Solar deployment continued to pick up in the Middle East and North Africa in 2019, the Middle East Solar Industry Association has said in its annual report. Brian PUBLICOVER in a PV magazine article titled ‘Solar is gaining traction in MENA region – but plenty of obstacles remain’ and dated January 17, 2020, explains the whereabouts of such deployment.
The Middle East Solar Industry Association (MESIA) says energy investment in the Middle East and North Africa (MENA) region could hit $1 trillion in the 2019-23 period.
The organization cited statistics from consultancy Frost & Sullivan valuing the region’s operational PV capacity at $5-7.5 billion, with an additional $15-20 billion worth of projects set to come online by 2024.
However, policymakers in many countries are still struggling to find the right mix of legislation, technology, financing and procurement options to kick-start development, the region’s top solar industry group said in its Solar Outlook Report 2020.
MESIA noted a large gap among the region’s varied PV markets in terms of cumulative installations and development. Egypt, Jordan, Morocco and the United Arab Emirates lead on deployment with Saudi Arabia soon to swell their ranks. While a handful of countries including Pakistan and Iraq are struggling to bring more solar online, markets such as Tunisia, Kuwait and Oman are starting to add significant projects to the regional PV pipeline, said the association.
Regional policymakers are increasingly prioritizing distributed solar, led by Dubai. The most populous city in the United Arab Emirates launched its Shams Dubai program in 2015 to support residential PV and commercial and industrial solar installation. By October, Dubai had installed around 125 MW of distributed PV capacity at 1,354 sites, MESIA said.
The industry association also highlighted the important role played by the Dubai Electricity and Water Authority in getting commercial and industrial projects built, noting market drivers for the segment vary across the MENA region. Cuts to electricity tariffs in markets such as the UAE, Jordan, Oman and Saudi Arabia have played a role, backed by the establishment of supportive regulatory frameworks, particularly for wheeling and net metering, the regional body said.
The Egyptian authorities made significant progress on the massive Benban solar complex last year. Roughly 1.47 GW of solar capacity – including a wealth of bifacial and tracking projects – was commissioned at Benban by the end of November, MESIA said. The $4 billion, 1.8 GW complex will eventually feature 41 projects.
The Egyptian government wants renewable energy to account for 20% of its electricity mix by 2022, and 42% by 2035, including 52 GW of large scale and distributed-generation projects. It continues to look beyond feed-in tariffs with the Egyptian Electricity Transmission Co (EETC) and World Bank private sector arm the International Finance Corporation signing a deal in April to fund projects chosen via auctions, for example. The EETC signed a solar power purchase agreement with Saudi’s ACWA Power in October for the 200 MW Kom Ombo project, at a price of $0.0275/kWh. Construction is expected to wrap up in the first quarter of next year.
However, Egyptian energy demand is set to leap from 27.6 GW last year to 67 GW by 2030, MESIA said, citing Frost & Sullivan data. To facilitate renewables deployment, the country will need a competitive electricity market and will have to scrap subsidies for fuel and electricity tariffs dating back to 2016 while also facilitating the development of energy storage to support distributed PV roll-out, the industry group argued.
United Arab Emirates
MESIA describes the UAE as a regional “front runner” for PV and it made undeniable progress last year. Having launched commercial operations at the 1,177 MW Sweihan PV project, Abu Dhabi in November the allocated the fifth, 900 MW phase of the massive, 5 GW Mohammad bin Rashid Al Maktoum Solar Park for a record low power price of $0.01693/kWh. The solar park’s installed capacity currently hovers around the 713 MW range, MESIA said, noting the third to fifth stages of the project will be finished in the years ahead, with full completion scheduled for 2030.
The future also looks bright for solar in the wider UAE, particularly at utility scale. In November, the Emirates Water and Electricity Co closed submissions from developers for a 2 GW solar project at Al Dhafra. That project is set for completion by the first quarter of 2022.
