Middle East & North Africa need $1 trillion energy boost by 2030
Six Gulf Cooperation Council countries will make up 50% of MENA GDP by 2015, says IHS in their latest report
More than USD1 trillion of investments are needed by 2030 to meet demand for gas and electricity in the Middle East and North Africa and soon nearly 50 percent of its economic growth will come from the six Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) – according to research company IHS which released the report at the ADIPEC 2013 oil and gas conference in Abu Dhabi.
Demand for natural gas in the GCC countries will rise more than 50 percent by 2030, from 256 billion cubic metres (bcm) in 2011 to 400 bcm in 2030. At the same time, demand for oil from the GCC will also grow by more than 50 percent by 2030, from around 4 million barrels per day(mbd) to more than 6.2 mbd.
Leila Benali, director, IHS Energy, said: “Recent political events in Egypt, geopolitical developments in Iran and emerging energy players like Israel are unlikely to change the need for investment in the Middle East and North Africa. On the contrary, leaders in the region want to keep the oil and gas flowing, keep the lights on and their economies growing. Their ability to make these vital investments depends on their ability to diversify their economies and adapt to the global energy revolutions.”
GCC countries are forecast to deliver nearly 50 percent of the total GDP for all the Middle East and North Africa by 2015 – USD1.8 trillion of economic activity. Today the GCC delivers 60 percent (USD1.6 trillion) of all economic activity in the Middle East. The GCC could grow annually by 4 percent in real terms through to 2030. In the near term, GCC GDP will grow by 4.3 percent in 2014 and 4.5 percent in 2015.
Total trade (or merchandise trade) between the GCC and China grew to USD155 billion in 2012, which is 16 times larger than trade in 2001. Trade between the GCC and India rose 29 times to USD159 billion in 2012.
Bryan Plamondon, senior economist, IHS Global Insight, said: “The Middle East has looked to Asia in search of economic growth, taking advantage of its geostrategic position between East and West. Saudi Arabia, the United Arab Emirates and Kuwait will want to export more crude oil to Asia, forging closer links with Asia as they respond to the revival of US oil production. The energy-thirsty economies of China and India have become key trade partners for the GCC and wider Middle East, looking to Iran and Iraq for energy opportunities as well. But, future growth depends on how quickly the GCC countries can diversify and embrace Asia. They have been quick so far. We will see how it continues.”
“In addition to oil and gas, exports of petrochemicals, plastics and other goods to and from the GCC and Asia will increase in growing trade between the two regions in the next 10 years,” Plamondon added. “Development projects in the Gulf will spur the need for imports of machinery and equipment, transport, and infrastructure goods, opening the door for greater trade with Asian countries.”
Another report by Economic Intelligence Unit (EIU) says substantial portion of petrodollar investment currently going into the Asian region (estimated at around 10-11% of total Gulf outward investment) will increase significantly over the next five years.
According to an analysis by Oxford Analytica:
Relations between the Gulf Cooperation Council (GCC), East Asia and India have intensified as trade among the regions becomes important – especially over the last decade. East Asia now accounts for over 57% of all the GCC’s external trade, supplanting falling trade volumes from Western countries. East Asia and India are already considerably dependent upon the GCC for their oil and natural gas needs. Strong economic growth in the region will ensure that this hydrocarbon dependence increases, creating the potential for a gradual geopolitical shift on the part of the GCC member countries towards East Asia and away from the West.
The GCC-Asia relationis to further strengthen in the coming years, according to the report.
“The Gulf region is reorienting its oil and natural gas exports away from Western markets towards emerging markets in Asia. Reliance on Asian markets as a destination for exports will grow as the United States shifts to energy self-sufficiency. China’s increasing demand for GCC oil and natural gas is unlikely to taper off for at least the next two decades, and provides a dependable market for exports due to high economic growth rates. These shifts will lead to a strengthening of GCC-Asia strategic ties more broadly.”
Out of the approximately 13 million barrels of crude oil per day (bpd) produced by the GCC, about two-thirds are exported to the Asia-Pacific region – showing just how the asian markets have become increasingly reliant on Gulf energy exports to fuel their economic growth.
-South Korea and Japan are the most heavily dependent on Gulf crude, and currently receive 70% and 80% of their oil imports from the GCC, respectively.
-China imported over 36% of its oil from the Gulf, while Gulf oil exports comprised approximately 45% of India’s oil.
-Oil exported from Saudi Arabia to China and India consisted of 20% and 19% total oil imports, respectively.
Other important highlights from the Oxford Analytica report on the shifting energy markets resulting in GCC tilt towards Asia:
-China’s increasing demand for GCC oil and natural gas is unlikely to taper off for at least the next two decades, and provides a dependable market for exports due to high economic growth rates. This is despite among other things, China having the largest estimated shale gas reserves (19% of the world total).
-Reduced demand from the west and rising demand from the east. The United States, once the most important market for GCC oil producers, has reduced its total oil imports from 60% of total oil consumed in 2005 to 40% last year. According to EIA projections, the United States will only import 30% of total oil needs this year.
-GCC-East Asia Trade doubles in 4 years. Overall trade between the GCC and East Asia (South Korea, Japan, Taiwan, China) grew from 480 billion dollars in 2008 to 814 billion dollars in 2012, nearly doubling in four years.
-While the United States and the EU together accounted for about 85% of trade with the GCC in 1980, this number had shrunk to 21% by end-2012. During the same period, total trade with Asia grew to 57% by the end of 2012, up from 10% in 1980.
-Total trade with China accounted for less than 2% of GCC foreign trade in 1992, but exceeded 10.6% as of last year. India accounted for 3% of total trade in 1992, and grew to 10.7% over the same period.
-Up to 90% of GCC oil exports could be destined for India and China as these markets mature. Chinese demand for oil is projected to grow by 3.6% annually between 2012 and 2030, and by 1.29% between 2030 and 2040. Indian demand for oil is expected to grow by 2.6% per annum between 2012 and 2040.
Commenting on the report, UAE-based political analyst Dr. N. Janardhan told Arabian Gazette:
“The GCC countries export two thirds of their oil output to Asia, which could more than double during the next two decades. Further, more than half of GCC exports go to Asian countries while a third of GCC imports are from Asia. Partly as a result of 9/11 and partly due to the surge of Asian economies, East is also the GCC’s preferred market. This ‘Look East’ policy in the economic realm comes at a time of regional introspection in the political arena too, which is likely to influence the long-term political economy of the GCC countries and shape international relations in the coming decades.
The ‘Look East’ policy has to go beyond preferential trading arrangements and newfound political warmth, and address security strategies as well. As the GCC countries revisit the security scenario in the region, compartmentalise their interests and associate them with various countries and blocs, as well as search for alternative security mechanism, it is important that that Asia and the GCC countries engage in meaningful dialogue and cooperation to translate their desire and potential into reality.”