Global Arab Network | Opec cut may cost Arabs 8m daily

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Opec cut may cost Arabs $138m daily

Global Arab Network - - John Short

Sunday, 09 August 2009 23:44

Opec's decision last year to slash oil supply by 4.2 million barrels per day (bpd) could cost Arab producers more than $138 million (Dh507m) per day as they account for a large part of the cut, according to official estimates.

The reduction meant that Arab oil supplies will be lower by about 2.62 million bpd in the first quarter of 2009 as seven members of the 11-nation Opec are Arab countries and account for nearly two-thirds of the group's output, showed the figures by the Kuwait-based Organisation of Arab Petroleum Exporting Countries (Oapec), which groups 10 Arab crude exporters.

"During the first quarter of this year, it was expected that the combined Arab crude production will plunge by about 2.62 million bpd in line with Opec's agreement to cut output by 4.2 million bpd," Oapec said in a study. "This will result in a decline in the total Arab oil export earnings by about $4.16 billion a month or an average $138.7m a day considering the average oil price in November and an unchanged in other market conditions."

The report said a sharp fall in oil prices in the second half of 2008 because of faltering demand after the eruption of the global financial distress depressed the revenues of the Arab nations by about $69bn compared to the first half of the year. However, it noted that total revenues for 2008 were higher by nearly $196bn over 2007 as average crude prices climbed to a record $95 through 2008 from about $69 a barrel in 2007.

"The economies and finances of Arab countries are directly affected by any decline in oil prices given the heavy reliance on crude exports by most of them. But the real danger is when the decline in prices is sustained for a long period of time as a one-dollar drop will cost them between $4bn and $10bn a year considering their output remains unchanged," said Oapec.

"To prevent this, Arab countries and other producers resort to cutting output and this means lower supplies by the Arab World and a further erosion in their market share. The latest decline in prices and demand has prompted many regional countries to cut investment in the energy sector and shelve some projects. Estimates by the Arab Petroleum Investment Corporation (Apicorp) shows that more than 20 per cent of the 2009-2013 projects have been put on hold or cancelled."

In its latest report, Apicorp said the shelving and cancellation rate in the Arab energy projects has deteriorated for the 2010-2014 investment programme.

The report showed the total energy investments in the Middle East and north Africa (Mena) during that period would plunge by about 30 per cent, or $165bn to $385bn from $550bn in the previous five-year period.

The figures showed the percentage of the investment reduction in the UAE is the lowest in the region, standing at 17 per cent.

It was put at 21 per cent in Saudi Arabia, 43 per cent in Qatar, 36 per cent in Iran and 20 per cent in Algeria.

In terms of project value, Saudi Arabia is expected to lower investments by about $29bn during the review period while the decline was estimated at nearly $26bn in Qatar, $30bn in Iran and $7bn in Algeria.

"The steep upward trend in Mena energy capital investments over the past six reviews has now reversed. Indeed, the current preview for the five-year period 2010-2014 points to lower capital investment potential," said the Dammam-based Apicorp, an affiliate of Oapec.

"It also confirms a further drop in actual capital requirements. We expect the capital investment potential to decrease by 15 per cent, to $550bn, and the actual capital requirements to fall by 30 per cent below this potential, to about $385bn."

Global Arab Network

Nadim Kawach, Emirates Business 24|7.

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