Font Size

- Aa +

Thu 2 Apr 2009 06:50 AM

Font Size

- Aa +

Oman facing dilemma on industry investment - analyst

EXCLUSIVE: Energy expert sees country struggling to increase oil, gas capacity.

Oman may struggle to increase its oil and gas capacity if the global economic crisis continues because of funding commitments to develop its ports and other industries, according to an energy analyst on Wednesday.

It was vital oil producing Gulf countries invested in expanding refinery capacity to avoid a “supply crunch” in the future, said Abhay Bhargava, industry manager, energy and power, systems practice, Middle East and North Africa, for consultancy firm Frost & Sullivan.

But countries reliant on attracting project financing from external sources such as international oil companies to cover investment in capacity would suffer more from the collapse in oil prices than those able to dip into returning inflows from government sovereign wealth funds (SWFs), he said

Oil prices have tumbled by around two-thirds from highs of $147 in July 2008.

“Countries facing issues on attracting project finance will suffer,” said Bhargava in an interview.

“The finger will point to parts of North Africa and I think Oman will suffer in the later stages if you don’t see a recession lifting out. Oman is already committed to diversifying into ports and other sectors as they increase their industrial developments, this will cause a strain in terms of going ahead with capacity increases later on.”

He said low oil prices would also put a strain on plans by petroleum companies to spend on renewable sources of energy, placing the burden of responsibility for investment in this sector with governments.

“The business case for investment into renewables by companies was the high price of oil,” he said. “The fall in prices and availability of oil means the situation is so serious that you will see governments going ahead with spending but that’s about it.”

Bhargava said he expected the price of oil to hover around $50 for 2009, with production cuts announced by OPEC largely ineffective.

“Production cuts are not an isolated factor anymore like last year,” he said. “Last year if you reduced production you would see price increases, this year it’s the demand that’s taken control. Unless demand picks up I don’t see the OPEC cuts having a phenomenal affect on prices.”