Features of the Oil Economy in the UAE - Assignment Example

Running Header: Features of the Oil Economy in the UAE Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Table of Contents Running Header: Features of the Oil Economy in the UAE 1 Student’s Name: 1 Table of Contents 2 1.0 Fundamentals of the oil and Energy industry 3 2.0 Statistical Analysis 3 3.0 Alternatives 5 4.0 OPEC 6 5.0 New Projects 7 6.0 Future Scenarios 8 1.0 Fundamentals of the oil and Energy industry The UAE is one of the largest producers of the oil in the world. It has large reserves which are both onshore and offshore. It has interrelated gas from the production of crude oil and other non-associated gases are produced. The major growth of the UAE has largely relied on the exploitation and discovery of oil. The UAE Ministry of Petroleum and Mineral Resources states that the oil production on daily production can be maintained at 2 million barrels per day given the present conditions. There is an estimate that the UAE oil reserves will last over 122 years. It is the fourth biggest reserve of the natural gas in the continent (Amuzegar & Jahangir, 2010). The UAE relies heavily on its oil resources which consist of the main source of the government earnings which are necessary for the financing of the public spending which are both developmental and current. The revenues from the oil industry have helped the government to finance its projects which include both services and production. In the recent years the price of the oil has increased globally this has led to the increase of in the UAE market. The increase of oil has led to the increase in the profitability of the market and this make the UAE to be the beneficially. The government is trying its level best to increase the production to 3.5 million barrel per day by 2018 as it waits the acceptance by the OPEC members. 2.0 Statistical Analysis The oil sector contributes most to the GDP of the UAE. The major effect to the economy was felt during the boom in the oil prices in 1975-1984. This major boost led to the increase in current spending and development on the various services and production projects and this led the economy to achieve high growth rates. Despite the structural changes that have faced the economy, the oil sector still remains the largest that contributes to the GDP when it is compared with the other sectors. It helps in the creation of jobs, provides the government with foreign exchange and contribution much in the provision of the social services to the community (Celasum, 2009). The contribution of the several emirates to the GDP’s states varies in the various emirates because of the diversity in the economic and natural resources which are available to them. The oil industry will continue to lead in the contribution to the GDP even in the coming years. Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Barrels per day (000’s) 2500 2400 2700 2750 2800 2950 3000 3100 2800 Table 1.1 Fig 1.1 source: oil and gas journal The table and the graph above shows oil production from 2001 to 2009 of the UAE states. 3.0 Alternatives The UAE do have a production of electricity that is up to capacity of 18.747 gigawatts which is normally strained due to the lack of additional capacity at peak season. The interruption of electricity in the past has been as a result of inadequate feedstock of the natural gas than the capacity of the production. There is a requirement for greater stability and grid expansion in the generation and this has led to the increase in the development of the natural gas and also renewable and nuclear energy so that there can be diversification of the sources for the production of electricity. The diversification which is required by the government in the sector of the energy has been extended to large projects whose aim is to provide renewable energy (Gelb, 2008). The UAE like the other countries in the Middle East has declared plans for them to begin the production of the nuclear energy to meet the demand for the energy in the country. There has been a global interest in the nuclear power which has led observers and experts to communicate their concern that the project in the future could lead to nuclear proliferation. There are concern about the nuclear energy like the political instability and terrorist attacks which have been seen as threats to the countries which are using nuclear energy. The government declares that it have taken measures to address the insecurity issues. The government had set aside $ 10 million in the year 2008 to start the nuclear plant. The UAE has corroborated with the US to set up the nuclear power plant. 