Manama: Gulf States should combat this period of extreme volatility in the oil and gas markets by accelerating the integration of their regional energy infrastructure and extend the network’s connectivity to include regional neighbours in South Asia such as India and Pakistan, industry leaders and analysts said.
After years of stability above $100 a barrel, Brent crude oil lost half its value in the second half last year, followed by a 50 per cent rally, which ran out of steam over the summer and has since dropped again by a third.
The uncertain outlook has triggered the cancellation of a number of projects, jeopardising much-needed investment in long-term oil production capacity.
Reflecting a potential slowing of non-OECD demand growth and higher global production levels, crude oil implied volatility increased in July and the first week of August.
The front month implied volatility for Brent and WTI futures contracts settled at 37.6pc and 38.7pc, respectively, on August 6.
Although implied volatility levels are lower than earlier this year, they are still well above levels in 2013 and 2014 as risks for both upside and downside price movements remain elevated in the market.
“The Gulf would be best-served by embarking on more initiatives aimed at integrating regional energy infrastructure such as the Dolphin gas pipeline and the Gulf-wide electricity grid interconnection,” said Abdullah Al Attiyah, who was the architect of the Dolphin project during his tenure as Qatar’s Energy Minister.
Top energy industry officials and executives from the GCC’s national oil companies will meet their international industry peers, including Vitol, Shell and Gulf Petrochem, at the fifth Gulf Intelligence Energy Markets Forum in Fujairah on September 17 for a debate on how best to tackle this new low price era.
The Dolphin pipeline, which transports natural gas from Qatar to the UAE and on to Oman, serves as an example of how cross-border initiatives can create value for all stakeholders.
The infrastructure-led approach has gone some way towards fostering economic integration between GCC states.
The regional electricity grid interconnection is a case in point.
The project has provided benefits to all member states by increasing efficiencies in the regional power sector and reducing investment requirements into new electricity generation capacity.
At the same time, intra-country initiatives such as the Abu Dhabi-Fujairah pipeline in the UAE support domestic development but could also potentially benefit the wider region if incorporated into a broader energy strategy.
“A sustained and joint push by GCC countries towards building out and integrating their transport and energy infrastructure further will produce great benefits,” said Shaikh Saleh Al Sharqi, who’s chairman of both Fujairah Department of Industry and Economy and the Port of Fujairah.
“Sitting at the crossroads of old and new trade routes such as the south energy corridor, which links Africa, the Middle East and Asia, the UAE and its Gulf neighbours have an opportunity to use their strategic geographic location and advanced infrastructure to capture a growing share of the ensuing trade,” said Shaikh Saleh.
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