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Increase in Infrastructure Investment amidst Oil Price Drop

Date: 28 August 2015

It’s safe to say the oil and gas industry has seen an unstable few months. Alongside breakthrough deals struck between the US and Iran, freeing up millions of barrels of oil, the price of the commodity has been dropping, leading to some job losses in the sector.

A recent report from Moody’s Investor Service claims that this slump in industry could be set to continue for another three years. Companies in both Canada and North America have had to react to significant oil price slumps (prices are around $40 per barrel) by cutting jobs in head offices and in the field. It is believed that barrels will average around $50 in the next three years, rebounding to the early $60s by 2017.

New Opportunities Arising

However, it’s not all doom and gloom for the hiring market. While the oil and gas market may be struggling, there are new opportunities arising in the oil and gas infrastructure and projects sector. A number of countries importing these raw materials are benefitting from the price decrease and are now able to invest in infrastructure projects. Aaron Visse, the portfolio manager of the Forward Global Infrastructure Fund commented on this development claiming: “With energy import costs so low, the ability for countries to fund present and future infrastructure projects looks good,” as quoted by Think Advisor.

Infrastructure projects are already underway in a number of countries; in Kenya, the All Africa website reports that an estimated $55.6 billion is being invested in power generation infrastructure projects. There are other projects also in development within Uganda and Ethiopia, as Eastern Africa looks to improve intra-regional trade for oil and gas, as well as other industry sectors.

Similarly in Canada the Canadian International Oil Corporation has teamed with Meritage Midstream Services to create natural gas gathering, compression and processing assets and crude oil gathering assets in the country. It is expected that this project will be completed by April 2016 and will connect with the TransCanada Pipeline and other delivery points within the Alberta region. Steve Huckaby, the CEO of Meritage, said the company was dedicated to “focus[ing] on developing the infrastructure needed to stay ahead of the immediate and long-term needs of our Canadian customers.”

In Saudi Arabia, the ambitious 950km Saudi Landbridge railway plan began two years ago to join the Red Sea with the Arabian Gulf as part of a state-funded project by the Saudi Public Investment Fund. The new railway, when completed, will connect the cities of Jeddah with Riyadh to act as a route for freight to be transported from Europe and North America. The time saved with this new railway (the trip will now take around ten hours as opposed to three days) is expected to provide significant economic benefits to the region.

Countries and businesses are taking advantage of the extra capital to hand, thanks to the drop in oil prices, by making long-term investments in the industry in the form of expanding infrastructure. It may be a short-term window of opportunity, with uncertainty if or when oil prices will go up again, however investment in infrastructure can help secure longevity for energy businesses as well as national economies.

If you’re interested in infrastructure opportunities or are looking to hire professionals for your team, contact Laking Group today.

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