LONDON: Even if oil consumption reaches a peak and then starts to fall, the world will still need large quantities of oil for many decades to come.
The prediction is contained in a thoughtful paper co-authored by Spencer Dale, chief economist of BP, and Bassam Fattouh, director of the Oxford Institute for Energy Studies.
“Global oil demand is likely to continue growing for a period, driven by rising prosperity in fast-growing developing economies,” they wrote in a paper published on Monday.
“But that pace of growth is likely to slow over time and eventually plateau, as efficiency improvements accelerate.”
The implication is that consumption is likely to reach a maximum at some point and then start to fall, though the timing and magnitude of the peak are highly uncertain and very sensitive to assumptions.
And even once demand has peaked, consumption is unlikely to drop sharply, the authors argue, given the inherent advantages of oil as an energy source, particularly its energy density.
“Peaking oil demand is not expected to trigger a significant discontinuity or sharp fall in demand,” they wrote.
Under most scenarios, the world will still be consuming tens of millions of barrels of oil per day through the middle of the century.
There are sufficient known oil resources to meet all the world’s oil demand through 2050 twice over, according to BP estimates.
But given the natural decline in output from existing fields, substantial investment will be needed to turn those resources into reserves and produce them.
The predicted peaking of consumption, coupled with vast resources, and new production made possible by hydraulic fracturing and horizontal drilling have transformed the long-term outlook for the oil industry.
The dominant narrative, which before 2008 was characterised by fears about future scarcity and oil supplies running out, has been transformed into one about future abundance.
Some now worry that many of those resources will never be needed and may become stranded assets — a welcome development for climate campaigners but a potential problem for oil producers.
Peak oil demand signals “a shift in paradigm: From an age of scarcity to an age of abundance, with potentially profound implications for oil markets,” according to Dale and Fattouh.
In an era of abundance, oil markets are likely to become increasingly competitive, as resource owners compete to secure market share and produce their reserves rather than risk them being left in the ground.
“Faced with the possibility that significant amounts of recoverable oil may never be extracted, low-cost producers have a strong incentive to use their comparative advantage to squeeze out high-cost producers and gain market share.”
Better to have money in the bank than leave oil in the ground.
As the oil market becomes more competitive, low-cost producers will find it more profitable to switch to a high-volume, lower price strategy — in contrast to the old strategy of restricting volumes and raising prices.
The argument applies especially to Saudi Arabia, Kuwait and Abu Dhabi.
The implication is that many producing countries will see revenues and formerly high resource rents decline, to the benefit of consumers.
In theory, competition for market share should drive oil prices down to the marginal cost of extraction, which the authors suggest could be lower than $10 per barrel for the major Middle East producers.
But these countries rely heavily on oil revenues to fund government operations, defense, healthcare, education and social safety nets. They need prices well above the marginal cost of extraction.
To be sustainable, oil prices must be high enough to cover these “social costs” as well as the much lower costs of physical extraction.
The authors cite fiscal breakeven prices as a proxy for social costs and say breakevens for five major Middle Eastern producers averaged $60 per barrel in 2016 compared with a physical cost of production of just $10.
Many low-cost producers recognize the need to diversify their economies away from dependence on oil but experience suggests such transitions take decades to complete.
In the meantime, the authors argue, many low-cost producers will try to resist the shift to a higher-volume, lower-price strategy while they try to make progress with the transition.
The problem with this argument is that it makes oil prices a function of social costs. In reality, it is the other way around — price drives social spending.
Dale and Fattouh argue that “it is likely that many low-cost producers will delay adopting a more competitive strategy until they have made significant progress in reforming their economies. This is likely to slow the speed at which the new competitive oil market emerges.”
“The shift to a more competitive oil market environment won’t just happen on its own accord, it requires a critical mass of low-cost producers both to recognize the need to adopt a more competitive strategy and, more importantly, to have reformed their economies sufficiently for them to be able to adopt such a strategy sustainably.”
If social costs in many low-cost producing countries remain high, according to Dale and Fattouh, that is likely to slow the pace at which a more competitive market takes hold, until they can reduce them.
Fattouh and Dale assume that Saudi Arabia and the other low-cost Middle East oil producers can successfully exercise market power, restricting production to keep prices high.
But they are probably overstating OPEC’s market power.
