Syed Rashid Husain

 The writer is Vice President of Al-Khobar-based Al-Azzaz Est., eminent journalist and energy analyst. He writes a popular weekly column   ‘Energy Outlook’ for Saudi Gazette and also contributes to Pakistan’s Dawn and the BBC.

Investments Should Continue

by shariff mohammed | Dec 09, 2015

As global crude demand continues to grow and marginal global output under threat, the need for investments in the energy sector remains a big challenge. While unveilingThe IEA World Energy Outlook 2015, last month in London, good, old friend, Fatih Birol, the newly inducted IEA Executive Director made it clear to the world that if the current scenario continues, the global reliance on Middle East oil exports could eventually escalate to a level last seen in the 1970s. Energy-rich Middle East was then meeting the two-thirds of the global needs. Energy secuirty would be udner threat, Birol carried a clear message.

In the current scenario, investment in the sector is under threat. Investments in new exploration are already down about 20 percent this year, and more cuts are expected in 2016. As per Wood Mackenzie, about $200 billion in new oil and gas projects have been delayed or cancelled in 2015. And in the meantime, the U.S output is entering a plateau phase.

It was in this perspective that oil minister Ali Al-Naimi calling for more investments in the sector, underlined, new output was needed and within this decade. Global demand grows annually by more than a million bpd. Oil production capacity across the world would drop by about four million bpd each year, Naimi pointed out. With demand growing steadily, the world needed new oil output every year of five million barrels a day. "There should be a continuation if not an increase in the pace of investments in the petroleum industry to guarantee the stability of the market in the short and long term,” he said in Manama, last month.

And the call was not without reason. Already the spare capacity is low. And this low level of spare could impact the markets - any time. Any major geo-political upheaval could impact the markets adversely, pushing markets to spike.

But with the market woes continuing, African oil boom is fading too. “On the brink of a boom,” was the banner on PricewaterhouseCoopers LLP’s review of Africa’s oil industry 16 months ago. Now, oil below $50 has made more than two out of three investment projects on the continent non-viable, writes Paul Burkhardt.

Exploration drilling in Nigeria is now close to the lowest in more than a decade because of shelved investment plans. Tullow Oil Plc, responsible for some of the biggest discoveries on the continent, is concentrating on safer projects in Ghana and Kenya after cutting jobs and trimming its annual exploration budget to about $200 million from $1 billion.

African production, already 19 percent below its 2008 peak of 10.2 million barrels a day, is set to drop for a third year. The absence of legislative and regulatory certainty has reportedly halted investment of as much as $5 billion by explorers including Shell in South Africa. In the current scenario, only a third of $270 billion of potential investment projects in Africa make economic sense, Obo Idornigie, of Wood Mackenzie, was quoted as saying. And all this needs to be read in the back drop of the reality that, six of the 10 biggest global oil discoveries in 2013 were made in Africa.

Gulf Arab producers are not oblivious of the upcoming challenges - despite the current market conditions. United Arab Emirates continues to push ahead with large new energy projects, betting an oil price recovery will start as early as next year as demand begins to absorb the global glut. 

Abu Dhabi now plans to raise its oil capacity to 3.5 million bpd from the current 3 million within the next two to three years, the head of the national company ADNOC Abdullah Nasser al-Suwaidi said last month. The UAE is currently producing 2.9 million bpd. Some $35 billion worth of investments is to flow into offshore exploration after decades of investments into onshore, he added.

In the challenging world of today, oil rich Gulf Arab states have eyes set on future!

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