MESIA said it expects a similarly sized tender early this year, as Abu Dhabi may be gearing up to install another 6 GW of solar by 2026. However, PV will have to compete with nuclear and rival renewables in future. With more intermittent renewables capacity coming online, MESIA expects the UAE authorities to start to include more energy storage capacity in future PV tenders.
MESIA said energy storage will be “pivotal” to the development of Jordan’s solar sector. The country has been developing storage capacity for a while, as it is struggling to stabilize its electrical transmission network while it brings significant amounts of large scale solar and wind capacity online.
“At this stage, Jordan’s capability to strengthen the grid, commitment to achieve increased energy efficiency and develop additional storage is key for the future market attractiveness,” the industry association reported.
The authorities launched a tender last year for a study on the feasibility of installing 30 MW of pumped storage capacity at the nation’s key dams, MESIA noted.
Saudi Arabia’s growing PV market continues to move from strength to strength, according to the association, which highlighted the 300 MW Sakaka PV plant – the kingdom’s biggest to date. The regional body also noted the Renewable Energy Project Development Office asked 60 pre-qualified companies to submit bids for “six solar energy schemes with a combined capacity of 1.5 GW” late last year, in addition to six projects the authorities started tendering this month.
However, while the country remains one of the most promising regional PV markets, the Saudi authorities still need to tackle key challenges, MESIA said. The government must collaborate more effectively with the private sector, among other things. It also needs to improve the regulatory environment and propose new business models to unlock the potential of its fledgling commercial and industrial solar sector, the industry group said.
MESIA sees Tunisia’s commercial and industrial solar segment as particularly promising but noted the market continues to struggle in the face of fossil fuel subsidies. The regional body argued the Tunisian government must introduce incentives such as tax breaks to encourage greater investment in commercial and industrial PV, among other policy considerations.
MESIA also noted the Tunisian authorities have overseen critical investments in grid infrastructure upgrades over the past year, in anticipation of $2 billion of anticipated foreign investment in the solar and wind sectors over the next three years. The Tunisian Ministry of Industry and Small and Medium Enterprises has said the expected influx of funds could support development of 1.9 GW of fresh renewables capacity by 2022.
Adelle Geronimo informs that despite all the hoo-hah in the Middle East, the UAE to accelerate space tech startups is no extraordinary youth employment programme. This follows the UAE launching in October 2018, its first satellite built entirely by Emirati engineers in the UAE and after sending an Emirati astronaut to the International Space Station. The UAE plans also to establish a self-sustaining habitable settlement on Mars by 2117.
The UAE Space Agency has announced its collaboration with the Abu Dhabi-based global innovation hub, Krypto Labs, to launch the UAE NewSpace Innovation Programme, which aims to maximise the growth of space technology start-ups with NewSpace, the rising private spaceflight industry.
The programme falls under the purview of the National Space Investment Promotion Plan, which aims to heighten the role of the space industry in contributing to the economy of the UAE.
It is also in line with an MoU signed between the UAE Space Agency and Krypto Labs, which aims to increase innovation and investment in the space sector, drive a diversified UAE economy, and promote awareness through specialised initiatives that support space technology entrepreneurship.
Dr. Mohammed Nasser Al Ahbabi, Director-General of the UAE Space Agency, said, “The UAE NewSpace Innovation Programme invites students, entrepreneurs and start-ups to share their ground-breaking ideas and transform them into viable commercial products. This supports developing space technology as part of the UAE’s private spaceflight NewSpace sector, which aims to make space more accessible, affordable and commercial.”
Selected applicants will take part in a three-month incubation programme at the headquarters of Krypto Labs in Abu Dhabi, with access to the hub’s facilities. They will also have access to the innovation hub’s local and global network of investors, be mentored by global space experts, and develop their skills in business creation, marketing, and sales, among others.
Applicants will also have the opportunity to secure funds to ensure their start-ups are prepared to enter the market.
Eligible applicants must present an innovative and original idea with a clear technical approach, which generates a feasible and scalable product. The teams must have at least one Emirati team member.