In the 1980s, OPEC’s market power was broken by the emergence of rival oil supplies from the North Sea as well as Russia, Alaska and China. In the 2010s, its market power was hit by the emergence of US shale, Canadian heavy oil and deepwater projects.
In practice, prices have been driven by the cost of developing and producing alternative supplies outside the major producing economies of the Middle East.
The cost of these alternative supplies is well above the $10 physical extraction cost of the major Middle East fields — but it may or may not be high enough to cover their social costs.
In future, the major oil producers will also have to reckon with increasing competition from other forms of energy.
Dale and Fattouh conclude that social costs and the pace of economic reform in the major oil-producing countries will have a decisive impact on oil prices over the next few decades.
In practice, the opposite is probably true. Oil prices and the degree of competition from other sources of supply, as well as electric vehicles, will have a decisive impact on the producers’ social spending and the rate of diversification.
• John Kemp is a Reuters market analyst. The views expressed are his own.
Peak oil demand and its implications for Gulf producers
Peak oil demand and its implications for Gulf producers
Closing Bell – Saudi stocks defy regional trend with 1% gain as Gulf markets decline
RIYADH: Saudi Arabia emerged as the sole gainer among Gulf markets on Monday, with the Tadawul All Share Index rising 1.05 percent to close at 11,194.02, up 116.83 points.
The advance stood in sharp contrast to regional peers, all of which closed in negative territory, highlighting investor confidence in the Kingdom’s market despite broader pressures.
The rebound followed two consecutive sessions of losses driven by concerns over newly announced US tariffs.
Trading activity was strong, with TASI’s turnover reaching SR10.5 billion ($2.8 billion), as 150 stocks advanced and 91 declined.
The MSCI Tadawul Index also gained 1.07 percent to 1,420.65. The parallel market Nomu inched up 0.01 percent to 28,650.28, with 35 stocks rising and 50 falling.
Other Gulf markets closed lower, as Abu Dhabi fell 2.58 percent, Dubai dropped 3.07 percent, and Bahrain declined 1.15 percent. Qatar also slid 0.35 percent, Muscat lost 0.68 percent, and Kuwait edged down 0.64 percent.
On TASI, the National Co. for Learning and Education was the best-performing stock of the day, with its share price surging by 8.84 percent to SR160.
Other top performers included Mutakamela Insurance Co., which saw its share price rise by 7.18 percent to SR15.22, and ACWA Power Co., which saw a 6.77 percent increase to SR331.
Kingdom Holding Co. rose 5.67 percent to SR8.39, while Aldrees Petroleum and Transport Services Co. gained 5.26 percent to SR132.
Batic Investments and Logistics Co. saw the steepest decline of the day, with its share price easing 9.80 percent to close at SR2.21.
Saudi Real Estate Co. fell 6.02 percent to SR20.30, while Middle East Specialized Cables Co. dropped 5.71 percent to SR31.35.
Nama Chemicals Co. also faced a loss in today’s session, with its share price dipping 5.58 percent to SR28.75, while Red Sea International Co. saw a 5.49 percent drop to settle at SR35.30.
On the announcement front, Dallah Healthcare has completed the acquisition of 97.41 percent of Al-Ahsa Medical Services and 100 percent of Al-Salam Medical Services from Ayyan Investment Co.
The transaction involved issuing 3.89 million shares and a cash payment of SR143.37 million.
As a result, Dallah’s capital increased by 3.99 percent to over SR1.015 billion. Concurrently, Dallah settled SR176.46 million in dues owed to Ayyan and agreed on further receivables of SR30.97 million.
The financial impact is expected to reflect in the first quarter of 2025, following the update of ownership records and completion of payment on April 6, according to a bourse filing.
The company’s share price rose 3.31 percent on Monday to reach SR125.
Arabian Drilling announced the acquisition of a new self-elevating service vessel valued at approximately SR260 million, including shipyard modifications and mobilization.
The purchase was financed internally and expands the company’s fleet to 62 units, including 49 land rigs, 11 offshore jack-up rigs, and two service vessels.
The new asset is expected to begin operations by mid-2025 under a two-year contract, contributing to a backlog exceeding SR170 million.
The firm stated the acquisition supports its expansion into complementary service activities in the Arabian Gulf, where it currently operates one service vessel.
