Future of Oil Industry in UAE and its Challenges
Introduction of the topic
The revenue that is obtained from the export of oil had caused a rapid transformation of UAE from a backward desert region into a region that has high prosperity and strong economical background. Out of the total world reserve UAE possess 10 percent of the share and there is no doubt that the prosperous oil industry of the nation would continue to make future growth. However oil companies operating in the concerned region with the aim to make a future growth have been facing some issues that have developed as challenges for the industry.
The researcher therefore in the understated study tries to demonstrate an in detailed research that would shed light on these challenges and about the future growth of the industry. With this concerned research study the researcher would also like to demonstrate the present scenario of the oil industry of United Arab Emirate and the scope of it’s in the near future by mitigating the challenge that it has been facing as an economically stable and prosperous industry. The researcher undertakes the research study by considering varying sections. At first initiating with by providing an illustrative view of the previous literatures in regards to the same topic. Then continuing with the collection of data and methodological part ending with the analysis of the findings obtained from the data collected and a precise conclusion to the study (Parra et al. 2017)
Background of the study
The nation of United Arab Emirates is recognized to be one of the most important geographical locations of the Persian Gulf Region when it comes to oil production and export. After Saudi Arabia the United Arab Emirates is typically considered to be one of the most relevant actor in the global oil market. Therefore with a large percentage of the world’s total oil reserve it is evident that the oil industry of UAE has the ability to provide economic growth and even expand its social services for a several more decades. As the industry holds a significant importance in the development off UAE in upcoming years it would develop as fuel source of power generations, petrochemicals and even manufacturing industry.
In order to make its expansion roots strong the nation has also undertaken the initiative of developing an intra Gulf gas network that could formulate a link with the Indian Sub continent as well. Oil has been considered to be major source of energy from more than a decade now however policy makers and the public are now tending to re asepses the role they play in the modern life. However the enormous economic contribution the oil industry makes to the concerned nation inevitably makes its future of critical significance to the UAE community. The Oil Boom in between the year 2000 and mid 2008 generated a large volume of revenue for six of the major countries of the Gulf Cooperation Council in which the nation of United Arab Emirates has been veer much a part of. Among all the major countries of United Arab Emirates it was Abu Dhabi supported by Dubai that acted as a transforming agent fir in the nation in the global oil export market. In 2000 the proven recoverable oil reserves were put at 98.8 billion barrel therefore with this the UAE turned out to be a major player in the international oil export market (Khatib, 2014).
Figure 1: Low Cost Curve of Future Oil Supply
(Source : Khatib, 2014)
However with rising concerns for future demands, climate change, the cost of project development, governance, and price value etc the oil industry of UAE finds itself into a delicate situation. Despite the great oil windfall UAE like Gulf countries are continuously facing some challenges that often restrict the growth of the industry in the future. The oil industry in UAE as it slowly tends to increase their output, efficiency and contribution from both corporate as well as country standpoint has been facing a range of challenges. The energy and resource industry has been the backbone of the nation in recent years with increases in the global oil demand and rising prices.
However the challenges have developed as major impedance to the industry’s growth in the concerned nation. The oil industry has played an instrumental role in the economic transformation and mobility in everyday life of majority of the UAE’s Population. The development of the modern society was somewhat dependent on oil in the 20th century. Therefore with this major aspect the era was considered to be the Age of Oil. Therefore with such significance value in diverse aspects (especially in focus to the nation of UAE) it was quite evident that nation has great scope of opportunities for the industry to establish itself as one of the major industries of the global market. Only by recognizing the true scope of these ongoing challenges and their implications the industry could continue to maintain its consistency in an increasingly complex world. Therefore with this major aspect the concerned research study would be developed by the researcher (Ewers, 2016).
