The best of times, the worst of times

The change in oil price from over $100 a barrel in 2014 down to below $30 a barrel in 2016, and now currently trading above the $50 a barrel mark (a more than 50% decrease since the highs in 2014), has meant a radical change in revenue and strategy for all oil producing countries across the world.

According to various online news sources, over $250billion worth of projects have stalled or been cancelled globally. Some facilities have stopped production, new developments have been placed on hold, peak oil does not even seem like a possibility and is no longer a topic of conversation. 

The history of oil prices has always been volatile and what we are seeing now is another cycle of this volatility. Market forces have worked and expensive oil and gas extraction developments have stopped production, thereby reducing the downward pressure on oil prices.

According to Focus ME, the GCC was hit the hardest by the oil and gas crisis and saw growth fall from 3.8% in 2015 to just 1.9% in 2016. Many commentators believe it is reasonable to assume that the oil price will not drop further.

In the Middle East, interestingly, we have seen this result in a call for existing oil facilities to be improved, made more efficient, and have their working lives extended. The contracts for this may be smaller, but there is still legal input required from lawyers and consultants in drafting the contracts and dealing with the fall-out of projects that don’t go quite as planned.

A production facility has to maintain output for as long as possible, and the work required to improve them needs to be carried out in tandem, as much as possible, to allow for continued production or as short a shutdown period as possible. The same applies when commercial developments are extended or improved, and inevitably requires careful planning and bespoke contracts, and in particular, bespoke damages clauses.

There are no signs of letup in construction overall though, and the Middle East region is still one of the most dynamic parts of the world as new cities and infrastructure are built. The pace of development in the UAE and Qatar appears to continue without skipping a beat.  There will be increasing focus on both of these countries over the coming years as they prepare to host Expo 2020 and the 2022 FIFA World Cup™ respectively.

This is likely to influence other Middle Eastern countries who will see a surge in tourism which will provide them with an excellent opportunity to show off their own developments, many of which are extremely impressive by any standard.

With an unclear economic and political forecast, and even with OPEC’s deal to cut oil production, 2017 is set to be another tough year for the oil and gas industry but we expect to see growth nonetheless.