Arabian Drilling’s share price rose 0.12 percent on Monday to reach SR84.20.
Scientific & Medical Equipment House Co. has secured a contract worth SR44.52 million from the Madinah Health Cluster to provide nutrition services to three hospitals: the Specialized Psychiatric Hospital, Dar Nakehi Hospital for Psychiatric Disorders, and Al-Haram New Hospital in Madinah.
The contract, inclusive of VAT, will be implemented over a five-year period. The company expects the financial impact to begin in the third quarter of 2025.
It confirmed that all necessary approvals and signatures have been obtained, and it will announce any further developments as needed.
The company’s share price rose 3.51 percent to SR38.30 on Monday.
UAE sets tax nexus rules for non-resident investors in real estate, funds
RIYADH: The UAE has issued new guidelines that clarify when foreigners and non-residents will be treated as having a taxable presence in the country when it comes to real estate and investment funds.
The updated rules, announced by the Ministry of Finance, are aimed at reducing compliance burdens and increasing transparency, reported the Emirates News Agency, also known as WAM.
The decision outlines conditions under which a non-resident juridical person — typically a legal entity — would be considered to have a nexus in the UAE, and therefore be subject to corporate tax.
Under the new rules, a nexus is deemed to exist for non-resident juridical investors in Qualifying Investment Funds in specific cases. If the fund distributes at least 80 percent of its income within nine months from the end of its financial year, the nexus is triggered on the date of dividend distribution.
If that threshold is not met, the nexus is established on the date the ownership interest is acquired. A nexus will also apply if the fund fails to meet diversity of ownership conditions during the relevant tax period.
The same logic applies to Real Estate Investment Trusts, where a nexus is triggered either on the date of dividend distribution — provided 80 percent or more of income is distributed within nine months — or from the date of acquiring ownership if the condition is not satisfied, according to WAM.
Outside of these scenarios, non-resident juridical persons that invest exclusively in QIFs or REITs will not be considered to have a taxable presence in the UAE.
The ministry said the decision is intended to ease compliance requirements for foreign investors while supporting the country’s goal of fostering a transparent and competitive tax environment.
In December, the UAE announced the implementation of a 15 percent minimum top-up tax on large multinational companies, effective January.
The move aligns the country with the Organisation for Economic Co-operation and Development’s global minimum tax framework, aimed at curbing tax base erosion and profit shifting by ensuring large corporations pay a minimum level regardless of where they operate.
GCC markets provide strong hedge against global economic chaos
- EFG Hermes forecasts strong growth citing strategic diversification
DUBAI: Amid the ongoing global economic turbulence, the Gulf Cooperation Council region has demonstrated resilience, emerging as a dynamic hub. Its capital markets have weathered challenges, from US tariff shocks to fluctuations in oil prices, according to the group chief executive of EFG Holding.
In an interview with Arab News at the 19th Annual EFG Hermes One-on-One Investor Conference in Dubai, Karim Awad highlighted the region’s solid fundamentals, emphasizing that concerns over external shocks often overshadow its long-term growth potential.
“You’re seeing more IPOs coming to the region, and more sectors that are being represented on different exchanges, and this is all a reflection of the dynamism of the region as a whole,” Awad said.
Dismissing concerns over the effects of new US tariffs, Awad told Arab News that that the 10 percent tariff “is not a massive game-changer,” especially compared to the situation with China, but the panic tends to spread.
This optimism persists despite the global uncertainty, which includes rising US-China trade tensions, volatile oil prices, and ongoing geopolitical conflicts. However, Awad stressed that the GCC’s young, tech-savvy population and ongoing efforts toward economic diversification are unlocking unprecedented opportunities for growth.
“Investors are interested in a multitude of sectors. You have a young region, very dynamic technologies coming through today, a lot of tech companies. They like to see the different sectors that are coming from the region,” he said.
Away said the investors value the increasing economic diversification, as it’s not just about oil and gas, which is often the misconception. There is much more to offer, the top executive added.
Saudi Arabia’s diversification plans
Ahmed Shams, the head of research at EFG Hermes, an EFG Holding company, shared Awad’s optimistic views, particularly regarding Saudi Arabia.
Shams explained to Arab News that the Saudi market is driven by two key factors. The first is the transformation and economic diversification plans, and the second is the depth of the financial market, along with the crucial role of capital markets in funding these transformation efforts.
