Global Oil Production and the Impact on Pay in the GCC – Part 1 of 3

By Tim Knight

In the first of three articles Tim Knight discusses significant changes to global energy supply and the impact that these changes will have on the way regional employers reward their key staff (not only their expatriate personnel) and innovative ways in which reward can be used as a retention tool.

The first article sets out some of the technological and geographic changes taking place in the global energy field and raises some challenges for the region in the wake of dramatic developments elsewhere.

The future of energy supply

According to a seminal work by Leonardo Maugeri of Harvard University (Belfer Center for Science & International Affairs; June 2012) there are sufficient reserves of oil and gas to ensure production for the next century. This additional capacity is the result of three significant developments;

  • Improved drilling technology allowing marginal fields currently thought uneconomic to be further exploited
  • New fields coming on stream in areas hitherto thought to be either too expensive to manage or too environmentally sensitive to work under old drilling methods;
  • The development of hydraulic fracturing (“Fracking”) and improved horizontal drilling allowing the extraction of oil and gas from rock, predominantly in North America (N.Dakota and Texas in the US) and tar sands in Canada.

Significantly these developments are taking place outside the GCC. Countries likely to benefit from this boom are the US, Canada, Australia, Venezuela, Iraq and Brazil with the US likely to become the world’s second largest producer after Saudi Arabia by 2020 if not before.

It is predicted that this glut of oil and gas will lead to a collapse in oil prices, however that remains to be seen given China’s insatiable demand for energy and the way in which production is managed by producers with a vested interest in controlling output. One thing appears certain however, the global monopoly on production enjoyed by the traditional producers may come to an end within the next five to ten years. It is anticipated that the US will once again become a net exporter of oil by 2015.

Nobody is saying that the GCC markets will dry up overnight, that is not going to happen, but there are a number of implications of this new oil glut chief amongst them being the economic and social impact on the economies of GCC countries. Should the price of oil fall there will be severe consequences on the capital programmes and budgets of each of the six countries, even including Saudi Arabia whose vast reserves mean that it will remain the world’s leading supplier. But for how long will it be able to meet its domestic economic commitments with prices falling and abundant capacity readily available in other more politically and economically stable markets?

In the immediate and short term (up to 5 years) nothing dramatic is likely to happen. It is predicted that the oil market will remain volatile for the next two to three years but after 2016/17 most if not all the development projects currently under way will be established and will greatly contribute to meeting the world’s energy needs.

The impact of these developments on the way regional employers will need to manage the reward of their key staff is discussed in the next instalment.

Tim Knight has spent much of the past 28 years living and working throughout the GCC and until July 2011 was Head of Compensation & Benefits at National Bank of Abu Dhabi, a position he held since 2007. During that time he initiated various changes including the introduction of one of the first ESCA approved employee share programmes. 

Do you like this article? Sign up to receive our newsletter  for HR insights delivered to your mailbox.

Advertisement
ramybayyour