Falling oil prices are the biggest economic risk facing Saudi Arabia’s projects market, says Said al-Shaikh, group chief economist of NCB, Saudi Arabia’s biggest bank.

Speaking to project industry leaders at MEED’s Saudi Mega Transport & Infrastructure Conference 2014 in Riyadh on 16 September, Al-Shaikh said average oil prices are set to fall to between $90-$100 a barrel from 2015 to 2017 due to increased stability in key producing markets such as Libya and Iraq, falling global demand for energy, and new sources of oil being opened up by new technology, such as oil shale production in the US.

But he said that Riyadh’s substantial currency reserves accumulated over the past decade of budget surpluses from high oil prices and production would cushion the impact of the falls, something that Riyadh has not benefited from in the past.

“The main economic risk to government spending is oil price,” said Al-Shaikh.

“Saudi Arabia can manage this risk. It has reserves of about SR1.7tn, so even with prices falling,” he said. “Saudi Arabia can continue with current projects although there will be a slowdown in new projects being brought forward. The huge surplus in reserves provides a cushion to continue with planned projects.”

Al-Shaikh said that capital expenditure on projects had increased in recent years to about 30 per cent of total government expenditure and was the most important driver of project activity.

“Saudi Arabia’s projects might come under pressure from 2015 with changes in oil market dynamics,” he said. “We are likely to see a dip in oil prices to $90-$100 a barrel from 2015 to 2017. But we not expecting collapse in oil prices like we saw in late 1998/99 when oil fell to about $11-$12 a barrel.”

“No forecaster is predicting oil of below $60 a barrel,” he said. “And even if it falls to $80-$90 a barrel, the government can maintain current spending levels without running a deficit, although with no surplus.”

Al-Shaikh added that the growing role of the private sector in financing infrastructure projects through new contract structures such as public private partnerships (PPP), was reducing dependence on government spending.