SAUDI WANTS MONEY: $700 BLN
Arab oil producers will need about $700 billion in financing for petroleum sector projects over the next 10 years to assure the sustainability of the Middle East and North Africa region's key industrial sector, Saudi Arabia's oil minister said Thursday.
Forecasting a continued rising trend in global oil demand to the tune of about 1 million b/d, despite the current market oversupply and sluggish world economic growth, Ali al-Naimi said annual depletion from producing fields was running at about 4 million b/d. He calculated that the petroleum industry would need to add 5 million b/d of new production every year to satisfy future demand.
"This needs financial solutions at the Arab and international level. Investment should include all the phases of production and manufacturing," he said during a keynote speech at the Apicorp Energy Forum in Bahrain.
In the context of the sustained slump in oil prices since mid-2014, which officials addressing the forum described as a financial and economic crisis for Arab countries, petroleum sector sustainability in the Middle East and North Africa region emerged as a key concern during a ministerial panel session.
Despite OPEC's recent policy of keeping crude production high to defend global market share, Naimi stressed the historic role played by Saudi Arabia in seeking to maintain oil market stability as well as what he said was the kingdom's readiness to cooperate with all other oil-producing states, whether inside or outside the MENA region.
"The challenge we are facing in the Arab world highlights our need for more joint Arab action in the fields of oil and energy," he said.
Bahrain's energy minister Abdul-Hussain Mirza said all the island kingdom's major oil projects were on track and going ahead as previously planned, including a project to build a new oil pipeline between Saudi Arabia and Bahrain, and offshore oil and gas exploration.
"Long-term trends indicate that the long-term fundamentals of the oil complex remain robust," he told delegates. "In the long term, oil is not a commodity in decline."
Any petroleum sector investment cuts would therefore have a long-term negative effect on the sector, Mirza argued.
"In the kingdom of Bahrain we put our emphasis on future outlook in the upstream sector way beyond the current situation," he said.
While international and national oil companies had been struggling since June 2014 to find ways to remain profitable, MENA states were still expected to spend about $750 billion in the next decade on oil and gas development, Mirza projected.
Naimi said even Arab states that were net importers of oil and gas were being negatively affected by low oil prices.
"The economies of all Arab countries, including non-oil-producers, are closely linked. This means their economies are linked to oil and gas, with that linkage expected to continue for many decades," he said.
Bahrain, with limited indigenous oil and gas resources, is a good example of that. Its economy is intricately linked to that of Saudi Arabia and its larger neighbor's petroleum sector, as it refines large volumes of Saudi crude as well as receiving half the revenue from oil sales from one of Saudi Arabia's biggest offshore fields under a 1950s-era treaty.
Mirza said Bahrain's government was using a change in political sentiment related to lower oil prices to push forward a package of fiscal reforms, including a five-year plan started last year to lower electricity and fuel subsidies.
Bahrain's government was also borrowing on international capital markets to finance strategic energy projects, he said. Such projects include construction of pipelines and domestic gas infrastructure.
The world must continue to invest in oil projects in spite of lower prices to guarantee energy security and meet expected demand growth, according to Saudi Arabia's oil minister.
Speaking at an energy conference in Bahrain on Thursday, Ali al-Naimi, said oil companies "need to increase investments in order to guarantee stability of market for the long and short term".
The petroleum industry needs to add 5m barrel a day each to satisfy future demand, which is expected to rise 1m b/d annual, and meet the gap from declining production rates of existing oilfields, Mr Naimi said.
"Demand for oil is continuing to rise," he told the conference.
His comments echo those made by Prince Abdulaziz bin Salman, Saudi Arabia's deputy oil minister, who warned last week that spending cuts across the industry, triggered by the collapse in oil price, will have a "substantial and long-lasting" impact on future oil supplies and could lead to spike in prices.
Since hitting $115 a barrel in 2014, a supply glut has seen oil prices slump to less than $45 a barrel. On Thursday, Brent — the international oil marker — was trading at $44.43 a barrel.
The world's biggest oil companies have slashed hundreds of billions of dollars in investment in response to the price rout. They have cut jobs and reduced costs.
As the first anniversary approaches of Opec's historic decision to cede responsibility for balancing supply and demand to market forces, all eyes are on Saudi Arabia — the world's largest oil exporter — and Mr Naimi. Opec ministers are due to gather in Vienna early next month for a twice yearly meeting.
The comments from Saudi oil officials in recent weeks — that believe the oil market will become balanced next year as non-Opec supply growth slows and demand rains above its long-run average — suggest the Kingdom is satisfied with its strategy of not cutting production to prop up oil prices.
However, the strategy is not without cost. The Opec basket price, which takes the average of the countries' various crudes, hit $38.29 a barrel earlier this week — a level last seen in the financial crisis. At the time of Opec's last meeting June it was above $60 a barrel. This decline in prices is putting pressure on the budgets of many Opec members.
Mr Naimi described the current market situation as "a challenge" but said Saudi Arabia would continue to play a vital role in guaranteeing the "stability of the petroleum market".
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IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.