The Capital Crunch about to Reach the Middle East?
Now, A well-connected Middle East Consultant has updated its rolling 5 year capital program for the region, which highlights the ‘rubber meets the road’ of these programs. The report segments capital needs into several categories, including crude oil production, natural gas/energy infrastructure, water, and power generation. The message is that, while the budget is rising (but not for all), the trend does not float all boats. Crude-directed investment is below the 2008 forecast, while gas upstream and power generation plans continue to rise, and each now exceed oil budgets. This as finding costs rise, even in the region. Meanwhile, regional oil consumption growth continues to exceed all but Chinese trends, and Saudi Arabia’s crude demand exceeds the US on a per capita basis on 40% of the auto density.
There is a clear differentiation between countries spending more money versus the others. More stable ‘regimes’ – Saudi and the UAE, have raised their five year outlook, while Iran, Algeria, Egypt, Libya, and Syria are all planning to spend less on energy/infrastructure. That said, Qatar (low stress politics) will spend much less, and Kuwait’s budget is also down modestly.
My point is that, not only is the investment mix (and export capacity) shifting, with some negative implications for global supply, but the report suggests that the debt/equity mix, amidst a global contraction in liquidity, will have to shift toward equity – whose? One might expect (a) more hurdles as the region enhances social spending while seeking to finance mega projects, (b) a different mix in financiers, as Chinese surpluses (?) supplant a largely European role. In combination with increasingly imposing natural gas issues (see above), one might wonder if we all just have a different entitlement mess.