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First with Financial Comment from Arabia

Arabian Black Gold: $90bn for oil and gas in three years

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LNG-Ship-QatargasThe Gulf Cooperation Countries are planning to spend more than $90 billion on oil and gas infrastructure projects over the next three years, whatever happens to the global economy.

Abu Dhabi’s state-owned Adnoc has $50 billion worth of projects to be awarded by the end of 2010, while Technip senior VP Arturu Grimaldi told a conference yesterday in the UAE capital city that Qatar, Saudi Arabia and Kuwait will award oil and gas infrastructure contracts worth a total of $40 billion over the next three years.

Lower costs

Adnoc officials contend that the global economic crisis is an amazing opportunity to execute giant projects at lower cost and greater speed while maintaining the strictest controls on quality.

The Gulf States also have the financial reserves to fund these giant projects from their own pockets, although this sort of blue-chip infrastructure investment is hugely attractive to foreign banks with its long-term, relatively stable income stream to lend against.

The custodians of Arabia’s black gold are acutely aware of the Peak Oil theory and the rising demand from energy-poor emerging markets like India and China. With the notable exception of Kuwait, they face little democratic challenge in developing these valuable reserves, and are not held back by red-tape like India.

If the world is going to resume economic growth and emerge strongly from the Great Recession of the past two years then it is essential that cheap and reliable sources of oil and gas are developed in Arabia.

Iraq, Iran

The two great alternative sources of energy in the Middle East are Iraq and Iran. The former has alienated foreign investors and potential customers with its revolutionary politics, and now has to import petrol from China despite having some of the world’s biggest energy reserves.

Iraq is starting to emerge from the years of chaos that followed the US invasion of 2003, and could emerge as a viable competitor to the Gulf States. But this is clearly going to take time, and foreign investors are still more attracted by the stability and track record of the GCC nations.

So while the Gulf States might presently find a subdued global economy paying lower energy prices than in recent years – although $80 oil is hardly cheap – the investment boom will continue in the oil and gas sector.

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Written by Peter Cooper

October 21, 2009 at 9:39 am

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