Dr. Saleh Al Hashemi, Managing Director of Krypto Labs, noted, “By supporting innovators and young entrepreneurs, we aim to foster a spirit of originality and zest within start-ups to solve global challenges that keep the UAE on the frontier of the innovation map and elevate its position as a leader for innovation-focused businesses.”
MENA accounted for 20% of total portfolio flows to emerging financial markets from 2016-2018.
São Paulo – The Middle East and North Africa (MENA) have stood out in capital flows in the last years, according to article published this Wednesday (15) on the International Monetary Fund Blog.
Written by Jihad Azoud, director of the Middle East and Central Asia Department at the IMF, and Ling Zhu, an economist at the same department, the article reads that since the global financial crisis of 2008, emerging countries have experienced a surge in capital flows and that this flow to the MENA nations have remained high compared to other emerging markets, but their composition has changed significantly.
The change includes a surge in portfolio flows – foreign investment in the financial and capital markets – and a simultaneous decline in foreign direct investment – those non-linked to the production sector, real estate acquisition etc. Portfolio and bank inflows to the region reached USD 155 billion over 2016–2018, which accounted for nearly 20% of total portfolio flows to emerging economies during those two years. The value was about three times the volume of flows to MENA over the previous eight years.
The IMF analysts find that most of the portfolio flows increase can be attributed to a more favorable global risk sentiment that is below its historical average. “Portfolio inflows are mostly driven by global ‘push’ factors, such as financial market risk sentiment,” the article reads that about two-thirds of the increase can be attributed to that.
Other factors are the fiscal and external deficits resulting from increased spending in such countries as Egypt, Jordan, Lebanon, and Tunisia, as well as lower revenue in oil exporters such as Bahrain and Oman after 2014. “Capital inflows have helped governments finance these deficits,” the IMF blog stresses. Moreover, the recent inclusion of Gulf Cooperation Council (GCC) countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates — in global bond and equity indices has also contributed to the rise in portfolio flows to the region.
However, the article warns that with global economic risks now on the rise, the region’s countries would be particularly vulnerable if global risk sentiment shifts — especially those with significant fiscal deficits, high debt burdens, and limited buffers. The blog goes on to say that the region is twice as sensitive to changes in global risk sentiment as compared with other emerging economie, which most likely stems from the higher perceived overall risk of the region, reflecting factors such as geopolitical uncertainties, volatile oil prices, and global trade tensions.
To strengthen their resilience to volatile flows, the blog reccomends improved policy frameworks not only in attracting but also in preserving flows, while helping mitigate the risk of outflows. As examples, the text mentions that Egypt has established inflation targeting and that Morocco has made progress in allowing more flexible exchange rates. As usual, IMF urges that reducing fiscal deficits are critical.
The article also stresses the need for structural reforms to strengthen financial system and macroeconomic steps to reduce the regional economies’ vulnerabilities.
BEIRUT- Lebanese politicians are watching on as the economy collapses and protests turn angry, a senior U.N. official said on Wednesday, rebuking a ruling elite that has failed to agree a government or rescue plan for a country in deep crisis.
With banks tightly limiting access to cash, lenders were targeted in a night of violent protests in Beirut’s Hamra district. Bank facades and ATMs were smashed and dozens of people wounded in confrontations with police.
Heavily indebted Lebanon has been in trouble since the government was toppled by the resignation of Prime Minister Saad al-Hariri in October as a result of protests against corruption and bad governance that are root causes of the economic woes.
Political rivalries have obstructed a deal on a new cabinet even as the crisis hits ordinary people: the Lebanese pound has lost around a half of its value while anger at banking controls have led to rows and violence in branches.
“Another day of confusion around the formation of a government, amidst the increasingly angry protests and free-falling economy,” Jan Kubis, U.N. special coordinator for Lebanon, wrote on Twitter. “Politicians, don’t blame the people, blame yourselves for this dangerous chaos.”
