Slowing of oil production leads experts to predict peak oil demands

Demand is unlikely to fall sharply once oil peaks, the OIES said. (Shutterstock)
Updated 10 December 2018
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Slowing of oil production leads experts to predict peak oil demands

LONDON: The prospect that global oil demand will gradually slow and eventually peak has created a cottage industry of executives and commentators trying to predict the point at which demand will peak. 

But in a new report from the Oxford Institute of Energy Studies, seen by Arab News, the organization argues that this focus seems misplaced.  

“The date at which oil demand will stop growing is highly uncertain and small changes in assumptions can lead to vastly different estimates,” it suggested.  

More importantly, said the OIES, there is little reason to believe that once it does peak, oil demand will fall sharply. 

 

“The world is likely to demand large quantities of oil for many decades to come. Rather, the significance of peak oil is that it signals a shift in paradigm — from an age of (perceived) scarcity to an age of abundance — and with it is likely to herald a shift to a more competitive market environment.”  

This change in paradigm is expected to pose material challenges for oil-producing economies as they try both to ensure that their oil is produced and consumed, and at the same time diversify their economies.”

OIES said: “It seems likely that many low-cost producers will delay the pace at which they adopt a more competitive “higher volume, lower price” strategy until they reduce the “social costs” of oil production associated with using oil revenues to finance many other aspects of their economy, such as health-care provision or public-sector employment. 

OIES added that it was unlikely that oil prices would stabilize around a level in which many of the world’s major oil-producing economies were running large and persistent fiscal deficits.  

“As such, the average level of oil prices over the next few decades is likely to depend more on developments in the social cost of production across the major oil producing economies than on the physical cost of extraction,” said the OIES paper.

Decoder

Peak oil

This is the point, in theory, at which the maximum rate of crude extraction is reached and then goes into terminal decline.


Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”