The cost of financing projects in the GCC is likely to rise in the current oil price envirnoment, according to American financial service company Standard & Poor’s.
If prices remain in the $50 per barrel range for a sustained period or fall further the “outlook may prove problematic” particularly for projects with refinancing risk, market exposure, or input prices, Standard & Poor’s indicated.
However, many projects with the highest oil and gas price exposure, including RasGas in Qatar, will likely remain immune to the decline because they have been structured with compellingly low break-even rates of per-barrel oil prices in the mid-teens, the company added.
“These deals were either financed before 2008, and thus have stronger buffers against low oil prices, or they’ve been more recently structured with a significant cushion against low or falling prices,” it added.
S&P’s warned that the current price of crude could make lenders more cautious in underwriting new, long-term projects until there is more visibility about the depth and length of the oil price slump.
“A longer-than-expected slump will also, in our opinion, cause issuers to be more discerning in the selection of projects they undertake, forcing them to decide between urgent projects and those that are desirable but which can be put on hold,” S&P’s analyst Karim Nassif said.
Gulf producers are not seen as cutting project spending for now, but rather redirecting investment from upstream to downstream projects.
As a result, the region’s refining sector is expected to grow substantially as Gulf Arab states are looking to diversify away from crude oil exports and meet rising domestic demand for fuel.
“We expect the total capacity of Gulf refineries to increase to approximately 7.4mn barrels per day (bpd) by about 2022, 70.5% more than the current 4.3mn bpd,” Nassif said.