Kubis appeared to credit central bank governor Riad Salameh, saying he had sought “extraordinary powers to at least somehow manage the economy while those responsible watch it collapsing”.
“Incredible,” he wrote.
Salameh asked for extra powers last week, saying he wanted to standardize the banking controls.
“BEGGING” IN THE BANK
The long-brewing economic crisis snowballed last year as hard currency inflows slowed down, leading to a shortage of dollars needed to finance the state’s deficit and import needs.
The violence in Beirut’s Hamra area was some of the worst since anti-government protests began in October. Security forces fired tear gas outside the central bank to disperse protesters who pelted them with stones and fireworks.
One man hurled a car battery at the glass facade of a bank as another hit it with a metal pole, Reuters TV footage showed. On Wednesday morning, glass was being swept up at one vandalised bank as workers tried to fix a broken ATM at another.
A woman on Hamra street who gave her name as Hind said she supported protests against banks. “I have been coming here for the last three days and only could take $300 … we are begging, working 55 years to come and beg at the end,” she told Reuters.
“I was expecting what happened yesterday. Unfortunately the chaos is because of the politicians,” said Hamra shopkeeper Mohammad al-Rayyes.
The banking association condemned the attacks as the work of a “mercenary mob” and not the “real revolutionaries of Lebanon” seeking reform. It condemned the “severe and irresponsible tardiness in forming a new government”, saying this made it look like banks were responsible for deteriorating conditions.
The powerful Iranian-backed group Hezbollah and its political allies last month nominated Hassan Diab, a little-known former minister, to form a new government after the failure of efforts to forge a deal with Hariri, a traditional ally of the West and Gulf Arab states.
(Additional reporting by Issam Abdallah and Ellen Francis; Writing by Tom Perry Editing by Giles Elgood and Mike Collett-White) ((firstname.lastname@example.org; Reuters Messaging: email@example.com))
For many publishers in the Middle East region, Nabd – the largest personalized Arabic news aggregator – has become the number one source of referrals to their portals, exceeding Social Media networks, as a traffic source.
“In BBC Arabic, we consider our partnership with Nabd to be the most valuable and important of all our digital partnerships. This reflects the growing importance of news aggregators and the position of Nabd as a market leader. Our partnership with Nabd has enabled us to widen our reach and gain a new perspective of our audience needs”, says Mohamed Yehia, Head of daily output at BBC.
In its efforts to support its partners, the local, regional and international publishers, Nabd has launched a dedicated portal for publishers, enabling them to obtain and analyze detailed insights about their content, engagement, and users in Nabd.
“NABD is one of the top sources of traffic for RT Arabic. During the last 3 months NABD replaced Twitter as the second-best source of traffic from social media to the website”, says Maya Manna, Editor-in-Chief at RT Arabic.
Today, Nabd is considered by over 1,000 premium Arabic publishers, as a corner stone in their content distribution strategy, since it enables them to reach and tap into a massive audience, and continuously engage with them.
“We extremely value and enjoy our strategic partnerships with publisher partners. Such partnerships have empowered us to achieve our mission of supporting quality journalism in our region, and delivering relevant premium Arabic content for the Arabic audience globally”, says Mazen Singer, Chief Strategy Officer at Nabd.
Nabd is a Personalized Arabic Content Reader, enabling Arab users across the globe to stay up-to-date with their favorite topics on the go. Today, Nabd reaches over 20 million users, generating over 1.6 billion page views every quarter, making it the biggest Arabic app globally. It is currently available for iPhone, iPad, and Android devices.
Indeed, per the above, USD 10 trillion of fossil fuel investment must be redirected towards energy transformation by 2030.
Abu Dhabi, United Arab Emirates, 12 January 2020 – The share of renewables in global power should more than double by 2030 to advance the global energy transformation, achieve sustainable development goals and a pathway to climate safety, according to the International Renewable Energy Agency (IRENA). Renewable electricity should supply 57 per cent of global power by the end of the decade, up from 26 per cent today.