He acknowledged that oil price volatility could cause potential delays in Vision 2030 projects but emphasized that the long-term direction remains unchanged.
“There is no turning back, meaning that this will not derail the economic reform and the economic diversification program in Saudi Arabia. It could lead to some delays and reprioritization and recalibration,” he said.
Shams was particularly optimistic about the Saudi real estate sector. “The demand is huge. But there is an imbalance in the supply and demand, and this is a golden opportunity,” he said, adding that “90 percent of the announced projects, whether they’re PIF-owned or even the private sector players, will not be impacted.”
Shams also expressed a positive outlook on utilities companies in the Kingdom and shared similar optimism about the banking sector.
“I would say even before the crisis, the valuation was very reasonable to see a bank in Saudi trading almost at book value. This is very interesting.”
Egypt’s reform story
Awad highlighted Egypt’s progress in fintech. “In Egypt, we have one of the best fintech companies, which is Valu, a company that offers buy now, pay later services. It is a company that we started from scratch and pretty much revolutionized the buy now, pay later market in Egypt,” he said.
Mohamed Ebeid, Co-CEO of EFG Hermes, highlighted the firm’s growth in the equity capital markets, noting that EFG Hermes executed deals worth $20 billion last year.
“This is 14 deals in terms of ECM (equity capital market), be it IPOs or accelerated book builds or FMOs (financial market operations),” he told Arab News.
However, the top official noted Saudi Arabia’s challenges in allocating shares to foreign investors due to oversubscription. “International investors are not getting the allocations that they ask for. It’s because there’s oversubscription, that’s No.1. No.2 , the banks, we do the recommendation for the issuer, but the issuer decides and has the final say,” Ebeid explained.
Egypt’s economic resilience was a key focus, with the country’s deputy governor of the central bank, Rami Aboulnaga, outlining the nation’s proactive approach to managing global shocks.
“We’ve been building these buffers throughout the past years to ensure we can immune ourselves and minimize damage from these types of crises,” he stated in a panel discussion during the conference, highlighting Egypt’s transition from a $29 billion net foreign asset deficit to a $10 billion surplus since January 2024.
Aboulnaga emphasized that although global trade slowdowns may affect Suez Canal traffic, Egypt’s diversified strategy — where only 7 percent of total trade volume is tied to the US — provides a level of insulation.
He described the foreign exchange market as functioning as a “shock absorber,” enabling real-time adjustments that help prevent structural imbalances.
The deputy governor particularly stressed the importance of policy sustainability, highlighting that February’s inflation drop to 12.8 percent validated Egypt’s orthodox policy mix. He also noted that upcoming reviews by the International Monetary Fund would further solidify the country’s reforms.
“What we’re seeing is very healthy and sustaining it is quite possible because you avoid these one-off hits,” Aboulnaga said.
Dubai’s accessibility boom
The conference’s panel discussions reinforced these themes, with Dubai’s leaders highlighting the emirate’s booming real estate sector and investor-friendly policies.
The CEO of Dubai Economic Development Corp., Hadi Badri, said: “The real estate investment market continues to be very strong. Last year, it grew in terms of value by 27 percent. Coincidentally, that’s the same rate of growth that the Dubai Financial Market index also grew.”
He added that demand continues to outstrip supply. “Our biggest constraint today in Dubai, to be able to attract as many businesses as we are able to attract, is office space,” Badri said.
The CEO of Dubai Financial Market and Nasdaq Dubai, Hamed Ali, emphasized the efforts to attract foreign investors. He reported that last year, the market gained 437,000 new investors, with about 85 percent of them coming from outside the UAE. He shared this during a panel discussion at the event.
Global headwinds
Despite the regional optimism, speakers acknowledged global challenges, such as US tariffs and the potential for stagflation. However, they argued that the MENA region remains relatively insulated from these issues.
Shams told Arab News that the impact had been evident on global trade and the inflation the world experienced post-COVID. He explained that part of this was due to the injection of money supply, while another part was attributed to supply chain disruptions and the reconfiguration of the global grid.
As the conference concluded, EFG Hermes leaders emphasized a unifying message: the MENA region’s story remains intact. While volatility may persist, they argued that strategic positioning — whether in Saudi megaprojects, Egyptian fintech, or Dubai’s property market — provides a hedge against global chaos.
