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UAE to Invest $107 Billion In Energy While Saudi Arabia Set to Increase Exports and Production and Kuwait Expects Massive Surplus Next Year

Middle East : 03 May 2013

UAE Investing $107 Billion Into Energy Over the Next Five Years

The energy sectors of Saudi Arabia and the UAE should receive major investments over the next five years. Almost $107 billion is marked for investments into oil, power and gas in the UAE, while Saudi Arabia plans to invest almost $165 billion into those sectors over the next five-year period, according to Apicorp data.

Apicorp estimated about $740 billion in energy-sector investments across the MENA region between 2013 and 2017. Although some nations experiencing political instability may affect that figure, oil producing nations in the region are spending more.

Ali Aissaoui, chief economist at Apicorp, noted that seven nations make up 75 percent of the total capital investment into MENA’s energy sector. Libya was excluded from that group, although Iraq was included.

The UAE retained second spot in terms of total investment, behind Saudi Arabia. Algeria came next, with Iraq, Qatar, Kuwait and Iran following.

Iraq’s planned investments of $6 billion remain far lower than the nation’s potential, according to Aissaoui. The Iraqi federal government recently passed legislation covering hydrocarbons and are moving toward more coherence in actions and policies. Oil issues between the federal government and the Kurdistan Regional Government must be resolved and bottlenecks within infrastructure dealt with before Iraq reaches higher levels of investment.

Apicorp’s study also stated that under-investments exist in both Kuwait and Qatar.

Prince Outlines Plans to Increase Exports and Capacity in Saudi Arabia

Production capacity and export levels are expected to increase in Saudi Arabia, according to comments made by Prince Turki al-Faisal. Production should surge from current levels of 12.5mn bpd to 15 mn bpd by 2020, and export levels should reach 10 mn bpd.

The kingdom has spent more than $100 bn on infrastructure within the petroleum industry, according to the Prince. This expansion has already boosted capacity.

Statements made by Saudi Aramco’s chief executive Khalid Al Falih contradicted the Prince’s comments. Al Falih spoke to The Wall Street Journal back in 2011, and noted that due to expansion plans in other oil-producing nations, Saudi would not increase capacity.

Prince Faisal pointed out that expansion in Saudi would allow the Kingdom sufficient capacity to replace the exports of Iraq, the second-largest producer in OPEC. Crude exports in Iraq dropped by 5 percent for March, reaching 2.417 mn bpd. Iraqi Oil Minister, Abdul Kareem Luaiby, noted that the nation’s oil exports are expected to increase to 3.4 mn bpd next year.

Back in 2008, as oil prices shot to record levels of $147 per barrel, plans for expansion in Saudi were examined, in order to reassure markets regarding supply levels and long-term security.

Oil markets closely watch the unused output in Saudi Arabia, especially when most of the remaining OPEC members are at full capacity.

Saudi Arabia remains the only OPEC member capable of significantly increasing output should market demand require that action. The kingdom currently produces around 9 mn bpd. When oil prices rose from 2003 to 2005, and again in 2007/2008, spare capacities in OPEC fell to historic lows.

Surplus of KWD 12 Billion for Kuwait as Demand for Oil Increases This Year

Crude oil prices remained fairly flat throughout March, but fell significantly last month. Kuwait exported crude (or KEC) prices dropped from a high level of $107 per barrel at the beginning of April to just below $100 by April 12. This low level has not been seen since last July.

Other benchmark oil blends fell, including Brent crude and West Texas Intermediate.

Factors related to demand caused these price declines. Demand softened during the refinery maintenance season, and the trend of reduced demand during the second quarter continued, with predictable results.

International organizations, such as the IEA (or International Energy Agency) and OPEC, have revised oil demand downward, partially due to softer economic news like job data in the US, China’s economic slowdown and renewed anxiety regarding European debt. But these falling figures also reflect rising concern for crude’s long-term outlook. Stronger environmental regulations, an end to the investment boom in China and structural issues in developed markets favor sources of alternative energy.

Downward revisions to growth rates for worldwide oil demand have not been sharp. The IEA expects growth just below 0.8 mn bpd, or 0.9 percent. Weakness in the European economy is expected to lead to lower consumption. OPEC also forecasts low levels of growth, and provisional data in the opening quarter of this year supports these expectations.

Although prices rose in Q1 of 2013, fundamentals in the oil market are forecasted to loosen up in the remaining quarters as a result of weaker economic outlooks and greater supplies from non-OPEC nations. Assuming global oil demand increases by 0.9 mn bpd, declining levels of OPEC production and aggressive augmentation of non-OPEC supplies, oil inventories around the globe are expected to increase by just 0.4 mn bpd this year.

On the other side, if oil demand comes in slightly higher than expectations, OPEC may maintain existing production levels.

Average prices for KEC stayed at $107 per barrel for the past fiscal year, although closing budget figures have yet to be released. According to data covering the initial eleven months of the past fiscal year, Kuwait’s surplus reached a new high of 18.8 bn, resulting partially from significant under-spending in miscellaneous expenditures & transfers. Spending may be revised higher when accounts close. Spending is still expected to come in around 10 to 20 percent lower than government expectations. Before RFFG allocations, the budget surplus from last year will be recorded between KD 12.9bn and KD 15.2bn.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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