A new booklet 10 Years: Progress to Action, published for the 10th annual Assembly of IRENA, charts recent global advances and outlines the measures still needed to scale up renewables. The Agency’s data shows that annual renewable energy investment needs to double from around USD 330 billion today, to close to USD 750 billion to deploy renewable energy at the speed required. Much of the needed investment can be met by redirecting planned fossil fuel investment. Close to USD 10 trillion of non-renewables related energy investments are planned to 2030, risking stranded assets and increasing the likelihood of exceeding the world’s 1.5 degree carbon budget this decade.
“We have entered the decade of renewable energy action, a period in which the energy system will transform at unparalleled speed,” said IRENA Director-General Francesco La Camera. “To ensure this happens, we must urgently address the need for stronger enabling policies and a significant increase in investment over the next 10 years. Renewables hold the key to sustainable development and should be central to energy and economic planning all over the world.”
“Renewable energy solutions are affordable, readily available and deployable at scale,” continued Mr La Camera. “To advance a low-carbon future, IRENA will further promote knowledge exchange, strengthen partnerships and work with all stakeholders, from private sector leaders to policymakers, to catalyse action on the ground. We know it is possible,” he concluded, “but we must all move faster.”
Additional investments bring significant external cost savings, including minimising significant losses caused by climate change as a result of inaction. Savings could amount to between USD 1.6 trillion and USD 3.7 trillion annually by 2030, three to seven times higher than investment costs for the energy transformation.
Falling technology costs continue to strengthen the case for renewable energy. IRENA points out that solar PV costs have fallen by almost 90 per cent over the last 10 years and onshore wind turbine prices have fallen by up half in that period. By the end of this decade, solar PV and wind costs may consistently outcompete traditional energy. The two technologies could cover over a third of global power needs.
Renewables can become a vital tool in closing the energy access gap, a key sustainable development goal. Off-grid renewables have emerged as a key solution to expand energy access and now deliver access to around 150 million people. IRENA data shows that 60 per cent of new electricity access can be met by renewables in the next decade with stand-alone and mini-grid systems providing the means for almost half of new access.
This Moody’s negative rating outlook for the 2020 GCC sovereigns was published after it issued a little earlier, a similar downgrade for GCC corporates. But before we start wondering how relevant and whether, in this day and age, it applies to the MENA region and particularly to the Gulf sub-region, let us see who and what is behind Moody’s. It has by the way in 2018, citing as always, the still on-going and potentially worsening geopolitical event risks that play a crucial role in defining sovereign credit quality, come up with a particular set of ratings. Moody’s Corporation is the holding company that owns both Moody’s Investor Services, which rates fixed-income debt securities, and Moody’s Analytics, which provides software and research for economic analysis and risk management. Moody’s assigns ratings based on assessed risk and the borrower’s ability to make interest payments, and many investors closely watch its ratings.
ZAWYA GCC on January 9, 2020, posted the following articles.
The image above is used for illustrative purpose. A screen displays Moody’s ticker information as traders work on the floor of the New York Stock Exchange January 20, 2015. REUTERS/Brendan McDermid
GCC sovereigns’ 2020 outlook is negative, says Moody’s
Negative outlook reflects slow progress on fiscal reforms, weak growth and higher geopolitical risks.
Moody’s Investors Service said in a report that the outlook for sovereign creditworthiness in the Gulf Cooperation Council (GCC) in 2020 is negative.
The negative outlook reflects slow progress on fiscal reforms at a time of moderate oil prices, weak growth and higher geopolitical risk, the ratings agency said.
“The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms,” said Alexander Perjessy, a Moody’s Vice President – Senior Analyst.
“This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue,” Perjessy added.
The ratings agency expects a further gradual erosion in GCC credit metrics as oil prices remain moderate over the medium-term. It also pointed that lower oil revenue available to fund government spending will constrain growth in the non-oil sector which will, in turn, discourage governments from undertaking more fiscal tightening.
