Relationships between gasoline-thirsty Asian petrol consumers and Middle Eastern oil producers who need billions of dollars of investment capital have been strengthened this week in Singapore.
In the corridors, bankers have talked project finance, in the first place for Qatar, and Doha Bank of Qatar opened a local Singapore branch during the Bank/Fund meetings. The importance of the Asia-Middle East nexus has been highlighted in seminars.
"The structure of demand growth has changed", former Organisation of Petroleum Exporting Countries (OPEC) acting secretary general and director of research Adnan Shihab-Eldin told a seminar in Singapore. "In all scenarios, developing countries are set to account for almost four-fifths of the future growth in demand for oil, with Asia accounting for more than 50%."
This trend could accelerate, with vehicle use in Asia now exhibiting "an extremely low level of around 1.5 per hundred of the population [set to rise to] about 10 per hundred by 2025."
Shihab-Eldin played down supply side problems, to which attention has been drawn most notably by US consultant Matt Simmons, who has generated huge controversy by arguing that reserves in Saudi Arabia's vast Al-Gawar field are massively overstated. Shihab-Eldin said: "The oil resources base, albeit finite, is very large and is sufficient to satisfy growth of world demand for many decades, notwithstanding 'peak oil' noise."
Ali Bakhsh, Singapore-based regional vice president of Saudi Aramco, emphasised that "we are not only expanding our hydrocarbon resources through an aggressive exploration programme, but are also working on a major series of crude oil increments, which will bring more than 2 million barrels per day (b/d) onstream by 2009."
Over 1 million b/d has already been added to Saudi output since 2005, Bakhsh concluded, and "projects of this size require investments in pipelines and export-related infrastructure to move those additional barrels to the markets".
Indeed, Shihab-Eldin argued that "there has been a build-up in capacity that could impact on prices in a couple of years' time." But the key to price stability was resolving geopolitical problems.
Underlining the potential spend, a leading project financier told Emerging Markets that commercial banks that have already injected tens of billions of dollars into Qatar's liquefied natural gas (LNG) industry, are piling in again for the Qatargas 4 project, which needs a total $4.25 billion.
Banks have committed over $2.8 billion of this, "which shows just how liquid this market is", the banker said, More than 20 mandated lead arrangers have been appointed for the 16-year deal – part bank loan and part Rule 144a bond – on which pricing starts at the very tight margin of 30 basis points over Libor.
A massive upturn in downstream project spending in the Gulf region, and booming Asian economies’ thrust into upstream exploration to secure crude and natural gas supplies, are the two headline factors that have “created new momentum" in Asia's relationship with the Middle East, World Bank vice president Mustapha Kamel Nabli said.
Ties through labour migration, trade and finance are long standing between the two regions, said Ligia Noronha, a director of the New Delhi-based The Energy and Resources Institute, but "what has changed is the volume. and there is a new consciousness, which is also reflected in rising tensions with the west."
Asia has capital and technical skills that can complement the Middle East's energy industry development, Noronha said. And, pointing to the distinction between them and the Bush administration on Iraq – which endears them to Middle Eastern governments – she added: "Asian governments are not going on about regime change. And none of them have done it themselves."