Why this is important to Wisconsin businesses: Because they have kept production costs low, the GCC countries' oil and gas sectors are well positioned to weather an economic downturn, and are expected to keep increasing output—translating into a continued need for equipment and support services.
The Gulf Corporation Council countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)—have been less affected than other exporters of oil and gas by the downturn of the industry. This is due to their ability to produce oil at a lower cost and their strategic diversification and investments in other industries. The GCC countries’ cost of oil production remains the world’s lowest; Saudi Arabia is able to produce oil at $10 per barrel and Kuwait at $8.50 per barrel, compared to the global average price of $45.23 (Brent crude average). Hence, the region is still able to make a considerable profit despite the instability in the global oil and gas market. In addition to the low cost of production, the GCC countries have built huge financial reserves that can absorb the shock of oil volatility. According to the Sovereign Wealth Funds (SWF) Report, the GCC countries have a combined total of $2.6 trillion in assets, which is approximately 37 percent of all SWF assets worldwide. These funds also contribute to the region’s ability to sustain its economy until the global oil market fully recovers.
Even with a reduced profit margin, the GCC countries are still exploring new technologies such as enhanced oil recovery techniques and are investing to increase crude oil output and refining capacity within the sector. Several projects have been commissioned, including Saudi Arabia’s Jizan facility, slated for startup in 2018 and is expected to produce 400,000 barrels per day (b/d) of oil. Kuwait’s Al Zour refinery is also slated to start operations in 2020 and is expected to produce 615,000 b/d of refined product. Qatar, Oman, and Bahrain are also expanding their facilities to boost crude oil and distillation capacity. According to a BMI Research Report, the region’s crude oil output is expected to increase from an estimated 29.2 million b/d in 2015 to 332 million b/d by 2025. The UAE aims to increase crude oil production capacity output to 3.5 million b/d by 2018, while Kuwait targets crude oil production capacity of 4 million b/d by 2020. The refining capacity of the region is also expected to increase from 9.4 million b/d in 2015 to 11.1 million b/d by 2025.
With the increase in production and refining activity in the oil and gas industry, there will be an increase in allied and complementary activity in the industry. According to reports, the GCC’s oilfield service industry is valued at $65 billion, with Saudi Arabia accounting for 40 percent of this. The GCC oilfield auxiliary rental equipment market is projected to reach $35 billion by 2020, growing at a compound annualized growth rate (CAGR) of 9.4 percent from 2014 to 2020. The market will be driven primarily by an increased demand of energy sources and the need for cost optimization. The oil and gas leak detection system market is projected to grow at a CAGR of 6.52 percent from 2016 to 2022.
The GCC oil and gas market is the largest sector in the region, accounting for more than 45 percent of the region's GDP. The size and potential of this market make it very promising for companies looking to explore and expand into the region.