Shale oil could slash crude price by 40%

Updated 14 February 2013
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Shale oil could slash crude price by 40%

LONDON: Worldwide shale oil production could add $ 2.7 trillion to the global economy annually by 2035 by slashing the price of crude by as much as $ 50 a barrel, PricewaterhouseCoopers said.
The extra supply could push global oil prices down by up to 40 percent, it said.
Shale oil production could surge to 14 million barrels per day, or as much as 12 percent of total oil output from around 1 percent now, as it expands from its US base over the next two decades, the world’s largest accounting firm said in a report.
That could lift global gross domestic product by between 2.3 percent and 3.7 percent per year by 2035, according to the report, “Shale oil: the next energy revolution”.
“Lower global oil prices due to increased shale oil supply could have a major impact on the future evolution of the world economy by allowing more output to be produced at the same cost,” John Hawksworth, chief economist at PwC and co-author of the report, said.
Bigger flows of shale oil will not increase overall consumption substantially, because demand is not heavily dependent on price, but it will cut the cost of fuel, Adam Lyons, director of PwC’s oil and gas strategy team, said.
“One effect will be to cut the need for expensive, environmentally destructive extraction techniques like the Arctic and tar sands,” he added.
The rapid growth in shale oil has not been factored into price projections by the two major international oil agencies — the US Energy Information Administration (EIA) and Paris-based International Energy Agency, the report said.
Current global oil demand amounts to 80-90 million barrels per day (bpd), and the agencies estimate it will increase to around 110 million bpd by 2035.
“Their projections ... are arguably conservative as they are based only on resources about which there is already a high degree of certainty,” the report said.
“Past experience of shale oil and shale gas suggests that these resource estimates are likely to be revised upwards significantly over time.”
If the Organization of Petroleum Exporting Countries cuts production in response to the extra supply, oil prices will fall to around $100 per barrel in today’s money by 2035, the report said.
If OPEC does not cut production, oil could fall to around $ 83 per barrel in today’s money by 2035, PwC estimated, or $ 50 less than the EIA’s 2035 real-terms forecast price of $133.
Brent crude oil is currently trading around $119 per barrel.
Lower oil prices will feed into stronger GDP growth, adding $1.7-$2.7 trillion per year, or $230-$370 per person, PwC said.
The level of support will vary greatly, however, from country to country, it said.
“Large net oil importers such as India and Japan may see their GDP boosted by around 4 to7 percent by 2035 in our alternative scenarios, while the US, China, Germany and the UK might gain by around 2 to 5 percent of GDP,” Hawksworth said.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.