Flat LNG production, lower price views weigh on sentiment

Jun 02, 2014 12:00 AM

By Santhosh V Perumal

Qatar's hydrocarbon sector outlook has weakened "significantly" on flat liquefied natural gas production, falling crude oil output from mature fields, expected lower hydrocarbon prices and growing nominal expenses, according to Dun & Bradstreet's Business Optimism Index (BOI) for the second quarter (Q2).

The composite BOI dropped to 8 in Q2 from 18 in the previous quarter on lower optimism relating to selling prices, net profits and hiring, said the BOI, sponsored by the Qatar Financial Centre Authority in partnership with Qatari Businessmen Association.

Highlighting that expectations for the hydrocarbon sector mirror the flat gross domestic product growth in the sector, it said with respect to sales expectations, the BOI tracked sideways from a score of 25 in Q1 to 26 in Q2.

It said 44% of respondents do not foresee any change in sales levels since they are working on old contracts with limited new projects expected in Q2, while a marginally higher number of firms compared to the last quarter (41% in Q2 versus 38% in Q1) are expecting an increase in sales volumes.

The BOI for selling prices has moderated from 8 in Q1 2014 to 5 in Q2 2014, since a slightly higher number of firms plan to reduce their prices due to higher competition. However, the predominant sentiment with respect to selling prices continues to be tilted towards stability, with 69% of the firms intending to maintain their selling prices at current levels, despite an increase in operational costs.

Regarding net profits, 36% of the oil and gas firms expect an increase; however a high proportion of firms against the last quarter (31% firms in Q2 vis-à-vis 18% in the previous quarter) foresees a decline in their margins due to rising operational costs combined with stability in prices.

Despite the decline in the composite BOI, it said participants are indicating an improvement in the business environment with 60% of the firms not anticipating any hindrances to their business operations in Q2 compared to 48% in Q1.

However, the degree of competition has become more pronounced, with 18% of the respondents citing it as "challenge" in Q2 against 10% in Q1. For another 10% of the respondents, slow demand for products/services is expected to be an obstacle.

Reflecting the moderation in the composite BOI, plans to invest in business expansion have "back pedalled", it said, adding 31% of the companies have plans to incur such investments in Q2 compared to 53% in Q1. 38% indicated that they will not undertake business expansion in Q2.

The International Energy Agency recently projected that global oil demand will rise less than the previous forecasts for 2014, due to a lower outlook for Russia's economic growth, following its annexation of Crimea.

Global demand growth is forecast to average 1.29 mm bpd in 2014, which is 60,000 bpd lower than its previous forecast.

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