Arabian Gulf oil and gas industry to serve world growing energy needs

Moody's Investors Service's outlook on the Arabian Gulf's oil and gas sector is stable, reflecting the sector's abundant and readily available oil & gas resources, and its good position to capture a significant portion of the expected increase in global energy needs, especially in Asia. Moreover, Moody's believes that the sector benefits from sound government finances and liquidity which can be used to implement strategic projects that could positively affect the industry over the long term. In particular, the ability to adequately increase production over the medium to long term will shape the industry's competitive position.
In a new Industry Outlook, Moody's predicts that the Gulf Cooperation Council members’ share of world refining capacity is likely to increase significantly in the coming years as the region aims to take a greater share of the higher-value production chain, thereby also increasing the sector's exposure to a fairly volatile business sector.
"However, the region's large and high-complexity projects are likely to be better positioned to withstand the cyclicality of the refining industry," said Philipp Lotter at Moody's Corporate Finance Group in Dubai and principal author of the report. "We also view favourably the long-term plans of GCC governments to capture a greater share of the sale of premium products, despite the considerable investments that are required over the medium term."
Moody's new report said that, paradoxically, the region has been experiencing a severe gas shortage due to rising domestic consumption, which has mainly been driven by the spiralling demand for electricity generation and water desalination. "Key economic incentives need to be established to address this issue, which will otherwise negatively affect future growth prospects," cautioned Lotter.
The recent economic downturn and tighter credit conditions have negatively affected investments in the industry. "Key projects that will produce long-term benefits to host countries are likely to go ahead, driven primarily by the determination of regional governments to support their most vital sector," said Raffaele Semonella, co-author of this report.
Moody's new report also notes that the Arabian Gulf region remains exposed to some wider political risk, which has been a fairly constant feature of the industry. This risk has been partially offset by the industry's highly strategic nature, as well as the execution of selected projects aimed at avoiding specific trouble spots. Examples include the construction of a crude oil pipeline from Abu Dhabi's onshore fields to the eastern coast of the United Arab Emirates, thus bypassing the traffic-heavy Strait of Hormuz, as well as the development of Saudi Arabia's Red Sea coast oil and gas installations.