In comparison to the U.S., all countries save Saudi Arabia are attracting more investment. One would expect that the U.S., as a relatively mature first-world economy, would be at a relatively lower level. The surprise in this analysis exists in both extremes: Saudi Arabia on the low side, and Qatar, Kuwait and Dubai on the high side. Israel's relatively low investment can be explained by the type of knowledge-intensive industrial development it is experiencing now.
Qatar and Kuwait are experiencing resource-extraction investment at record levels. The primary driver is natural gas expansion. Unlike oil, natural gas must be processed extensively by capital-intensive facilities before it can be exported. Kuwait and Qatar sit on enormous gas reserves which, to this point, have not been exploited to a great degree. This is changing, now that high demand in the Far East is propelling the search for new and reasonably-priced energy sources. Although Japan has had a LNG capacity for a long time (primarily importing LNG from Indonesia), China is by far the biggest growth factor in LNG for the future. A couple of indicators demonstrate the tremendous growth expectations for LNG exports:
The first is the relative price advantage of gas in China, as compared to coal:
Relative Price Today of Energy in China (Oil and Energy Trends, 2005)
This graph demonstrates that, while Sakhalin gas prices are relatively low, international prices are high. Given that the cost of natural gas is very low in the Middle East, there is an attraction to developing liquefaction facilities for export. This is a highly knowledge- and capital-intensive effort. The other element that needs to be developed is adequate LNG shipping capability. A look at recent trends in that area demonstrates the growth of shipping capacity, particularly under the control of China:
LNG Tankers on Order and Delivered (Collins, 2007)
Qatar has the third-highest reserves of gas in the world, behind Russia and Iran (Oil and Energy Trends, 2005). Qatar does not have significant oil reserves, so its emphasis on gas is logical, given the opportunity for exports. Kuwait also holds significant gas reserves, which it has not exploited until recently; Kuwait and Saudi Arabia used to burn off substantial amounts of natural gas into the atmosphere in order to increase oil production; this is still true in Saudi Arabia, but no longer the case in Kuwait.
The biggest concern in investing in LNG facilities is political stability. Many of the world's energy importers remember the disastrous experience of trying to export LNG in tankers from Algeria in the 1970's. Algeria's civil war and graft-driven economy essentially scuttled LNG plant investment in the country, and mothballed the LNG tankers that had been built at great expense to transport the non-existent LNG to Europe.
The second global concern is the total supply of energy available for growth. Quite unrelated to specific developments in the Middle East, the growth of the U.S., China and India mean that overall energy demand is not only growing faster, but is expected to continue its growth for decades to come. A predictable growth in the price of natural gas makes the multi-tens of billions of dollar investments in LNG facilities in three areas: (1) at the port of debarkation, (2) for transport ships, which are expensive and highly-specialized, and (3) at the port of entry of the country.
Although political stability was a concern up until 1991 (when Saddam Hussein took Kuwait as Iraq's "13th Province"), the U.S. And 29 other allies -- including a large contingent of Gulf States -- demonstrated that Kuwait's sovereignty would be protected by local and international armed intervention. Kuwait's subsequent moves to grant universal suffrage and free its economy have demonstrated a political will to demonstrate stability and become a safe place for investment.
GDP per Capita (PPP)
It is particularly important to compare PPP GDP per capita, rather than nominal GDP in dollars per person. That's because the local prices for consumer goods can vary significantly depending on local tariffs, government interference, and local demand. Many Middle Eastern countries have erected high tariff barriers, which makes it difficult to import goods at reasonable prices (Rivlin, 2001). Much of the cost of imports of basic foodstuffs in Saudi Arabia was artificially elevated due to Saudi support for local farmers, where Saudi wheat was supported at a price level four times higher than that of the world market (Henry C. a., 2001). Saudi Arabia's poor performance in GDP per capita is therefore partially due to the relatively high cost of living for a market basket of consumer items.
Saudi...
Home Building Industry: An Economic Strategy This paper will briefly explore how recent economic indicators such as record low interest rates for mortgages and housing starts should motivate house builders to strategize for continued economic growth. At this time while the housing bubble has not burst, it is important for such companies to focus on strategy in order to remain competitive when the bubble does burst. This type of boom in originations
On the economic strategy, MEPI has sponsored commercial law programs, development of infrastructures for information technology, and debt reform in Morocco, Tunisia, and Algeria. One of the most notable strategies of the Middle East Partnership Initiative is its ongoing shift of resources to the less offensive path of economic developments that are regime-led. This is a shift from the program's traditional strategy of democracy promotion and involvement with local voluntary
Shift from Central Planning to Market Economy The Turkish economy is in what might be termed semi-precarious health. It could certainly be worse, but also certainly be better. Since its birth as a nation-state into its current shape in 1923 in the wake of World War I, Turkey has operated a mixed economy, in which both state and private enterprise have contributed to economic development. (Indeed, it is arguable that all
The parallels are of Sheikh Mohammad are drawn with King Abdul Aziz of Saudi Arabia who used oil to build the foundation of modern Saudi Arabia. He can also be considered a CEO who is managing his emirate like a big company using the modern management principles. He is using the principles of modern participatory management as he does not confine himself to boardrooms or high power meetings and
Why does GE finance poorly-rated airlines with its aircraft financing? GE benefits in three ways: (1) its lower cost of capital than the airlines means that it can charge a risk premium, and make more money on the airline debt, (2) it sells aircraft engines and, more critically, spare parts, which are the biggest long-term source of revenue for the company, and (3) the loans are well-collateralized. Even in
At the beginning of the book, the young man is humiliated and tortured by the Western appearing and speaking judicial committee. Then, further demonstrating the levels of control and command over their citizens, the committee attempt to impinge upon the ways that young man thinks. He is told that he must write about the 20th century's most important achievement and the greatest Arab figure, to demonstrate his loyalty to
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now