expect to win a project within just one year. You have to develop relationships and trust with the NOC. Relationships are very important for both contractors and IOCs. You need to come here, set up a representative office, spend some money and put good relationships people on the ground. And after two to three years, you may see the benefits. It is definitely a three-to-five-year strategy.
We frequently see new companies coming in. We provide them with market intelligence. We advise them in terms of who are reliable partners. We help them identify where the opportunities exist. We place a lot of emphasis on attracting people to Qatar to look at the market. We are very active in organizing special receptions and events. Every company that comes to our doorstep is a potential client, so we invest in that relationship.