LONDON, 18 September 2006 -- The latest research on world natural resources published by Swiss banking giant UBS in late August 2006 should be music to the ears of Saudi Arabia. The report, produced by UBS's Wealth Management Research team, projects strong growth in the demand for natural resources especially from emerging markets such as China and India, but warns that supply will remain "thinly stretched" at least in the short term.

The UBS report encompasses basically energy-related commodities such as oil and gas and base metals.

On oil, the report projects that "given the high infrastructure and investment costs involved in transitioning to substitute fuels such as natural gas, oil consumption will remain strong in the near term, and production capacity will likely trail demand due to geopolitical instability in key oil producing regions" such as Iraq, Venezuela, Iran and Nigeria.

As such, there would be continued oil supply and demand imbalances over the next five years. Oil production peak, however, is projected between the mid-to-late 2020s. However, natural gas is predicted to overtake oil production by 2030; and oil substitutes such as ethanol, hydrogen, oil from coal, methane, biodiesel and electric cars "will likely to emerge with time but require substantial technological innovation, infrastructure development, and the willingness of governments to remove distortionary energy subsidies."

Base metals production on the other hand has suffered from underinvestment in mining extraction capacity and because of restrictions as a result of environmental concerns relating to mining. This even though there are no concerns about depletion of ferrous and non-ferrous metals for at least the next two centuries.

Bankers in the Gulf region concur that the oil market dynamics point to "very prosperous times ahead for the next few years". Take for instance Saudi Aramco, the world's largest oil company, in fact for the 17th consecutive year according to the rankings of Petroleum Intelligence. Saudi Aramco's total expenditures for 2006-2010 amount to some $137 billion. In addition to the company's $50 billion capital investment program, the remaining spends, according to Samba Financial Group's chief economist, Brad Bourland, include $20 billion for materials; $23 billion for services; $10 billion for Petro-Rabigh; $11 billion for the Manifa/Shaybah II Project -- still in its proposal phase; $11 billion for the Gas Initiative; and $12 billion for the export refineries.

A major priority for Saudi Aramco over the next few years, according to Nabilah Tunisi, Saudi Aramco acting manager, projects, procurement and support services, is its $20 billion crude oil expansion program. "The biggest investment has been in crude increments. We have an on-going program which is being executed over the next 3 to 4 years. The company is committed to this program, which when completed will increase our total production at Shaybah II, Manifa, Khurais and Qateef by 2.95 million bpd. This would be an amazing feat in such a short period. This increase in increments alone account for the total oil production of a country like Venezuela," she explained.

In this respect, other observers such as Global Research give a more optimistic scenario of short-term supply and demand dynamics for the oil market. According to Global Research's latest GCC oil sector report, world oil demand is estimated to grow in 2006 by 1.38 million barrels per day (bpd) to an average of 84.6 million bpd.

Both OPEC and Non-OPEC oil supply is projected to increase -- with OPEC oil production averaging 29 million bpd in 2006; and Non-OPEC supply averaging 51.4 million bpd. The figures for 2007 are more-or less the same, if not marginally higher in average.

The drivers of demand for natural resources, says the UBS report is higher consumption due to continued industrialization in Asia, Middle East and North America.

In the Kingdom alone, stressed Dr. Ranald Spiers, CEO MENA International Power, the demand growth rate for power is set to rise at 4 percent per annum and for water at 8 percent per annum. In addition to the current independent water and power plants (IWPP) at Shuaiba, Shuqaiq and Ras Al-Zhor, eight more power and water plants are planned for the next few years. The major dilemma is whether these plants should be fired by oil or gas.

In the minerals and base metals sector too, Saudi Arabia, for instance, according to SABB's chief economist, John Sfakianakis, is investing $11.9 billion through 2011 in various projects, mostly promoted by Maaden, the state-run Saudi minerals company, and others by the private sector. These include the Ras Al-Zhor project; Zubeira Bauxite; Jalamid Phosphate; and the Jubail Alumin um Smelter. There is a great business opportunity waiting for all of us," he stresses.

By Mushtak Parker

© Arab News 2006