Oapec income hit by inflation and weak dollar

A weak US dollar and high global inflation rates cost Arab crude producers nearly $124 billion (Dh455.08bn) in 2008, although oil prices hit historic record levels and regional nations pumped at near capacity, according to official data.

The surge in crude prices and output boosted the nominal Arab oil income to a record high of $618bn but real earnings were only abound $494bn, the 11-nation Organisation of Arab Petroleum Exporting Countries (Oapec) said in its annual report for 2008, published yesterday.

The report also showed a sharp increase in the domestic energy consumption of regional countries due to a steady economic growth during the oil boom of the last few years while their hydrocarbon reserves maintained a steady rise despite several years of high crude production.

"Arab oil export earnings increased to a record high of around $618bn in current prices last year as a result of higher prices and production… but in 1995 dollar price, the earnings stood at only $494.6bn," the 250-page report said.

"The real income was calculated on the basis of the dollar purchasing power, GDP deflator in industrial countries and inflation rates worldwide."



Quarterly income

A breakdown showed the nominal earnings stood at around $145.7bn in the first quarter of 2008 and nearly $188.7bn in the second quarter. They peaked at $191.2bn in the third quarter when oil prices soared to $113 a barrel.

The revenues dived to around $83.3bn in the last quarter after oil prices plummeted by more than $100 because of the global financial distress.

Compared to 2007, the 2008 earnings were higher by nearly 45 per cent or around $193bn because of lower oil prices in 2007.

Country-wise, then nominal oil income of the UAE stood at $80.6bn in 2008 while Saudi Arabia, the world's oil basin, netted more than a third of the total Arab revenues, with around $267bn, the Kuwait-based Oapec said.

Revenues were put at about $71.2bn in Kuwait, $52bn in Libya, $38.5bn in Algeria and about $63bn in conflict-battered Iraq. The 2008 income of Oapec's members was nearly double the 2005 earnings of $320bn and nearly triple the 2004 revenues of $219bn.

The report noted that inflation and volatility in the US dollar had hit the region's crude earnings over the past years.

While nominal income stood at $424bn in 2007, real revenues were only around $347bn. In 2006, nominal earnings stood at around $390bn compared to real income of nearly $325bn.

The report estimated the nominal average price of Oapec's basket of crudes at around $94.1 in 2008 but real price was only $75.3 a barrel. Nominal prices stood at $69.1 in 2007 compared with real prices of $50.8. There was also a big gap between the nominal and real prices in the previous years.



Oil tax

According to the report, the surge in crude prices over the past few years has benefited consuming countries more than the producers as their revenues from oil taxes far exceeded the total Arab oil export earnings.

During 2002-2006, Arab oil producers netted about $1,205bn from their crude exports while taxes in seven major industrial nations (G7) fetched them a staggering $2,310bn, said Oapec, which groups the UAE, Saudi Arabia, Kuwait, Bahrain, Qatar, Iraq, Libya, Algeria, Tunisia, Egypt and Syria.

"The figures prove that the revenues of the industrial countries from oil taxes and those of the IOCs far exceed the income of Arab oil producers. During 2002-2006, the IOCs netted nearly five times the income of Oapec members while the revenues of industrial nations from energy taxes were almost double Oapec's income. This shows they benefit from high oil prices," it said.

"On a yearly basis, the annual average income of Oapec member countries was around $241bn during that period while it was as high as $460bn in the industrial countries and $1,100bn in IOCs."



Reserves

In terms of reserves, the study estimated the recoverable oil deposits at about 672.18 billion barrels at the end of 2008, accounting for nearly 57.7 per cent of the world's total extractable crude resources. Arab proven gas reserves were put at around 53.7 trillion cubic metres, nearly 30.3 per cent of the world's gas deposits.

But the report noted that the oil and gas production in Arab countries does not match their massive resources as it accounted for 27.5 and 13.4 per cent of the world's total oil and gas output respectively.