Moody’s sees the region’s geopolitical risk as higher and broader in nature than in the past, amid ongoing tensions between the United States and Iran.
Moody’s: 3 factors behind GCC sovereigns’ 2020 negative outlook
GCC’s geopolitical risk is higher in nature than in the past.
By Staff Writer, Mubasher
Moody’s Investors Service explained the factors which led to the negative outlook for sovereign creditworthiness in the Gulf area for the year 2020.
A recent report by Moody’s showed that the slowdown in the development of fiscal reforms at a time of reasonable oil prices contributed to the outlook, along with weak growth and higher geopolitical risk.
Further gradual erosion in GCC credit metrics is expected by Moody’s which relied in their outlook on the moderate oil prices over the medium-term.
Moody’s vice president – senior analyst, Alexander Perjessy, highlighted: “The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms.”
Perjessy added, “This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue.”
Growth in the non-oil sector will be constrained by lower oil revenue available to fund government spending; this will discourage governments from undertaking additional fiscal tightening.
Moody’s noted that “the region’s geopolitical risk is higher and broader in nature than in the past amid ongoing tensions between the US and Iran.”
Despite regional turmoil, there are two critical areas of focus to work on simultaneously.
Despite 2020 looking to be a year of volatility, the President and CEO of the Atlantic Council expressed his optimism at the “remarkable” human potential of the MENA region.
In statements ahead of the fourth annual Global Energy Forum in Abu Dhabi, Frederick Kempe noted that despite regional turmoil, there are two critical areas of focus to work on simultaneously.
“One of them is to reduce conflict, to wind down the tensions of the region. But at the same time, you have to unlock the remarkable human potential of the Middle East and the GCC,” he said.
He told the Emirates News Agency (WAM), his predictions for 2020, noting that it would be a volatile year, particularly in the energy industry.
“Geopolitical uncertainty will play a larger role on energy prices this year,” Kempe added.
Reflecting on 2019 events, he noted, “It’s remarkable that energy prices have remained so low through everything we’ve gone through – Iranian sanctions, Libyan turmoil, Iraqi uncertainty.”
However, he added, “despite all that and partly because of the glut of oil we’ve had on the market, and the US oil and gas production, we’ve kept prices remarkably stable for a long period of time.”
“I think the big question is can that hold out in 2020,” he continued.
“You see prices rise by four percent when you get into a crisis, suddenly it seems as we’re in a de-escalatory phase if prices drop by five percent, and I think that’s what we’re going to see.”
Commenting on recent US-Iran tensions, and their impact on clean energy transitions, Kempe said, “A lot of people are focusing on the wrong lessons from the last few days. No doubt, there’s been a lot of tension.
“No doubt there was, for a period of time, increased risk of violent conflict. On the other hand, both parties stood back from that,” he added.
“No one in the region wants an escalation of the current tensions,” he stressed, adding, “Everyone that participated in de-escalating came to that. I think that’s promising.”
“I think all parties see no gain in war. The US doesn’t see any gain, Iran doesn’t see any gain; certainly, the Arab and GCC countries don’t see any gain,” the Atlantic Council President emphasised.
When asked to comment on how GCC countries, like the UAE, can play a role in the 2020 energy agenda, Kempe said, “If you look at the GDP of this region, and if you took the size of the Middle East population and put it anywhere in the world, you would have three times the GDP.”
World Bank figures indicate the GDP figures for the Middle East and North Africa reached $3.611 trillion in 2018.
“So imagine how much low-hanging fruit there is here and how much opportunity there is,” he said.
According to the International Renewable Energy Agency, IRENA, figures, the adoption of renewable energy technologies created 11 million new jobs at the end of 2018.
When asked to comment on how countries and international bodies can partner further to see effective climate action, Kempe revealed that through the Council’s Adrienne Arsht Centre for Resilience, the MidEast Centre, and the Rockefeller Foundation, a new initiative will see one billion individuals become resilient to climate change, tensions and crises.