4.0 OPEC The Organization of the petroleum Exporting Countries (OPEC) was started in the year 1960 in Iraq at Baghdad Conference. The United Arab Emirates join the organization in the year 1967. The main aim of the organization is to limit oil supplies thus keeping the prices high. Abu Dhabi is one of the major producers of oil in the UAE and it is the one that represents the UAE in the OPEC. Abu Dhabi representing the UAE and being one of the large producers had to change its production to match with the changes that were introduced in the OPEC quota which left Dubai unaffected. Within the OPEC, UAE was considered as sixth producer in capacity and it was regarded as modest state which was seeking equilibrium between price and production that would satisfy consumers and producers alike. The OPEC quotas limited the oil production of UAE to 2 million barrel per day. The quotas put by the OPEC will reduce the production of oil in the UAE countries and thus it will affect the economy in the long run. The economy will report a slower growth than the one that would be expected if the quotas were no there. The quotas favor some countries which have lesser oil production but it does not favor countries with large capacity because it aims at increasing the prices of the oil globally (Horsnell & Paul, 2009). The UAE have a big impact in the OPEC because it is one of the largest producers. If the UAE had not joined OPEC it would make the prices of the oil to be inconsistent due to its large supply. 5.0 New Projects The UAE is on expansion of its oil industry and to make more efficient and also to increase it production in the oil market. The main projects are carried out are in Abu Dhabi which is one of the main producers of oil in the UAE. In the year 2010, the Abu Bhabi Company of Onshore Oil Operations (ADCO) gave a contract to the National Petroleum Construction Company (NPOC) worth of $ 683 million to perform a construction of a pipeline of a distance of 950 KM in the United Arab Emirates. National Petroleum Construction Company will perform the engineering, procurement, construction for the pipeline project and the production of the flow lines and tie-ins that will do the connection of the new production lines. The contract time line is approximately 30 months so that there will be an increase in capacity to 1.8mmbb/d from the current 1.4mmbb/d by the year 2017. The UAE has also another gas project in Taweelah. The company that was doing the project was Dolphin Energy and it finished the commissioning of the gas facilities by 2009 in August and the receiving gas station was associated with Fujairah- Taweelah gas pipeline. The pipeline is approximately 240 km and it will be transporting gas from the gas terminal of Taweelah to the coast of the Persian Gulf (Karl & Terry 2008). Also in the January of the year 2010 a construction company of UAE constructed two gas pipelines in the town of Abu Dhabi worth of $ 160 million. The projects were constructed to facilitate the transportation of the oil and gases. The main aim was to increase the volumes and to bring the natural resources nearer to the market. The prices of the oil may not change much and because it is considered under long term investment. 6.0 Future Scenarios The oil has supported the growth and development of the UAE up to date but there are signs that the natural gas will also play a big role in growth to the Emirates in this century. The world is still trying to recover from the financial crisis. The cost of fuel world is still high and it is yet to be standardized. The UAE may not suffer much from this financial crisis because most of the time the financial crisis result from the oil industry because there is no economy that can survive without the oil. UAE being one of the producers of oil may not suffer from the crisis compared to the countries that do not produce oil. Most of the times during the financial crisis the UAE supports other countries through funding (Stevens, 2005). UAE is also one of the largest exporters of good to the US thus its foreign exchange is very high. The other reason why the UAE will not be affected by the financial crisis is that its economy is growing very fast thus it has attracted workers from the foreign countries in particular in the construction industries and it is estimated that 80 percent of the labor force is from non-UAE. The economy of the UAE is one of the best economies so it will not be much affected by the financial crisis. The UAE economy has diversified in its production of goods and services and it ranges from oil to agricultural productions. References Amuzegar, K. & Jahangir, L. (2010), Managing the Oil Wealth: OPEC’s Windfalls and Pitfalls, London: Tauris. Link :< http://www.ebay.com/ctg/Managing-Oil-Wealth-Opecs-Windfalls-and-Pitfalls-Jahangir-Amuzegar-2001-Paperback-Revised-/1921677> Celasum, M. (2009). State-Owned Enterprises in the Middle East: Privatization, Performance and Reform, Cairo: American University Press link: Gelb, A. (2008), Oil Windfalls, Oxford: Oxford University Press. Link: Horsnell, L. & Paul, N. (2009), Why Oil Prices Have Moved Higher, Oxford Energy Forum, Oxford. Link:< http://www.ofid.org/publications/PDF/ofid_pam34.pdf> Karl, J. &Terry, L. (2008), The Paradox of Plenty: Oil Booms and Petro-States, Berkeley: University of California Press. Link:< http://cddrl.stanford.edu/people/terrylkarl> Stevens, P. (2005). Promoting Economic Development through the Oil and Gas Sector, Royal Institute for International Affairs, 15(2), 10-52. Link: Read More