"Arab oil production stood at about 23.7 million barrels per day and gas production at nearly 392 billion cubic metres in 2008…this shows that the oil and gas output in the region is low compared with the massive resources."

Although they pumped in excess of 50 billion barrels of oil during 2003-2008, Arab countries have managed to increase their crude reserves by about 14 billion barrels from 658 billion to 672 billion barrels, the report showed.

The increase was a result of new discoveries in some member states, development of major fields and introduction of advanced technology.

Most of the increase was achieved in Sudan, where they jumped from less than one billion barrels to five billion barrels. The rest came from Saudi Arabia, Kuwait, and Libya, which boosted them by around two billion barrels each.

Gas reserves grew by around 1.7 trillion cubic metres, and the bulk of the increase was achieved in Kuwait, Saudi Arabia and Egypt, the report said.



Refining

In the downstream oil sector, the report showed Arab states had 64 refineries with a combined output of around 7.39 mbpd at the end of 2008 compared with nearly 7.2 million bpd at the end of 2006.

The increase last year was mainly a result of expansion in refining units in some members, including the UAE, where refining capacity grew to 798,000 bpd from 778,000 bpd in 2006. Saudi Arabia's refining output remained unchanged at around $2.095 mbpd, but it accounted for nearly 27 per cent of the total Arab refining production.

The kingdom's capacity is also projected to rise sharply in the next few years as it is pushing ahead with major refining projects. Kuwait had the second largest refining capacity in the region, standing at 889,000 bpd.

Other key Gulf producers in this sector include Bahrain and Oman, with around 249,000 bpd and 222,000 bpd respectively. Iraq's refining capacity has remained unchanged at 597,000 bpd since 2003.

Outside the Gulf, Egypt had the highest refining capacity in the region, with around 726,000 bpd. It was followed by Algeria and Libya, with their refining production standing at 463,000 and 378,000 bpd respectively.

But the report noted that capacity remained almost unchanged at the end of 2008 compared with the end of 2007 because of the delay in some projects due to the surge in construction costs and the global credit crunch.

"Many new and expansion refining projects in the Arab world were delayed although some of them should have been completed or launched in 2008. The bulk of the delayed projects were new refineries," Oapec said.

"There were several reasons for this delay or shelving, mainly the surge in construction costs, the global financial crisis, stricter environment requirements and the sharp decline in oil prices in the last quarter of 2008."



Consumption

According to Oapec, the combined energy consumption among its members has grown fast over the past few years because of an economic upswing in most nations.

From about 7.4 million barrels of oil equivalent (boe) in 2004, Oapec's total energy consumption rose to nearly 8.3 million boe in 2006, to 8.7 million boe in 2007 and around 9.1 million boe in 2008.

The report showed all members recorded increase in demand over the past two years, with that in the UAE peaking at around one million bpd last year compared with 960,000 bpd in 2007. Saudi Arabia's energy consumption, by far the highest in the Arab region, grew to 2.76 million boe from 2.65 million bpd.

Demand grew to 612,000 boe from 589,000boe in Kuwait, to around 585,000 boe from 548,000boe in Qatar and 580,000boe from 565,000boe in Iraq.

Egypt, the most populous Arab nation, ranked second in energy consumption, which rose to 1.27 million boe from 1.22 million boe during the same period.

The figures showed gas demand in the region has grown faster than oil over the past five years as many countries are gradually switching to the cleaner source of energy in power generation and other uses.

From around 3.46 million boe, oil consumption in Oapec countries grew by around 22 per cent, an average annual growth of 5.5 per cent. Gas demand increased by 24.2 per cent, or an annual growth of 6.05 per cent.

The report showed Saudi Arabia was the second largest gas consumer in 2008, with around 1.1 million boe.

The UAE came second with a consumption of nearly 650,000 boe, followed by Egypt, with around 560,000boe.



 

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