More details on the announcement will be made as part of Abu Dhabi Sustainability Week 2020 next week.
The Atlantic Council Global Energy Forum is an international gathering of government, industry, and thought leaders to set the energy agenda for the year.
Taking place in the UAE capital from January 10-12, the 2020 iteration of the forum will focus on three key themes: the role of the oil and gas industry in the energy transition, financing the future of energy and interconnections in a new era of geopolitics.
Today, 8 January 2020, it appears that the US is more relaxed about oil spike than Europe – which helps explain differences over Iran, according to Mueid Al Raee, of United Nations University.
Oil prices shot up following the US assassination of Iranian general Qassem Soleimani, rising more than US$5 per barrel to more than US$71 (£54) on January 6, its highest level since the Saudi oil refinery attack last September. Brent crude has since eased to around US$69 at the time of writing, though there is much discussion that it could climb a lot higher if the current crisis leads to an all-out war.
In keeping with many recent developments in US-Iranian relations, the Europeans have taken a dim view of America’s decision to take out the military commander. When trying to make sense of the very different approaches Iran on either side of the Atlantic, one factor that is often overlooked is that the US and Europe are affected in different ways by a rising oil price.
People tend to see more expensive oil as bad news for the global economy, but the reality is that it’s not necessarily bad for America. It may be that, in continuing to provoke Iran, driving up the oil price is almost seen by the Americans as an added incentive.
The complex oil effect
Oil pricing and its associated effects are often more complex than portrayed. As citizens, we are most often concerned with the price of fuel for our cars and the cost of heating our homes. This is the first way that oil prices affect the broader economy: if consumers have to spend more on fuel and associated taxes, they have less to spend elsewhere – and this can lead to a global slowdown.
Like all countries, the US is affected by this. Yet on previous occasions where US actions on the geopolitical stage drove up oil prices, there were also benefits to the country’s economy. Take the 2003 invasion of Iraq, which ushered in a period that would see the price of Brent nearly triple by the end of the decade. This led to a wave of investment into the US shale oil sector, which would eventually account for approaching two-thirds of the country’s total oil production.
Brent crude price, 1940s to present day
The trouble with shale oil is that it is expensive to produce, with average break-even of fields not far below US$50 per barrel. Shale oil wells also produce most of their oil in the first year of production, which means that producers have to continually drill new wells.
Due to the lower prices of the last few years, a large number of oil-related companies in the US have filed for bankruptcy, including both producers and services businesses. And while US production of shale oil managed to continue rising impressively throughout this period, mainly thanks to the bigger producers, it has been slowing down markedly in recent months.
If the oil price now trends higher, it could well mean that shale oil production in the US can resume its upward march. It also raises the prospect of US oil services companies earning more both locally but, most importantly, from foreign oil-production ventures, since there is a well-established correlation between their stock price and higher oil prices.
At the same time, six of the last eight recessions in the US were followed by high oil prices. One reason why this was not a hindrance for the economy is that, in the longer term, stable higher prices promoted the development of more energy-efficient technologies within the country.
The Americans can also argue that there are some longer-term economic benefits to higher oil prices that can help everyone. Oil-producing countries with surplus cash from oil profits invest in foreign technology and foreign assets. At the same time, oil-importing countries innovate to mitigate the profit-reducing effects of higher oil prices. These are both ultimately good for economic vibrancy and growth.
On the other hand, there are advantages to cheaper oil that are particularly important to countries in Europe – including the UK – because, unlike America, they are not oil self-reliant. Lower oil prices are shown to be beneficial for Europe’s highly energy-intensive economies and are expected to help with job creation. During the oil price drops of 1986 and the early 1990s, for instance, energy-intensive industries in Europe increased their earnings. Consumer product businesses and European airlines benefit from lower oil prices, too.
What happens next
Whether or not the Americans actually want higher oil prices, there are certainly good economic reasons why they probably won’t mind them. Deepening the chaos that started with the US withdrawing from the West’s nuclear deal with Iran is an “easy” way to achieve higher oil prices while meeting other strategic objectives.
