Oil and gas firms still confident on Saudi growth

08 September 2015

Amid low oil prices and spending cuts the kingdom will remain a key focus for consultants and contractors

On 6 September Saudi Arabia’s Finance Minister Ibrahim Alassaf announced that the country would cut spending in some areas and delay some projects due to low global oil prices.

The statement came amid concerns about the country’s budget deficit and has increased negative sentiment about oil projects exacerbating concerns about future delays and cancellations.

In December 2014 Saudi Arabia forecast it would run a deficit of $39bn for 2015, but this now looks extremely optimistic.

Since December oil prices have remained stubbornly low and Saudi Arabia has done little to reign in spending.

On 2 September the Saudi Arabian consultancy Jadwa Investment said it now expects the shortfall to be $109bn.

If the budget deficit remains at this level it will see Saudi Arabia’s financial buffers eroded within seven years.

Jadwa says it expect Saudi Arabia’s reserves to drop to $629bn by the end of the year.

However, even with the uncertain economic outlook Saudi Arabia is likely to remain a key focus for oil and gas companies looking for growth in the Middle East over the next five years.

Still strong

Despite the drop in government revenues due to low oil prices Saudi Arabia still has a long list of attractions for contractors and consultants who are looking to profit from investment in Saudi capital projects.

Saudi Arabia remains the Gulf’s project powerhouse with a project market worth $1.2tn, according to MEED Projects.

This is by far the biggest project market in the region, worth almost $400bn more than the UAE’s project market, which is ranked second.

Saudi Arabia also benefits from some of the lowest-cost oil production in the world, with the average cost of extracting a barrel of oil estimated to be around $5 – a figure that compares favorably with US shale oil, which is estimated to cost around $55 a barrel to extract.

Most importantly, Saudi Arabia’s leaders have made it clear that they are committed to maintaining investment in key strategic projects, something that has helped to convince multinational oil and gas companies to invest resources in the country.

On 8 September, after meetings with state-owned oil company Saudi Aramco, Amec Foster Wheeler’s regional president Roberto Penno told MEED that it is looking to double its Saudi Arabia workforce within three years – to try and capitalise on opportunities in its project market.

Companies, including Amec Foster Wheeler, are anticipating significant future contracts in the oil and gas sector as well as nuclear, solar and remediation schemes.

While the timeframe for these projects remains uncertain amid persistently low oil prices, Amec Foster Wheeler’s planned expansion in Saudi Arabia clearly shows that multinational energy companies are confident that investment in key projects will remain strong over coming years.

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