Oil price hike unlikely to spur GCC construction growth

Construction projects in the Gulf will not see an immediate impact of the recent increase in crude values, a Monitor Deloitte expert said

Recent OPEC efforts to restrict oil output helped push Brent crude up to a four-year high on 25 September [representational image].
Recent OPEC efforts to restrict oil output helped push Brent crude up to a four-year high on 25 September [representational image].

The size and number of oil projects in the GCC will not immediately increase following the recent hike in Brent oil prices that saw the commodity climb to a four-year high, a senior executive of Deloitte Middle East's strategy consulting arm told Construction Week.

“Oil and gas projects have a long horizon; firms look at the viability of a project’s life cycle over, for example, a 10- to 20-year time frame,” said Bart Cornelissen, managing partner at Monitor Deloitte Middle East. 

“So this rise in oil price won’t have an immediate impact on the size and number of oil and gas projects across the GCC.”

READ: Low oil prices continue to squeeze liquidity in 2017, report finds

His comments come as Brent crude, a major benchmark for oil purchases globally, hit $82.14 a barrel on 25 September, marking a four-year high caused partly by Saudi Arabia-led OPEC efforts to restrict output.

The hike follows roller-coaster price trends noticed over the past few years, exemplified most famously in 2014 when the value crashed.

In terms of oil and gas projects, the Deloitte energy expert added, there is also “often a lag time between any rises in oil price and capital expenditure on new projects”.

READ: Oil price less significant for Middle East construction than in 2016

“Oil and gas operators remain cautious when approaching a final investment decision on oil and gas projects. Gone are the days of $100 a barrel,” he explained. 

Although capital expenditure is slowly increasing, Cornelissen added, the trend now “tends to be the construction of smaller projects, and not the large oil and gas projects that the region saw before the price crashed in 2014”.

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