Aim and Objective
The major aim of the concerned research study is to illustrate ‘The future growth of the Oil Industry and the challenges faced by it’. With this precise aim of the study the major objectives of the study has been depicted. The objectives are as follows:
- To determine the future growth of Oil industry of UAE
- To evaluate the challenges faced by the oil industry in UAE
- To assess the need of recognizing the challenges and its implications on the industry
- To propose a study in concern to the topic for future significant research
Review of literature
According to Jamil et al. (2016) the significant role of UAE nation’s oil exports refers to their large domestic resources which have been cost efficiently exploited. As United Arab Emirates has been continuing to become one of the major producers of oil therefore it had been quiet evident that nation’s economic value or rather status was largely dependent on it. UAE’s oil industry however with such strong presence faced some common challenges but in varying degrees. Therefore in the concerned literature review tries to demonstrate the future growth of the oil industry and the challenges it had been facing. With evaluation of previous research work the researcher would be able to develop the foundational base of his own research study on the same topic and conduct the study in a more precise.
Development of Oil Industry in United Arab Emirates
In the perspective of Diasty et al. (2013) the biggest deposits of oil have been found to be in the nation of United Arab Emirates. With the beginning of oil exports in the late 1950s and early 1960s the nation was till then regarded to be an undeveloped desert region that is inhabited by the nomads, pearl divers and fisherman. In accordance to Espinasa, (2017) the nation of UAE were late starters in the oil export business. It was mostly during the initiation of the Second World War in 1939 the idea of oil being under the desserts strike. After the war the focus was enrolled on the exploration work in the nation along with other Gulf Countries. With this exploration project the nation underwent a revolutionary change and that was marked as the beginning of the economically flourishing industry of the nation. As per the opinion of Parra et al. (2017) UAE with the emergence of the oil industry gradually enjoyed a high standard of living with public services and amenities as advanced as any nation in the world.
Figure 2: Crude oil price index
Source: (Basher et al, 2017)
The Oil Industry of UAE gradually turned to attain a leading status in the global market by exporting oil internationally. With increase in the demand and supply oil was positively responded by the oil industry of UAE. As per the view of Basher et al. (2017) in the year 2000 the Organization of Petroleum Exporting Countries under its revenue oriented strategy believed that the oil was more valuable under the ground than on the ground therefore worth this the oil companies of UAE responded well and maximized adding as many as reserves as possible.
Future Scope of Oil industry in UAE
In accordance to Herb, (2014) oil had been underpinning the development of UAE by far and would continue to demonstrate their growth signs in the nations’ development. The oil industry as per the opinion of previous literary researchers will be playing an increasingly big role for the nation growth and development. This was evident from the fact that the concerned industry had valuable amount of scope in the future. Kelland, (2014) stated that UAE not only had its own vast reserves but it had also taken the initiative in developing a the nation as a hub that would deliver as a supply of network and this would in turn benefit the entire Gulf region and even possibly other counties as well but at a later stage. Some of previous renowned scholars stated even though the challenges are huge but for the oil industry there are viable opportunities lying ahead.
There have been very limited industrial activities have the opportunities that the oil industry of UAE offers to develop and deploy technologies, enhance development and remunerate large sum of capitals. The combination of high skilled laborers, innovative technologies have been will continue to be the key factor for finding and developing the source of oil in the most challenging environment. This would in turn help the nation to meet up the demands of the oil consumption in the global market. As per the perspective of Bhatnagar et al. (2017) with the implications of new technological implications in the oil sector of UAE have provided the industry arrange of opportunities to develop in the future.
Figure 3: Cost Curve of future oil supply
Source: (Espinasa, 2017)
Challenges faced the Oil industry
There have been a range of factors that have developed as challengeable issue for the oil industry of UAE. In the opinion of Mahdavi, (2014) the producers in the region have been forced to delay oil projects worth of billions of dollars. This in turn highlighted the risk of future infrastructure challenges. Ageing work force of the industry with an underweight qualified junior talent pool has been determined to be one of the major challenges. Since, along with this the nation has been facing the issue from the government pressure to reduce the heavy, costly reliance on expatriates. Jamil et al. (2016) stated that the old and experienced workforce are leaving the industry while the new talent are devoid of the technical, vocational and soft skills required by the oil industry of UAE. In addition to this the oil industry has also been accused of entertaining corrupt practices.
