Operations Provide Organizations the Strength: Demand Forecasting - Coursework Example

Demand Forecasting Number: Lecturer: Demand Forecasting Introduction Demand forecasting is a tool used in estimating the likely quantity of a product or service that consumers might purchase in the future. It is utilized in the assessment of the future capacity requirements and hence be able to make an informed decision on whether to enter a particular market. Techniques used in forecasting involve either using qualitative methods or quantitative methods such as historical capacities or current data from markets being considered. Demand forecasting is no longer an option but a compulsory alternative in today’s competitive business environment. A budding business has to determine where a product stands in the market and its future. This results in avoidance of wastages that might occur in investing capital in an area that might not make a return on investment. Such areas of investment include resources like machinery, materials and human resources. It is crucial to note that it is not just demand that the company will be looking at in establishing a business. Any prediction must have an overall overview of several things that will determine the viability of the enterprise in any sector. A prediction must have a fair overview of other important business operations matters; economic distribution of resources, direction of production, pricing model, sales policy devising, decrease business risk, and inventory management. Demand There are several methods of demand forecasting, but in this paper two methods will be used; qualitative and quantitative. The qualitative approach will look at the current situation in the world market and internal consumption of oil and gas in Qatar from the consumer market point of view. On the other hand, quantitative method will look at real quantities of market statistics for the past decade and a few available estimates on the forecasts. The two methods will not be conspicuous in the discussion; rather will be done concurrently as they are interdependent in the study. When talking of demand for oil and gas in/for Qatar, both domestic and export market are explored. The study will use such tools as tables of estimates and graphs with time intervals of the past quantities. Besides discussing demand, background information is critical as it demonstrates the both previous and current capacities at which this resource-rich state operates under. Qatar is a net exporter of all upstream and downstream products; whether in crude form or by-products. Any other business establishment in the industry can join upstream in exploration and production or downstream in manufacturing of products out of oil and gas and marketing. Qatar has been an island of political stability in a region characterized by turmoil over the past decades, only intensifying over the last three years. This country remains one of the biggest producers and exporters of crude oil. In fact, Qatar is the world’s largest exporter of liquefied natural gas (LNG). The country relies heavily on its energy sector to support its economy. According to statistics from the Qatar National Bank (QNB), the country’s earning from its hydrocarbons accounts, on average, about 60% of the total national revenues. These statistics have been observed over the past five fiscal years ending 2012/13. It is estimated by the United States Energy Information Administration (EIA) that the state earned about $55 billion from net oil exports in the year 2012. On the other hand, QNB estimates that the oil and natural gas sector in Qatar accounted for about 57.8% of the Asian country gross domestic product (GDP) in 2012. This country is the fourth largest dry natural gas producer in the year 2012, after the United States, Russia, and Iran. The country is the world’s leading LNG exporter since 2006. The state is also in the forefront in gas-to-liquids (GTL) production with the country boasting of the world’s largest GTL production plant. The country produced about 1.6 million barrels per day (bbl/d) of liquid hydrocarbons (crude oil, natural gas plant liquids, GTL, condensates, and other liquid in 20130. It is made up of 730,000 bbl/d crude petroleum, and the rest are non-crude liquids. Despite being a member of the Organization of the Petroleum Exporting Countries (OPEC), the state is the second smallest producer of crude oil. The natural gas meets most of domestic energy demand, meaning that the country can export most of its liquid fuels (EconomyWatch, 2010). The petroleum industry in Qatar is controlled by a state-owned Qatar Petroleum (QP), both upstream and downstream. It controls exploration, production, transport, storage, marketing, and the sale of crude oil, natural gas, natural gas liquids, LNG, GTL, refined products and petrochemicals including fertilizers. All projects including investment from international oil companies with modern technology and expertise in integrated mega-projects. They include ExxonMobil, Shell, and Total. They have established joint ventures and consortia with state-owned firms that control significant stakes with many holding at least 65%. The following table shows summarized reserves, production and consumption of various energy sources in Qatar; Qatar summary energy statistics Oil (million barrels) Proved reserves, 2014 (million barrels) Total oil supply, 2012 (thousand bbl/d) Total petroleum consumption, 2012 (thousand bbl/d) Reserves-to-production ratio 25,240 1,579 190 57 Natural gas (billion cubic feet) Proved reserves, 2013 Dry natural gas production, 2012 Dry natural gas consumption, 2012 Reserves-to-production ratio 885,000 5,523 1,257 160 Electricity Generating capacity, 2011 (gigawatts) Electricity generation, 2011 (billion kilowatt-hours) Electricity consumption, 2010 (billion kilowatt-hours) Distribution losses, 2010 (billion kilowatt-hours) 7.8 32.3 20.5 1.8 Source: U.S. Energy Information Administration, International Energy Statistics, Oil & Gas Journal Oil Three oil fields account for over 85% of total country’s production capacity. They include Al Shaheen, Dukhan, and Idd al-Sharqi. . The country managed to produce 732, 500 bbl/d, and it is estimated that by 2017, the production capacity will reach 800, 000 bbl/d. It is noteworthy to mention that the country had planned initially to have produced in excess of 1.2 million bbl/d. It was contained in 2000-2014 production plan, but mid-term, it was found that it would be not practicable. As mentioned earlier, Qatar is a member of OPEC but is the second last producer in a twelve-member club, only ahead of Ecuador. The country is ranked 9th in terms of proven oil reserves in OPEC and the world’s 13th largest which is estimated to be about 25.2 billion barrels. Internally, the country consumption of petroleum rose by more 70% from 72, 000 bbl/d in 2003 to top at 189,700 bbl/d in 2012. As a result, domestic demand is very healthy for a budding oil and gas company. The country exported 588,000 bbl/d of crude oil alongside 464,000 bbl/d of refined petroleum products in 2012. According to OPEC estimates, the state sent nearly all its crude oil to Asian markets and majority (86%) of refined products to the same market. These markets are led by Japan taking up over 60% of the primary refined products (Ministry of Business and Trade Investment Promotion Department). Consider the following table. It shows the difference between total oil supply and domestic consumption with the gap being net exports, over a period of ten years. The table below, on the other hand, seeks to estimate the expected demand forecast over a period of seven years starting from 2012 through to 2018. It shows that there is sufficient demand for a business to establish. Headline Forecasts (Qatar 2012-2018)   2012 2013 2014e 2015f 2016f 2017f 2018f Crude, NGPL & other liquids produc, 000b/d 1,568.9 1,567.4 1,561.1 1,572.5 1,585.3 1,581.2 1,581.6 Refined products production & ethanol, 000b/d 307.7 429.1 431.7 434.1 638.6 638.4 638.6 Refined products consumption & ethanol, 000b/d 189.7 198.9 209.9 220.4 230.3 240.7 250.3 Dry natural gas production, bcm 142.6 143.7 144.0 150.5 153.5 154.5 156.1 Dry natural gas consumption, bcm 20.5 21.5 22.6 23.5 24.9 26.4 27.2 e/f = BMI estimate/forecast. Source: EIA, BMI Gas Natural gas is the center of the current and the future exports for this country. In January this year, Qatar was ranked third-largest with proved reserves of natural gas in the world with 885 trillion cubic feet (Tcf). The front runners are Russia with 1,688 Tcf and Iran with 1,193 Tcf. The country has a relatively small domestic demand on gas energy, meaning that the country can export nearly all its production of natural gas. The state shot to the apex of LNG gas export since 2006 and hence it membership in Gas Exporting Countries Forum (GECF). The sector meant that the state also has ventured into byproducts that include condensates and natural gas plant liquids. These are highly valuable natural gas byproducts. The country is also a leader in GTL technology that processes natural gas to heavier hydrocarbons such as naphtha and distillates (The Economist Intelligence Unit Limited 2010). Natural gas production reached 5.5 Tfc in the year 2012, up from 1.1 Tfc ten years before. The country exported nearly 4.3 Tfc in 2012 with a majority of its products, like oil, still go to markets in Asia in the form of LNG. The country still sends a small amount of natural gas via United Arab Emirates and Oman. Asia markets take up 63% of total LNG exports while Europe market takes up about 30% and other 8%. The following graph shows the growth of natural gas production over that period. The chart too shows how domestic demand compares with production, hence supporting the cause for export focus (Business Monitor, 2014). From the graph, demand has been on the rise and is forecast to continue with the same trend into the future. Conclusion In the year 2010, Qatar was the world’s fastest growing economy ahead of Singapore and Turkmenistan with real GDP growing at the rate of 19.40 percent. The country has maintained top three fastest growing in the world. It is estimated to continue its double-digit growth trend for the next few years. It is occasioned by the back to back of rising oil and natural gas prices. It has been affected, though, by the recent downward spiral over the last four months, shedding over 40% of the base price. The state’s oil and gas industries account for more than 50% of GDP, 85% of export earnings 70% of national revenue. It is estimated that Qatar’s oil reserves will run dry by 2023 basing on current rates estimates. The country’s leadership, as a result, started diverting its focus and resources on production of natural gas. The proven reserves amount to 