Gulf downstream oil projects are expected to be the main victim of the global financial crisis as strong Asian demand for crude could keep upstream ventures on track, according to a key Gulf investment bank.

While the six Gulf Co-operation Council (GCC) countries are pushing ahead with upstream plans to expand their crude output capacity, some of them have already announced the partial delay of refining and other downstream ventures, the Kuwaiti-based Global Investment House (GIH) said in its monthly oil sector report, sent to Emirates Business yesterday.

"The sub-prime mortgage crisis has compelled regional governments to revisit their developmental projects, which could lead to delays or dropouts, especially in the downstream sector," GIH said.

"This is mainly because of a decline in global demand, threat of oversupply of products such as, fertilisers, petrochemicals and refined petroleum products and a decrease in margins due to decline in prices and fixed feedstock prices.

"We believe that the delays or dropouts are most likely to affect projects that are in their initial execution stages, which include those in the bidding round or are expected to be executed after 2010."

The report said announcements by Saudi Arabia and other oil companies in the region supported its views about the shelving of some projects mainly because of lower demand and the global credit crunch.

It refered to a recent statement by the Saudi Basic Industries Corporation (Sabic) which said it expected an early completion of Yanbu National Petrochemical Company and Saudi European – Ibn Zahr Company.

"However, the Saudi Government has announced a delay in Saudi Arabian Yanbu Refinery, which was expected to commence its operations in 2013.

"The refinery is designed to refine 400,000 barrels of oil per day," the report said.

In contrast, the global crisis does not have a major impact on the region's upstream oil projects on the grounds governments will take advantage of a steady decline in development costs, GIH said.

It said the output cut by Gulf and other Opec countries should not be linked to what it called the dropouts or delay in upstream projects as the production cut is mainly allocated to the existing fields and the programmes are undertaken as long term investment.

"We believe that the willingness of regional government towards pursuing upstream projects is mainly due to the following reasons: The existence of basic demand for crude oil and gas," it said.

"The growing economies in Asia, mainly India and China require oil and gas to sustain the growth in their economies. The combined demand from India and China is expected to grow 2.4 and 2.1 per cent during 2007-2008 respectively as compared to the world's demand growth of around 1.3 per cent. More interestingly, these countries rely heavily on the imports of hydrocarbon from the Gulf region."

Citing its own estimates and independent reports, GIH put the total cost of planned upstream oil projects in the GCC at around $55 billion (Dh201bn), most of which are based in the UAE, Saudi Arabia and Kuwait. The biggest projects include the $10bn sour gas field development in Abu Dhabi, the $12bn Khurais field development carried out by Saudi Aramco, and Project Kuwait to develop border fields near Iraq at a cost of $9bn.

The continuation of upstream projects was reflected in decisions by some regional states, including that by Saudi Arabia to re-launch the tender of $10 billion for Manifa oil project, GIH said.


Upstream bandwagon

- The investment of $1.2 billion (Dh4.4bn) to increase production from Dammam Oil Field, Saudi Arabia, by 100,000 barrels per day.

- The preference of Saudi Government to spend its funds for local support rather than giving it to IMF for global bailout programme.

- The Qatari Government has signed 25-year deal of exploration and production of oil and gas with the Germany's Wintershall Holding AG, which covers the development of new offshore block close to the world's largest natural gas field.

- The UAE Dana Gas has recently declared the successful commencement of production from Kurdistan Region Iraq and Egyptian concession. In addition, Dana Gas PJSC has also announced a five year plan which states out acquisitions and increased oil and gas exploration and production activities. 

- The UAE International Petroleum Investment Company (IPIC) and Total SA are planning to co-operate in the development of local oil and gas projects.