Therefore this has been regarded to be one of the major reasons behind the delay of the oil projects as the lack of public trust jeopardizes the government approval for the major projects. Trust challenges have been one of issues regarding the oil industry of UAE. Low prices of the oil significantly challenge the regions developmental agenda in the opinion of Diasty et al. (2013). Since the revenue obtained from the oil industry of UAE largely affects the GDP of the nation. Shifting strategies have also developed as challenge for the oil sector of the concerned nation. As per the perspective of Espinasa, (2017) if the industry or market escalated or rather flattened the oil demand growth then the competitive players have to look before they leap. That is for creating a balance between the cost challenges against the new reserves required. The oil companies of the UAE have to deliver significant volumes of oil and the industry has to undergo technical revolution. Therefore this may adversely affect the supply industry.
Gap of the Literature
The major gap of the literature that has been identified by the researcher on evaluating some of the previous literary sources in the above section was that even though the previous studies focused on demonstrating the future growth and some of the challenges that are faced by the oil industry of UAE but not much in detailed has been talked about the concerned topic. Therefore with this proposed research study the researcher aims to provide an in depth knowledge regarding the challenges so that it would help the future researchers to address the issue and develop solutions for helping in the future growth of the oil industry of UAE.
On drawing conclusion it could be stated that the presented literature review has helped the researcher to comprehend the diverse aspects that can serve as an opportunity for the future growth of the oil industry. While in concern to the challenges the researcher could now develop a more detailed research study with the help of the concerned review of literature.
Data and methodology
This section represents the collected data and the tools and techniques that have been used in order to obtain the data. It is important to select a proper methodology in order to conduct a research properly (Flick, 2015). For successfully concluding the entire study it is important to base the complete work upon a structured framework. Methodology indicates towards the complete framework that has been followed in the course of the study.
Philosophy of the research
Evaluation of a topic or an issue requires reliance on a specific philosophy. It is important to select a research philosophy in order to evaluate the obtained data in a correct manner (Panneerselvam, 2014). For the conduction of the current study, post-positivism has been considered as the philosophy of the study.
Post- positivism has been chosen as the philosophy of the study as provides the researcher with a scope of the fallibility of the observations (Taylor et al, 2015). Critical realism which is one of the pertinent trait of the post-positivism research philosophy provides the opportunity to revise the errors in the theoretical approaches that have been used in the course of the study.
In order to conclude a study in a proper manner it is important to rely upon a particular research approach (Taylor et al, 2015). In order to commence the research successfully and to reach a successive conclusion, deductive approach has been selected as the appropriate research approach.
As this study deals with the obtained data from already existing relevant literature and starts from a generalized setting and attempts to conclude on a particular point that is associated with the future prospects of the oil industry in UAE, deductive approach has been proved to be the appropriate one for the prevalent study.
Research design indicates towards the framework that has been followed in the course of completing the study. In order to potently complete a study it is an important factor for a researcher to design a particular framework, following which the complete work is to be done.
In order to connect the ideas and to understand several factors which are influencing the current scenario of the oil industry explanatory research design has been chosen for the current study. Explanatory research design has been selected as the appropriate framework of this study as this design provides a chance to shed on the cause and the effect (Panneerselvam, 2014). As the current study attempts to shed light upon on the causes and the its effects on the future prospects of the oil industry, this framework has proved to be an appropriate one for the study.
The study has been conducted using the secondary data. Use of secondary data in order to identify the possibility of growth of the oil industry of UAE is potent because there are ample amount of data available on this issue.
Data collection method
The data has been collected using a secondary data collection method which indicates at collecting relevant data from reliable internet sources, newspaper articles, books and journals. Along with the mentioned sources previous research works have also been studied in order to obtain relevant information on the issue.
Data analysis technique
For the current study mixed method of data analysis has been used in the evaluation of the obtained data. This technique involves both qualitative and quantitative technique for the analysis of the obtained data.
It is important to conduct a study with a compliance to the ethical considerations. All of the collected data has been collected following the guideline of the Data Protection Act of 1999. Along with that the obtained data has not been used in any kind of commercial purpose and also has not been manipulated for the purpose of the study. The collected data without any violation has been used for the purpose of this study.
