Regional power grid
Representatives from the six Gulf Cooperation Council states inked an agreement in July which facilitates the sharing of electricity by linking each country’s power grid to form a unified power network. Two important parts of the project have already been completed by the GCC states: the interconnectivity of Kuwait and Qatar’s electricity networks and the synchronization of the “GCC North Grid” which links the power grids of Qatar, Saudi Arabia, Bahrain and Kuwait. The next phase of the project will entail the connection of the Oman and United Arab Emirates power grids to form the “GCC South Grid.” The final phase, expected to be completed in 2011, will link north and south grids. Upon completion the grid is expected to provide Kuwait and Saudi Arabia with an extra 1,200 megawatts (MW) of power, the UAE with 900 MW, Qatar 750 MW, Bahrain 600 MW and Oman 450 MW.
GCC countries estimate that when the agreement is implemented, it will save $1.4 billion per year by eliminating the need to construct new power plants in order to meet the region’s growing demand. Analysts have estimated that up to $50 billion could be spent to increase generation capacity by 60,000 megawatts in the GCC by 2015.
Emaar Properties merger
Emaar Properties, the second largest GCC company by market capitalization, announced on June 26 its plans to merge with three real estate units of Dubai Holding: Sama Dubai, Dubai Properties and Tatweer. An Emaar press release stated the merger will be finalized by September.
“The proposed consolidation will create a robust and strategic asset base while joining the strengths of the management teams and employees of these companies,” Emaar Chairman Mohamed Alabbar said in a letter posted on the Dubai bourse website.
The merger will result in an entity worth $52.85 billion and will have $4 billion in debt obligations — 7 percent of total assets.
Emaar share prices suffered in the wake of the news. Share prices fell 8 percent in the first three days following the announcement, and bottomed out at $0.60 on July 14 — down from $0.80 on June 29. Since hitting bottom, Emaar share prices have started to pick up, reaching $0.70 on July 22.
EFG Hermes said on July 8 that its researchers did not view the merger as positive. The note said the consolidation might lead to the dilution of Emaar’s minority shareholders and increase the exposure of the combined entity to the troubled real estate market.
Oil demand temperate
The International Energy Agency (IEA) announced that it expects global demand for oil to grow by a mere 0.6 percent, or 540,000 barrels per day (bpd) from 2008 to 2014, bringing total global consumption to 89 million bpd. The medium-term estimate is substantially less than last year’s prediction of a one million bpd yearly increase. The agency attributed the drop in demand to the ongoing effects of the global economic downturn. On the bright side, the agency said the decrease has allowed the market to limit price fluctuations resulting from interruptions such as attacks on Iraq and Nigeria’s oil infrastructure. The Organization of Petroleum Exporting Countries’ (OPEC) supply cushion is expected to reach 7.67 million bpd, up from last year’s forecast of a paltry 1.67 million bpd.
The IEA also cautioned against unrealistically optimistic talk of economic “green shoots” spurring oil price recovery. The agency said the recent rise in prices may have nothing to do with the health of the world economy, but “could also simply reflect the rebuilding of depleted inventories across several industries, making it arguably premature to predict an imminent and strong economic rebound, not least because the elimination of spare capacity, the deleveraging of the private sector in several highly indebted countries and the rebalancing of global demand are still at an early stage.”
Despite the news, regional oil and gas production looks set to increase. Last month, Saudi Aramco and Total entered into a joint-venture and signed 13 agreements with contractors to build a $9.6 billion refinery. Also, officials at Egypt’s state-owned gas companies announced the start of a bidding round to explore the countries gas prospects. In a similar move GASCO, the majority of which is owned by the Emirati government, awarded $9 billion in gas contracts to companies from Italy, UAE, South Korea and the United States.
Iraq also launched its first post-invasion bidding round with disappointing results highlighting the still fragile political and security environment. Only one contract was awarded to a joint venture of BP and the China National Petroleum Corporation, to develop the Rumaila field, Iraqi’s largest. The bidding round came on the same day as the deadline for American combat troops to pull out of Iraqi cities.
