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Top 25 transportation projects

Transportation is a key consumer of global energy supplies and will increase its share in the future, thanks to rising populations and greater demands for mobility via air, land and sea.

Globally, transportation soaks up a third of all energy supplies and is set to grow from 80% to 130% as the number of cars quadruple to nearly three billion by 2050.

This is of crucial importance to the Middle East on two levels. First, as a purveyor of fossil fuels, the Middle East has a huge stake in understanding global transportation trends.

Secondly, the Middle East's own transportation needs are growing at a rapid pace, effectively reducing their ability to export expensive oil and consume it domestically.

Given the subsidies offered by most Middle East government especially on gasoline and electricity, this could pose a twin problem as it will raise expenditure and reduce export revenues - more of it later.

While these issues could pose a problem, the region could also view it as a fantastic opportunity to raise its profile as a transportation hub and gateway to global trade between east and west.

The number of mega airports for mega national carriers, ports, ships, rail, subways and the ubiquitous car will only grow exponentially especially as Middle East governments pour billions in infrastructure to increase trade and connections to the wider world.

ON THE RISE
As the Middle East economies grow at an average of 3.9% per year till 2050, so will its demand for fuels.

According to the World Energy Council (WEC), the Middle East consumed 46 million tonnes of oil equivalent (mtoe), or about 0.939 million barrels per day of gasoline and about 54 mtoe, about 1,082 million barrels per day, of diesel.

By 2050, consumption is expected to triple for the Middle East from about 100 mote to 300 mote, mostly in gasoline and diesel.

As for air traffic and freight, the region is expected to have high growth for both passenger travel and freight, at 5­6% per year over the next 20 years.

The WEC expects the Middle East's aviation industry to more than double from 950 to 2440 planes, with a growth rate of 7.1% for passenger and a 6.8% for cargo per year through 2029.

Capacity at the three major regional carriers, Emirates, Qatar Airways , and Etihad, collectively has grown 23% annually over the past 10 years, according to Boeing.

"Their growth is likely to continue as the large backlog of new, efficient airplanes that the three carriers have on order will provide a competitive advantage over European and Asian rivals," notes Boeing in its aviation outlook 2010-30.

"Approximately half the 885 airplanes on order in the Middle East, including 72% of the wide-bodies, will go to these carriers."

The aircraft maker expects the Middle East carriers' combined fleet to rise from 1,040 in 2010 to 2,710 by 2030.



The rise of low-cost carriers is also making it affordable for the less well-heeled expatriates to travel more frequently back home, and contribute to the growing aviation traffic.

Indeed, Gulf states have already poured billions on their transportation infrastructure with much success. The economic contributions of Emirates Airline, Etihad Airways, Qatar Airways , Dubai Metro and Dubai Ports Authority to the regional economies have given governments enough incentives to keep funding large-scale projects.

According to Zawya Projects Monitor, close to 300 transportation projects are under way, with the top 25 projects alone valued at USD148-billion collectively.

The top 25 projects feature a wide mix of transportation projects, from railways to roads to ports to airport, suggesting the vast networks opening up, including those that are cross-border to facilitate trade.



FUEL CHALLENGES
While the Middle East remains a hydrocarbon powerhouse, it may struggle to keep with the explosive growth of the transportation sector. The WEC notes that demographic challenges in places like Libya, Iraq, and Iran will impact their ability to export oil.

"Additionally, these countries are most likely to be politically unstable though 2050, putting critical hydrocarbon supplies from MENA at risk.

Unfortunately, the straits of Hormuz, Bab Al-Mandab, and the Suez Canal remain vulnerable," says the WEC in a report on Global Transport Scenarios 2050.

In addition, conflicts and instabilities in Libya, Sudan, Somalia, West Africa, Iraq, Iran, Lebanon, Palestine, and Yemen are expected to last for a few more decades.

"The Arab Spring in MENA is expected to end at Libya, Yemen, and Syria, but ensuing political reforms will take years. Unfortunately, these conflicts are expected to slow down the demand for transportation in these countries," notes the WEC grimly.

