LONDON: Gulf states will need to raise as much as $300 billion in funding over the next three years with the lion’s share going to Saudi Arabia, according to a new report.
High oil prices mean that the funding needs of Gulf borrowers are accumulating at a slower pace, S&P Global Ratings said in a report.
Still, GCC government net debt positions have significantly deteriorated since 2015 and now account for a much bigger proportion of fiscal revenue, the ratings agency said.
Saudi Arabia’s deficit alone accounts for about half of the Gulf states’ expected $300 billion financing needs — but as a proportion of overall GDP it is broadly in line with Abu Dhabi and Oman.
Rising interest rates and tighter financing conditions may present a challenge to some regional boomers according to S&P.
“Changes in domestic and international liquidity conditions could present challenges for sovereign issuance and tilt the financing balance toward assets from debt, or increase debt-servicing costs, as is particularly the case in Bahrain (where interest payments account for 23 percent of government revenue),” said S&P.
“We note that global liquidity is becoming scarcer and more expensive, while regional banking sector liquidity remains adequate.”
The rising cost of debt may mean that some regional governments will increasingly focus on asset sales.
Perceived regional geopoitical risk, most notably surrounding tensiions between Iran and Saudi Arabia along with its Gulf allies as well as the standoff between Qatar and some of its neighbors, could make some international investors wary of the region and demand a higher risk premium.
S&P expects debt issuance to account for some 70 percent of the $300 billion financing requirement of the Gulf states.
The ratings agency estimates that gross debt in the region has increased from an average of 14 percent of GDP at the end of 2014 to an estimated 38 percent of GDP by the end of 2018.
Bahrain and Qatar are expected to finance the vast majority of their deficits through debt, while Dubai and Abu Dhabi are likely to rely more on their assets.
S&P expects Bahrain’s net debt to have nearly tripled between 2015 and 2021 while Oman would slip into a net debt position in 2019.
Saudi Arabia’s net assets are forecast to have nearly halved to 65 percent of GDP by 2021.
Saudi Arabia to lead $300bn regional funding drive says S&P
Saudi Arabia to lead $300bn regional funding drive says S&P
- GCC states have $300bn requirement
- Bahrain and Qatar expected to rely on debt to plug deficits
European gas prices soar almost 50% as Iran conflict halts Qatar LNG output
- Analysts warn prolonged disruption could push prices higher
- Some shipments of oil, LNG through Strait of Hormuz suspended
- Benchmark Asian LNG price up almost 39 percent
LONDON: Benchmark Dutch and British wholesale gas prices soared by almost 50 percent on Monday, after major liquefied natural gas exporter Qatar Energy said it had halted production due to attacks in the Middle East.
Qatar, soon to cement its role as the world’s second largest LNG exporter after the US, plays a major role in balancing both Asian and European markets’ demand of LNG.
Most tanker owners, oil majors and trading houses have suspended crude oil, fuel and liquefied natural gas shipments via the Strait of Hormuz, trade sources said, after Tehran warned ships against moving through the waterway.
Europe has increased imports of LNG over the past few years as it seeks to phase out Russian gas following Russia’s invasion of Ukraine.
Around 20 percent of the world’s LNG transits through the Strait of Hormuz and a prolonged suspension or full closure would increase global competition for other sources of the gas, driving up prices internationally.
“Disruptions to LNG flows would reignite competition between Asia and Europe for available cargoes,” said Massimo Di Odoardo, vice president, gas and LNG research at Wood Mackenzie.
The Dutch front-month contract at the TTF hub, seen as a benchmark price for Europe, was up €14.56 at €46.52 per megawatt hour, or around $15.92/mmBtu, by 12:55 p.m. GMT, ICE data showed.
Prices were already some 25 percent higher earlier in the day but extended gains after QatarEnergy’s production halt.
Benchmark Asian LNG prices jumped almost 39 percent on Monday morning with the S&P Global Energy Japan-Korea-Marker, widely used as an Asian LNG benchmark, at $15.068 per million British thermal units, Platts data showed.
“If LNG/gas markets start to price in an extended period of losses to Qatari LNG supply, TTF could potentially spike to 80-100 euros/MWh ($28-35/mmBtu),” Warren Patterson, head of commodities strategy at ING, said. The British April contract was up 40.83 pence at 119.40 pence per therm, ICE data showed.
Europe is also relying on LNG imports to help fill its gas storage sites which have been depleted over the winter and are currently around 30 percent full, the latest data from Gas Infrastructure Europe showed. In the European carbon market, the benchmark contract was down €1.10 at €69.17 a tonne
