North America’s recent ramped up production of oil and natural gas has led to a major change in the dynamic of the global economy. The previously skyrocketing price of a barrel of oil has gone from being over $100 to less than $50. For countries such as the UAE this has had some major impacts on the local economy. Abu Dhabi has relied on oil and natural gas to provide a majority of its income. The country has been working for a while now to diversify its economy and the government’s investments, but it has now recently redoubled these efforts. The sooner they diversify their economy away from carbon reserves the more stable it will be in the long run.
One example of the recent diversification is two Japanese firms coming together With Abu Dhabi’s Senaat to partner on the construction of a Dh 1 billion steel plant in Kizad. The current projections for the company’s product are 40% of it will be used as exports and the remaining 60% will allow the country to decrease its dependence on imports. Surprisingly, this is not the first move by the Senaat to expand its investments in the metals sector according to Hussain Al Nowais, chairman of the Senaat. Over the last five years they have invested roughly Dh 16 billion. The steel plant in Kizad is predicted to create roughly 370 jobs at the plant alone.
The Al Gharbia Pipe Company is the name of the UAE steel company that is building the plant in Kizad. There are two Japanese firms, Marubeni-Itochu Steel and JFE Steel; these two companies will have a 49% stake in Al Gharbia Pipe. If construction and production go according to plan then the plant will be fully operational by 2018 and have a production capacity of roughly 240,000 tons per year. The Japanese companies will initially provide the steel plating needed for making the tubing at the plant in Kizad because no local plant has the capabilities of providing the quality steel plants necessary. However, if local companies improve and show they’re capable of providing the steel plating necessary that they will use it.
“With the development and production of oil and gas forecast to remain robust across the region despite recent volatility, the demand for high-quality steel pipelines to transport these resources is expected to expand steadily. We see high opportunities for investment in this market, and particularly in the UAE.” Said Takafumi Nishiuma, JFE Steel vice president. It is a good sign that the country is diversifying its economy, but Mr. Nishiuma is also correct about the future demand for oil. As long as economies around the world continue to grow especially India’s and China’s the need for oil will continue to be massive. Furthermore, because of how easily accessed the Middle East’s carbon reserves are, drilling in the region will continue to remain competitive.