All this will mean poor market privatization and insufficient government frameworks.

"Fortunately, there is no lack of credit and willing investors for energy infrastructure investment, but corruption is still a concern in most countries (with the exception of high-income Middle Eastern countries)," says the WEC.

REDUCING SUBSIDIES
Another key factor is subsidies especially related to the energy sector. Most Middle East governments and especially those in the Gulf, offer substantial subsidies on gasoline which is now turning out to be a burden.

The frequent problems with Dubai's Eppco and Emarat are symptoms of the heavy subsidies which encourage over-consumption of energy resources and are fast becoming unsustainable.

According to the International Energy Agency, government across the world offer nearly USD409-billion on oil, gas and electricity consumption. It is set to rise to $660-billion by 2020, with the Middle East governments at the forefront.

Saudi Arabia spent $43-billion on subsidies in 2010, and Iran nearly $80-billion, according to IEA data.

Indeed, a Chatham report on Saudi Arabia blamed the Kingdom's subsidies as one of the key reasons why it has begun to use more oil domestically instead of exporting. According to the consultancy's projections the current consumption trends in Saudi Arabia could deprive the world market of up to 2 mb/d by 2020 compared with the IEA's supply scenario. The national oil company, Saudi Aramco, has warned that Saudi Arabia's crude export capacity would fall by about 3 mb/d to under 7 mb/d by 2028 unless the domestic energy demand growth is checked, says the consultancy.

Although the Saudi Oil Minister Ali Al-Naimi has strongly refuted the findings of the report, subsidies and handouts seem to be increasing rather than decreasing.

GLOBAL PICTURE
While the Middle East's hydrocarbon producers have an eye on domestic demand, they are encouraged by the rise in global demand for their natural resources.

It shouldn't come as a surprise that emerging economies will drive transportation and, subsequently, energy demand.

Rising populations and greater need from empowered citizens to become increasingly mobile, travel and buy cars will mean that eastern and southern nations will set the future transportation agenda, with western OECD economies taking a back seat.

The WEC says that by 2050 there will be 60 to 100 megacities in the world, compared to 22 at the moment. And most of them will be either in Asia, Africa or Latin America.

In 2010, the transportation sector consumed 2,200 million tonnes of oil equivalent (mtoe), or about 19% of global energy supplies.

Interestingly, 96% of that supply came from oil - more than 60% of the oil consumed globally goes to the transportation sector, which underlines the Middle East oil producers' tremendous interest in future transportation trends.

Rising incomes will lead to many more vehicles on the road. This explains why the largest rise in energy type is oil because this, at present, is the main power behind cars.

To put this into context, this increase in oil demand is equivalent to a rise from 90 million barrels a day to more than 190 million barrels a day; natural gas demand increases by 87%.

Put it another way, currently there are 22 cars per 1,000 people in China. This compares to 450 in the US which is the level that appears roughly the peak number per thousand people, according to HSBC estimates.

"Based on the relationship between cars and income per capita, our forecasts for income per capita suggest that the number of cars in China will increase to 350 per thousand by 2050. This means that the total number of cars in China will rise from roughly 30 million passenger vehicles today to almost 500 million," notes the HSBC.

While historically road transport has taken the lion's share of energy supplies, that trend is slowly changing as other modes of transportation add even more demands of oil supplies.

"Growth rates of transport energy use in OECD countries rose fastest for international aviation, followed by international shipping. For non-OECD countries, the fastest-growing energy use was by international shipping, followed by road transport," says the WEC.

CONCLUSION
The Middle East's transportation sector is poised for exponential growth, especially given the great track record of many regional transportation companies that have not only contributed to the economy but also raised the profile of the countries and rapidly accelerated trade.

But this growth comes with a twist - rising domestic needs for energy which could eat into the oil export potential. As long as regional governments don't lose sight of that challenge, their geographical location positions them for this explosive growth.

© alifarabia.com 2012