Analysis & Findings of the study
The simulations suggested by the above-mentioned study appear to be framed upon on the consideration that apart from having a diversified economic as compared to the other GCC countries, the economy appear excessively reliant on petroleum. A significant share of the annual economy of UAE appears to be framed upon on the revenue generated by oil exports since certain survey reports suggest that the share is of almost 85% in 2009 (Kelland, 2014). It has been seen to decline to 77% at the end of 2011 probably due to t7he orthodox approaches the country have adapted prior to the diversification of the prevalent economy.
Figure 4: Increased supply and reduced demand graph
Source: (Espinasa, 2017)
As per some recent predictions by economic scholars, UAE is allowed to expect a hike in GDP by 2.9% prior to the stabilized growth of oil productions in the upcoming year. The UAE is obliged to reduce its oil oriented in the current year in accordance with the agreement they have with prospective oil producing and non-oil producing OPEC countries. This will cause UAE to suffer from a decline of 2.2% that is 0.6% less than the forecasted outcomes (Kelland, 2014). As opined by The World Bank this stagnancy of oil production across GCC and especially in UAE is considered chiefly as the aftermath of weighing the oil prices low in terms of investments in the non-oil sectors. In order to cope with this squalor, UAE appear to liberalise their fuel market, contradicting their conservative approach towards diversified market.
In these regard, if we intend evaluate these data against the prevalent performance of UAE in the oil market, more profound reasons of the decline in oil-production can be facilitated to emerge. UAE happens to join OPEC in 1967 since their inclinations towards the oil market seem to resonate with the proclamations of OPEC regarding the imposition of quota that typically intends to restrict the use of petroleum (Ewers, 2016). In this context, OPEC seems to subject the constraints of the quota within the participants being the sole regulator of those in terms of strategic decisions. The aftermath of this quota system, instead of imposing permitted access and use of oil reserve, appear to encourage excessive oil-production from the leading exponents of global energy sector. After the global economic depression, this causes a significant price hike across the volatile economies of GCC. This is because the apparent paucity of oil production happen to destroy the coherence of the economic hierarchy prevalent in UAE while adding a dimension of price-hike in the rudimentary commodities.
Figure 5: Crude production index
Source: (Espinasa, 2017)
In summary, it is not that the quota system is rogue; rather it is the lack of administrative adherence towards the declarations of the system. The oil-production market of UAE appears to cope with it for a convenient recovery of the market while liberalising the market. Furthermore, boon of this lesson establishes the urgency of a liberal approach towards their diversified economy to combat with these rough situations (Basher et al, 2017). In this phase, the non-oil industries in UAE appear to serve the stability of the respective economy. It is very evident the liberalisation of the prevalent fuel market in UAE is the prime exponent to drive the oil-production and subsequent growth again.
To conclude the research proposal on the concerned topic it could be stated that the study proposed by the researcher would deliver an illustrative knowledge on the future scope of oil industry of United Arab Emirates and would even shed light on the challenges the specified sector has been facing for a long time. Although there have been diverse research approaches to0 wards the concerned topic however the concerned researcher with this specific research would narrow down the challenges that limit the growth of the of oil industry in the prosperous nation of UAE. The concerned Gulf country has been one of the developed nations in the recent times. For this prosperity and economic stability the oil industry of the nation has played a vital role.
The gross domestic product of UAE has invariably been affected by the revenue generated by the oil companies of the nation. The high standard of living that the nation enjoys has been mostly due to the large oil reserves oil has and the profitability it attains from them. Prior to the oil boom the nation did not holds any significant value in the international standards. However with the oil exploration of oil reserves the nation underwent a revolutionary change in all the vital aspects starting from economic prosperity to high standards of livings. In addition to this United Arab Emirates itself had invested huge efforts in utilizing the oil reserves in best possible ways as possible and converting it into a growth opportunity upon which mostly the overall development of the nation is dependant.
However with the gradual growth of the oil industry of UAE and overall supply and demand of oil in the global market the sector faced some serious issues. A description of some of the issues had been represented in the above stated study. The challenges that are faced by the industry had been in varying forms. Each of which has played a significant role in restricting the future growth of the sector in UAE. With this concerned research study the researcher had been extensively trying to elaborate the challengeable issues faced by the concerned industrial sector and even tries to create a study that acts as foundational base for future researchers depending upon which they culminate certain solutions for the challenges identified