Oil&Gas Middle East Monthly Update - 7th June 2005

It may seem hard to believe, but the Middle East’s oil companies are paying the price for their negligence of facilities. Oil revenues are flowing, thanks to high prices and burgeoning demand, but flowlines and pipelines, the arteries of oil production, are in varying states of corrosion.

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By  David Ingham Published  June 7, 2005

If you want to invest in infrastructure, do it now|~||~||~|It may seem hard to believe, but the Middle East’s oil companies are paying the price for their negligence of facilities. Oil revenues are flowing, thanks to high prices and burgeoning demand, but flowlines and pipelines, the arteries of oil production, are in varying states of corrosion.

This is seriously impacting regional producers’ ability to ramp up production to take advantage of high prices and high demand. Although operating companies like Abu Dhabi National Oil Company (ADNOC) seem to be taking notice of this harsh reality, and throwing money at the problem, one wonders if they have woken up rather late.

Earlier last month, when the Caspian Pipeline (BTC) was declared open, most of the world waited with baited breath, fearful of terror attacks and possible sabotage. Whilst such problems may not be within the control of the oil companies, corrosion and weathering most definitely are. And on this front, the region’s producers have been asleep at their posts.

At this point in history, when every event, be it the United States Memorial Day or King Fahd’s ailing health, appears to affect oil prices, the level of OPEC production seems to be the deciding factor in the health of most economies. With China and India flexing their economic muscles, the demand for crude is at an all time high.

However, increasing production to meet demand is one thing, but securing safe and secure routes for the transportation of crude is essential too. Just as much as increasing output, attention needs to be given to finding safer and more reliable modes of transport.

Agencies like the International Energy Agency (IEA) say that this neglect of production and transportation infrastructure is due to overly conservative demand projections made last year. Events this year, however, have made it quite obvious, even to the common man, the real value of the black gold.

Operating companies and their government owners have reaped the benefit of this ‘unexpected’ surge in demand and the resultant boom in oil prices. Now, it’s payback time and the oil companies seem to have realised this.

Hopefully, the coming months will see huge investments and speedy execution of repair work at existing facilities to ensure that demand can be met and the product delivered. If not, supply shortages and exorbitant prices could become a permanent fixture.||**||

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