Yet how the Europeans, China and Russia respond will also determine the global flow of oil from Iran and Iraq. Whatever the ultimate pros and cons of a higher oil price from an economic point of view, the Europeans clearly have more reasons to be unenthusiastic than the US. If the new exchange and payment instruments that have been developed by Europe to circumvent US sanctions are effective, and the US does not escalate the conflict, it may yet mean that oil prices remain stable at current levels.
The future of real estate development is digital, with demand for cost-effective, innovative and sustainable buildings inspiring data-led business models that will fuel the growth of the Middle East construction industry, say, industry experts. So is Digital innovation ‘key to ME construction sector’?
“Innovation and sustainability in construction, specifically in connection with new digital solutions, are driving the future of real estate in the Middle East,” said Dierk Mutschler, CEO, Drees & Sommer, a leading construction and real estate consultancy.
“A gentle slowdown in some regional markets coupled with the emergence of new technology and business models will pave the way for forward-thinking companies to capitalise on these shifts. From 2020, the increasingly competitive environment will result in more demand for quality products, leading to a longer-term focus on investment in sustainable business models.
“After all, future business models, products and services will be measured not only by their economic success, but by their impact on our environment,” asserted Mutschler.
“Old business models will become obsolete,” he continued. “Real estate developers and contractors will need to truly understand data and what digitisation means for the construction industry. They will need to design and construct buildings with the capacity to adapt to new technology and future needs for the next 50 to 80 years.
“Ultimately, digitisation means ‘software’. If smart buildings are in danger of becoming outdated, a software update can make them state-of-the-art again. In our Drees & Sommer innovation laboratories, we are researching the use of regenerative technology, which will help ensure buildings are adaptable and future-proof– offering significant cost-saving benefits too,” said Mutschler.
He cited the findings of the KPMG Global Construction Survey, which forecasts six to 10 percent growth in the UAE’s construction sector in 2020 and Global Construction 2020, a report from PricewaterhouseCoopers, Global Construction Perspectives and Oxford Economics, which forecasts $4.3 trillion will be spent on construction in the Middle East and North Africa region over the next decade, as indicative of the positive outlook for the sector.
With regard to the UAE specifically, Stephan Degenhart, associate partner and managing director of Drees & Sommer Middle East, said the current focus lies in the delivery and completion of ongoing projects in anticipation of Expo Dubai 2020, which will attract 25 million visits during its six-month duration.
Following this, he predicted development would focus on delivering the ambitious roadmap of Smart Dubai 2021, which aims to make Dubai the happiest city on earth by embracing technology innovation for a seamless, efficient, safe and personalised city experience.
Degenhart commented: “The opportunities for growth lie within these shifts and changes. We predict that buildings will be completely reimagined and investors will need to consider how their business models will serve the new demands of end users. Existing buildings will also need extensive repositioning and revitalisation in order to compete in the digitised environment of the future.”
There are a host of smart technology solutions already available, from 3D laser scanning and digital modular fabrication to intelligent construction equipment and BIM models for design and construction, not to mention the use of IoT systems, robotics and data-driven business models for operation. Challenges lie in achieving the successful integration or networking of multiple systems from different technology providers and critically, according to Degenhart, in realising a change in mindset.
“Digital solutions have the power to dramatically impact the way we plan, construct and operate buildings. According to recent research by McKinsey & Company, adopting digital solutions throughout every phase of the construction process could increase market productivity by as much as 15 per cent and reduce project costs by up to 45 per cent,” Degenhart said.
“At Drees & Sommer, we are looking forward to working with developers and investors seeking to expand or enhance their portfolio in 2020, as well as supporting those new to the region. Our goal is to deliver cost-effective and sustainable buildings, profitable real estate portfolios, people-oriented working environments, visionary mobility concepts and liveable cities,” concluded Degenhart.