15% of the world’s total reserves (EconomyWatch, 2010). Qatars fiscal spending has risen by an average 26 percent annually over the past decade as the state expanded gas producing facilities and infrastructure. In the process, the country’s GDP increased ten times over ten years from $17.6 billion to 192.4 billion. However, the country’s ability to fight inflationary pressure with monetary policy is constrained by the county’s pegging to the US dollar. In 2013, though, the economy was estimated to have grown by about 5.1%. The estimate by the International Monetary Fund (IMF) is that the economy, in the medium term, will be growing at a rate of about 6% over five years (2013-2018). Qatar has already highlighted its desire to expand activity in the petrochemical and other industries. Qatar’s ambitious plans are to increase petrochemicals production to about 23 million tons per year by 2020 from 9 million tons per year today. Qatar Petroleum (QP) and Qatar Petrochemical Company (Qapco) have officially awarded the U.S. Bechtel the project management consultancy (PMC) contract. The plan will spend about $ 7.4 billion in the petrochemicals complex to be established at Ras Laffan in Qatar. The construction tender and execution phases will follow in 2014-15 and is expected to be completed in 2018. The Qataris also could strike back at their rivals who are establishing the business inside Qatar. The IEA noted that producers such as Russia and Qatar, the largest current exporters of natural gas, have access to ample conventional reserves, immense production capacity, well-developed export infrastructure, low production costs and flexibility. The two countries could undercut the prices offered by most other exporters on international markets. More interestingly, changing circumstances could push Qatar and Russia to cooperate in LNG to improve economies of scales. One indication in that direction is the recent inauguration of Russian rival Gazprom’s representative office in Doha and probably in Moscow in the near future (Reuters, 2013). The country marketing and infrastructure facilities established over the past two decades have placed the country at a competitive edge in the world markets and putting it at the least cost product supplier. It is only curtailed by its geographical location. The country knew this fact and hence focused on building state-of-the-art facilities that remains attractive to potential buyers. The state invested in new generation LNG tankers with huge vessels hence reducing capital costs by increasing capacity of fuel transported to markets. The country invested too in marketing and branding strategies to complement other initiatives in production and transportation. Qatar grasped that reliability, flexibility, and loyalty to long term customers will be essential for brand value into the future. The country’s motto has been to deliver on time, every time. The loyalty that the country has been pursuing has been able to respond to long-term buyers’ unexpected needs. In order to be flexible, the country has been willing to customize the sales and purchase agreements according to every purchaser. They include Japan followed by India, South Korea, and China (Al-Tamimi, 2013). Qatar had never exported LNG to China until 2009. It only started after Qatar Gas and China National Oil Corporation’s (CNOOC) signed a long-term sales contract agreement which supply China 2 million tons per annum(MTPA) for twenty-five years. Henceforth, Qatar started supplying over one-third of Chinese domestic demand of 18.6 MTPA, becoming Beijing’s largest supplier. The result was an increase in trade volumes between the two countries increasing more than thirty times over a period of five years (2008-2013). This country has been on an overdrive to secure and protect the Asian markets share by building long-term and strategic relationship with the coming of economic superpower. Rapid growth in consumption of LNG means that it will play a critical role by increasing the volume of bilateral trade between Beijing and Doha. This country can only strengthen ties with China, alongside the rest. The country faces a number of challenges that have been caused by changing global gas markets with more competitors either increasing the capacity or entering the production market that they were not existing. Australia and USA are among the countries increasing capacity while new frontier producers include a number of countries in East Africa with proven viable reserves. It means, therefore that there will be increased the supply that will automatically mean lower prices. Qatar, too, is a neighbor to active producers led by Iran meaning that the country can be engaged to negotiate hard for long-term supply contracts. It may mean a challenge to the standard Qatar’s model of tying long term contracts of oil prices rather than natural gas prices. It may mean hitting the chief source of hydrocarbons revenue negatively, hence downward pressure on pricing that this country has been resistant to reform from oil-indexed linkages (Al-Tamimi, 2014). From the entire discussion above, it is clear that the demand is available for a business to establish. Both local demand and export markets are growing and hence it makes business sense to set up a business in either upstream (extraction) or downstream in manufacturing and sales. 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