Economic Commentary Vol 2 No. 12 – December 2007: Shaping Long Term Oil Price Expectations For Investment: Is It Workable? Is It Achievable?
Shaping Long Term Oil Price Expectations For Investment: Is It Workable? Is It Achievable? Is the theme of our Economic Commentary Vol 2 No 12, which is attached for your easy reference. The commentary is also published in MEES 50:51.
Recent studies and analyses have identified several factors that could hinder the flow of investment in the petroleum industry, including specific institutional, legal and fiscal constraints within the oil-producing countries, the cost and availability of capital and OPEC’s behaviour and motivations. Few such studies, however, question the traditional framework for investment and none stresses enough the need to make up for the market’s consistent failure to provide a long-term price signal to enable capital expansion.
This commentary delves into that largely unexplored issue. The central idea is that, under an alternative investment framework, a price signal can be worked out as the unit present value of future fiscal petroleum revenue streams. The extent to which it is achievable depends very much on OPEC capacity to develop an effective policy to convey it….[Details]
Economic Commentary Vol 2 No. 11 – November 2007: A MENA Macroeconomic Perspective For The Period 2008-2012: Sustained Growth Amid Uncertainties
Despite the world economy becoming more interdependent, multi-faceted risks have been felt by different countries and regions with varying degree of intensity and time-dependent effect. In the case of MENA, the region’s exposure to external uncertainties seems reduced or not yet felt as it has continued to perform remarkably well. Macroeconomic fundamentals, which have greatly benefited from high oil prices, have remained generally strong. However, with looming downside risks and a challenging regional unemployment, the outlook deserves more careful consideration. This commentary aims at reviewing the macroeconomic outlook for the period 2008-2012.1 It first discusses the uncertainties and risks facing MENA before proceeding to highlight the global economic backdrop, then focusing on MENA various social and economic spheres. It concludes on the extent the region could weather key uncertainties and risks….[Details]
Economic Commentary Vol 2 No. 10 – October 2007:MENA Energy Capital Investment Outlook: New Trends, New Challenges
Notwithstanding the shelving of a substantial number of previously planned projects, whose viability has been weakened by continuous escalating costs, APICORP’s 5-year rolling review of energy investments in the MENA region for the period 2008-12 highlights a further acceleration of capital requirements in nominal terms.
Although the resulting capital structure has overall slightly shifted to equity, the downstream industry remains highly leveraged. In a context of higher risk aversion and tightening credit conditions, securing the appropriate amount and mix of debt are likely to be considerably more challenging, particularly outside the GCC area. Our “perceptual mapping” continues to outline the importance of improving the investment climate, which should remain a key focus of policy-makers’ concerns….[Details]
Economic Commentary Vol 2 No. 9 – September 2007: Backwardation and the Surge in Commodity Investments: OPEC’s Policy Dilemmas Reconsidered
This commentary seeks to gain insight into the current structure of oil futures markets and the implications of backwardation on commodity investment. It further discusses the strategies that focus on petroleum futures contracts and the risk they contribute to market stability. The commentary concludes by reconsidering the kernel of the policy dilemmas facing OPEC….[Details]
Economic Commentary Vol 2 No. 7-8 July – August 2007:Powering MENA Economy: Capacity Structure, Investment Outlook and Financing Prospects
In face of massive investment requirements in power/water and competing demands for public sector finance, an increasing number of MENA governments have managed to shift part of the burden of funding new projects to the private sector. However, infrastructure capital requirements are so huge that they could only be met by enabling both public and private investments. Judging from the more consistent trends in the GCC area, investments by IPPs/IWPPs, which are undertaken on a project finance and loan participation basis, will only cover a portion of total capital requirements. Additional funding from the domestic and international capital markets could be secured by the incumbent utilities should they manage to get investment grade ratings. Such a move, which is in progress in Saudi Arabia, would greatly enhance the utilities’ ability to implement their large-scale capital expenditures and meet the rapidly growing demand for electricity and water….[Details]
Economic Commentary Vol 2 no 6 -June 2007: MENA Investments In Petroleum Refining: Determinants, Drivers And Risks To Growth
The slow response to oil market signals in the major consuming areas has prompted a shift in MENA petroleum investment strategy. As a result investment plans in refining have been given strong support. However, MENA oil companies embarking on high-cost export-oriented refineries may face financial challenges if the economic viability of these projects deteriorates with a downturn in refining margins. Such an uncertainty constitutes an important risk factor that could curb exposure to this critical link of the petroleum supply chain….[Details]
Economic Commentary Vol 2 No 4-5 April-May 2007: Looking Beyond Petroleum: A Stronger Case for Economic Diversification in MENA Region
Three main arguments are advanced to make a stronger case for economic diversification in the MENA region and to focus attention on its urgency. The first establishes the limited extent of the petroleum revenues to meet long-term fiscal demands in face of fast growing populations. The second highlights the difficulty of stabilizing these revenues in face of extreme market volatility. The third shows the extent of unemployment and the limited impact economic growth can make as long as the petroleum sector remains dominant.
Economic diversification is the key. It is a long-term process that has to be set on an urgent timetable, combining strategy, policy and politics. The strategy should embrace the three-pronged pattern suggested. Policy should focus on further improvement of the investment climate and involvement of the private sector. Politics should seek to enhance the political feasibility of the resulting reforms….[Details]
Economic Commentary Volume 2 No. 3 March 2007: Global and Regional Economic Trends and the Energy Investment Outlook of the Arab World
Much of the focus in the first half of 2006 was on the oil producers’ high net savings and their potential destination for both public and private investments (see our Economic Commentary Vol 1 No 7-8). However, the fall of oil prices from their July 2006 peak, the continuation of the depreciation of the US dollar and the relentless inflation in the cost of energy project portfolios have shifted attention to the ability of the oil and gas producers to augment capacity in order to bring additional supply to the market. Moreover, broader issues of concern include the extent to which the global and regional economic trends will continue to provide a supportive environment for the region’s energy investment….[Details]
Economic Commentary Volume 2 No. 2 February 2007 Crude Oil Prices: Can OPEC Stem the Tide?
This commentary aims to provide insights into the main determinants of the oil market and the prime factors behind falling oil prices. Moreover, in a context where OPEC has adjusted its production to contain further price declines, the paper explores what additional actions are needed to credibly protect its members’ economic interests should the market deteriorate any further….[Details]
Economic Commentary Volume 2 No. 1 January 2007 Petrochemical Investments in the MENA Region: Determinants, Drivers and Risks to Growth
Contrary to what some economists would argue, the petrochemical industry has remained a critical link of the hydrocarbon supply chain. This is particularly the case in the MENA region, for not only the industry depends directly on upstream feedstock for its operations but it is also starting to integrate with the refinery link or be part of cluster developments involving adjacent hydrocarbon processes. This hydrocarbon link and proximity are important to consider when analyzing changing investment conditions in the industry and evaluating the driving and restraining forces in its business environment….[Details]