Syed Rashid Husain Despite higher output in recent months, courtesy of the weak market conditions, OPEC revenues slumped below $1 trillion in 2014 - for first time since 2010 - Bloomberg reported. OPEC's '12 members earned $993.3 billion in 2014, a decrease of 11 percent from a year earlier,' the report said, adding that the group's combined current account balance too went down by a whopping 35 percent to $273.6 billion, as drop in exports was also accompanied by an increase in imports. The International Monetary Fund (IMF) had earlier projected that GCC earnings from oil and gas exports are likely to drop by about $300 billion due to soft oil market conditions. “It is expected that Kuwait, Qatar and UAE will have a fiscal surplus, albeit smaller than the previous years. The lower realization from oil and gas exports alone is estimated at around $300 billion in 2015 for the GCC region," the IMF had projected. The World Bank in the meantime has also slashed this year's growth forecasts for the developing economies. In its latest Global Economic Prospects released earlier the month, the World Bank forecasts a flat growth of 2.2 percent in 2015 in the Middle East and North African region. 'The plunge in oil prices is a particular challenge for oil-exporting countries, most of which also have severe security challenges (Iraq, Libya and Yemen) or limited economic cushion (Iran and Iraq).' “The oil price drop would imply a large shift in the GCC's aggregated fiscal balance from a surplus of 11 per cent in 2013 amounting to $401 billion to a deficit of about 2 percent in 2015 amounting to $69 billion," the Institute of International Finance too reported. Gulf Cooperation Council members countries stand to lose $240 billion in hard-earned assets in 2015 if oil prices stay at low levels, on or around the average at $55 per barrel, for the rest of the year, Alp Eke, director and senior economist at the National Bank of Abu Dhabi's (NBAD) was quoted in the regional press as saying. If prices stay at this level, Saudi Arabia could lose around $160 billion in assets, while the UAE might also lose around $55 billion. Oman and Bahrain too were likely to face difficulty, with both expected to sustain fiscal deficits of -13 per cent and -13.5, respectively. They are also forecasted to register current account deficits of -17 percent and -10 percent, respectively. Saudi Arabia Monetary Agency (SAMA) reports too confirm the trend. As of April 2015, Saudi reserves at $686 billion, were almost $60 billion down from August 2014 levels ($746 billion). Government deposits, due lower crude oil revenues, have also started slowing down. "If we assume the oil price were to remain at say $55 for the rest of the year, and no change in planned government spending, GCC nations could experience over $200 billion of depletion in the collective net foreign assets in 2015 alone,” the National Bank of Abu Dhabi report said. Most producers' are faced with major financial issues - none can argue. Yet, it has other dimensions. It carries long-term consequences too. Project delays and spending cutbacks being witnessed all around are posing a risk to future supplies. Speaking at the conclusion of OPEC moot in Vienna, earlier the month, the Qatari Energy Minister Mohammed Saleh Al-Sada was quoted by The Telegraph as underlining that the impact of cost cutting across the industry needed to be assessed to ensure that enough new production would come on stream to replace natural declines. As per OPEC estimates, the world will need to find and produce at least another 20 million barrels per day (bpd) of crude by 2040 when global demand is expected to reach 111m bpd. The scenario is definitely not rosy. “The degree of investment cuts is substantial due to the oil price of today,” Sada warned. Countries in OPEC, that pump a third of the world's oil, needed to invest heavily to replace an average 5pc-6pc natural decline in oil production from existing wells, he emphasized. Secretary General Abdalla Salem El-Badri, too underlined: “If we don't have investment now, we will have problems in the future.” None can argue that! Situation on that front is not encouraging - to say the least. In Europe and the UK around £55bn-worth of oil and gas developments are under threat , Wood MacKenzie estimates. Already a number of deepwater oil projects and complex gas facilities worth around $200 billion have been cancelled or put on hold worldwide in recent months due to the sharp drop in oil prices over the past year, a Ernst and Young (E&Y) report asserted last week. Further project cuts and delays are likely, as the industry braces for an extended period of lower oil prices as a result of a supply glut, the report pointed out. "The mind set in the industry at the moment is that prices are unlikely to be bouncing up materially in the near term," Reuters said quoting the consultancy's Andy Brogan as emphasizing. "There is an expectation that volatility is with us for a reasonable period of time to come and companies need to cope with that." The delays in multi-billion dollar projects that can take up to 10 years to develop, and needed to support rising global demand for energy, could create a (crude) shortage in the future, the report underlined. International companies have responded rapidly to the near halving of oil prices since last June, slashing tens of billions of dollars in capital spending in order to boost their balance sheets and maintain dividend payouts to investors, the report added. "Portfolios reviews are happening more frequently and probably with more rigor," Brogan told the World National Oil Companies Congress. "There isn't anywhere for projects to hide." The main 24 mega-projects that have been put on ice or scrapped are spread across the globe, the report clarified. The long-term outlook of the market is beginning to appear hazy. Indeed there are ifs and buts. A lot of variables would have a bearing on the ultimate scenario, none can deny. Yet with other variables staying constant, and demand growing over the next 5-10 years as projected, markets could be in for a crude awakening.
