S&P revises Saudi outlook to stable from positive

Updated 06 December 2014
0

S&P revises Saudi outlook to stable from positive

Standard & Poor's Ratings Services has revised its outlook on Saudi Arabia to stable from positive. At the same time, the "AA-/A-1+" long- and short-term foreign and local currency sovereign credit ratings on the Kingdom were affirmed.

Rationale
We indicated on June 6, 2014, that we could revise our outlook on Saudi Arabia to stable if we anticipated that weaker economic growth or sustained lower oil prices could lead to GDP per capita that was not commensurate with an improved assessment of economic structure and growth prospects, one of the five key factors that form the foundation of our sovereign credit analysis. We base our outlook revision on our view that, although real economic growth remains relatively strong, we think Saudi Arabia is unlikely to achieve sufficient levels of nominal income to raise the ratings over the next two years. We assume a Brent oil price of $80 per barrel in 2015 and $85 in subsequent years, which will place pressure on the GDP deflator because Saudi Arabia derives about 45 percent of its GDP from the hydrocarbons sector. We now estimate GDP per capita at $23,400 in 2014-2017, down from our June assumption of $25,600. Trend growth in real per capita GDP, which we measure using 10-year weighted-average growth, amounts to about 2 percent during 2008-2017. This is in line with peers that have similar GDP per capita.
The ratings are supported by the very strong external and fiscal positions Saudi Arabia has built up over many years. By managing high oil revenues prudently, the general government has retired virtually all of its debt, generating additional fiscal space for countercyclical policies. We estimate
the general government's net asset position at 118 percent of GDP on average during 2014-2017. Over the same period, we expect Saudi Arabia's external debt, net of liquid external assets, will remain strong, averaging about 210 percent of current account receipts (CARs). The country's external liquidity is similarly strong, with gross financing needs averaging 78 percent of usable reserves and CARs by our estimate.
We note that government reforms are resulting in some improvements to the highly segmented labor market. Saudi nationals' share of private sector employment increased to 15 percent in 2013 from 13 percent in 2012, and women's share of total employment increased to 9.4 percent from 7.7 percent. However, the unemployment rate remains high for Saudi nationals, standing at 11.7 percent compared with 0.2 percent for non-Saudis, leading to an overall 5.6 percent rate in 2013.

We think uncertainty remains regarding whether the private sector can generate enough sufficiently attractive jobs for to absorb the expected significant inflow of Saudi nationals into the labor market in the coming years.
We view Saudi Arabia's economy as undiversified and vulnerable to a sharp and sustained decline in the oil price, notwithstanding government policy to encourage nonoil private sector growth. The hydrocarbon sector accounts for about 44 percent of GDP. However, we find that the non-hydrocarbon sector relies to a significant extent on government spending (funded by hydrocarbon revenues) and downstream hydrocarbon activities. About 85 percent of exports and 90 percent of government revenues stem directly from the hydrocarbons sector. In its October 2014 Regional Economic Outlook, the International Monetary Fund indicated that Saudi Arabia's fiscal breakeven oil price will rise to $106 per barrel in 2015 from $98 per barrel in 2014 and $89 per barrel in 2013. This is the oil price necessary to balance the government's budget, all other things remaining equal.

Outlook
The stable outlook reflects our view that Saudi Arabia will keep its very strong fiscal balance sheet and net external asset position, while monetary policy flexibility remains limited and dependence on income from the hydrocarbons sector stays high.
We could consider a positive rating action if, contrary to our current expectations, economic growth were to support further increases in Saudi Arabia's per capita GDP to levels that would qualify for an improved assessment of economic structure and growth prospects as defined in our criteria.


Fujairah joins other ports, tightens exhaust rules ahead of 2020 regulations

Updated 23 January 2019
0

Fujairah joins other ports, tightens exhaust rules ahead of 2020 regulations

  • Under International Maritime Organization (IMO) rules that come into effect from 2020, ships will have to reduce the sulfur content in their fuel to less than 0.5 percent
  • Singapore, China and Fujairah marine sales volumes represent a quarter of global ship refueling, also known as bunkering

SINGAPORE: Fujairah in the UAE has become the latest major port to ban a type of fuel exhaust cleaning system to comply with a coming tightening in rules regarding global sulfur emissions, mirroring similar moves in Singapore and China.
Under International Maritime Organization (IMO) rules that come into effect from 2020, ships will have to reduce the sulfur content in their fuel to less than 0.5 percent, compared with 3.5 percent now, forcing huge changes upon global shippers and also oil refiners.
Fujairah’s harbor master said in a faxed document seen by Reuters that the port “has decided to ban the use of open-loop scrubbers in its waters ... (and) ships will have to use compliant fuel once the IMO 2020 sulfur cap comes into force.”
This follows top marine fueling port of Singapore announcing a similar move in November, while China banned the use of open-loop scrubbers from Jan. 1, 2019.
Singapore, China and Fujairah marine sales volumes represent a quarter of global ship refueling, also known as bunkering.
Impact for shippers
To comply with IMO 2020 rules, shippers can switch to burning cleaner but more expensive oil, invest in exhaust cleaning systems known as scrubbers that may allow them to still use cheaper high-sulfur fuels, or redesign vessels to run on alternatives like liquefied natural gas (LNG).
Scrubbers use water to clean up fuel emissions, preventing them from being released into the atmosphere.
Open-loop scrubbers are the cheapest option, but they have come under criticism as they wash heavy metals and sulfur from the waste water into seas instead of storing it for a controlled discharge in ports, as closed-loop scrubbers do.
Of the more than 2,000 ships that have so far opted to invest in scrubbers, around three-quarters have installed the cheaper, open-loop type, shipping sources estimated.
Closed-loop scrubbers, which store wash water for later discharge, are still accepted in most ports.
Despite the spreading bans of open-loop scrubbers, Douglas Raitt of ship classifier Lloyd’s Register said vessels can still benefit from such systems as they can pump out the waste water in open seas, outside a port’s jurisdiction.
“The benefits of open-loop scrubbers are largely realized in open water during transit from one port to the next,” he said.
Raitt said shippers, however, should consider alternative measures to prepare for IMO 2020, considering that when the new rules come into force refueling infrastructure will be mostly geared toward compliant low sulfur fuel oil (LSFO) rather than high sulfur fuel oil (HSFO).
“Prevailing wisdom would be for operators opting for scrubbers to have a meaningful dialogue with their supplier base to secure HSFO post-2020 in ports of call,” Raitt said.