“You should start deploying the market,” Ebeid urged investors, capturing the event’s defiant optimism.
PIF’s AviLease signs deal with Turkish Airlines for 8 Airbus A320neo aircraft
RIYADH: AviLease, an aircraft leasing firm owned by Saudi Arabia’s Public Investment Fund, has signed a memorandum of understanding with Turkish Airlines for long-term contracts for eight Airbus A320neo aircraft.
According to a press statement, two aircraft have already been provided, with the remaining six scheduled for delivery throughout 2025.
PIF launched AviLease in 2022 to harness the potential of promising sectors within the Kingdom, aiming to drive economic diversification and contribute to the growth of the non-oil gross domestic product.
The launch of the company also aligns with Saudi Arabia’s Vision 2030 goal to establish the Kingdom as a leading player in the aviation sector.
“We thank the Turkish Airlines team for their partnership, and we are delighted to further strengthen our relationship,” said AviLease CEO Edward O’Byrne.
He added: “These aircraft will support Turkish Airlines’ growth plans while contributing to their fleet modernization strategy and sustainability goals.”
The press statement further said that AviLease’s portfolio currently consists of 200 owned and managed aircraft, including purchase commitments, on lease to 48 airlines.
In March, AviLease delivered three Airbus A320neo aircraft to SDH Wings. SDH Wings is a joint venture between the Saudi firm and the Chinese sovereign fund, where the Kingdom holds a 10 percent stake.
In February this year, the company gave a specialized Aviation Financing Course to over 150 professionals in partnership with Prince Sultan University and Riyad Bank.
At that time, AviLease, in a press statement, said that it aimed to support the Kingdom’s Vision 2030 program by preparing Saudi talent to lead the aviation finance sector on both a national and global scale.
The company added that it will continue to drive local economic opportunities and create direct and indirect jobs for Saudi nationals in the aviation and financial sectors.
Saudi Arabia vows to strengthen voice of emerging markets on influential IMF committee
JEDDAH: Saudi Arabia is eager to elevate the voices of emerging economies on a key International Monetary Fund committee, the Kingdom’s finance minister has announced.
Speaking at the opening session of the deputies meeting of the International Monetary and Financial Committee in Diriyah, Mohammed Al-Jadaan praised the IMF and IMFC members for guiding the organization through challenging periods, the Saudi Press Agency reported.
Al-Jadaan, who was appointed IMFC chair in December 2023 for a three-year term, underscored “the importance of collaboration to ensure global financial stability and strong, inclusive economic growth,” according to SPA.
The meeting marked a milestone as the first official IMFC gathering hosted in the Kingdom.
The SPA report added that “Al-Jadaan welcomed the new '25th' IMFC member from the African continent, who is participating for the first time in the history of the committee, and stated that the Kingdom, as chair of the committee, is keen to strengthen the voice of emerging markets and developing economies in this important committee.”
Under its IMFC chairmanship, Saudi Arabia is positioning itself as a central player in shaping global economic policy.
The committee serves as the policy advisory body to the IMF’s Board of Governors, addressing global economic issues and recommending measures to sustain financial stability and growth.
Speaking at the event, IMF Managing Director Kristalina Georgieva thanked Saudi Arabia for its continued support and leadership.
She noted that amid significant global policy shifts, “the IMF’s mission to foster macroeconomic and financial stability remains as essential today as it was 80 years ago. Our 191 member countries can continue to rely on the IMF as a trusted adviser.”
During a panel titled “Breaking from the Low-Growth, High-Debt Path,” participants highlighted that the global economy is at a pivotal juncture, with heightened uncertainty disrupting capital flows across advanced and emerging markets, according to SPA.
Panelists noted that growth prospects remain below historical norms, with high debt levels constraining investments in infrastructure, social protections, and job creation — limiting nations’ ability to respond to new economic shocks.
They also discussed the dual nature of transformative forces such as artificial intelligence, digitalization, and demographic shifts, which present both risks and opportunities.
A second panel, “Strengthening the Global Financial Safety Net,” examined the IMF’s central role in supporting countries with balance-of-payments challenges.
Participants explored ways to deepen coordination between the IMF and regional financial institutions.
