Fund Eyes Infrastructure In Oil-Rich States

By Reuters

LONDON (Reuters) – Caliburn Capital Partners is looking to invest in firms involved in infrastructure projects in leading oil producers because it expects the rise in oil revenues to gather pace over coming years. Chris Bouckley, a partner at the U.K.-based fund manager, said rising revenues mean oil producers will ramp up spending on infrastructure such as roads and buildings.

“If you believe oil prices are going up then it means oil producers like Russia and Saudi Arabia will have more money. What are they going to do with it?” Mr. Bouckley asked. There is much talk of China and India ploughing money into infrastructure, he said, but oil producers are also a big part of the equation.

“The Saudi Arabians have a very young population and a relatively high unemployment rate. They are going to build 14 cities, which will have the effect of stimulating the domestic economy over the next 15 years.”

Mr. Bouckley cited recent research from U.S. investment bank Merrill Lynch, which said emerging Europe, the Middle East and Africa (EEMEA) together will spend more on infrastructure than China and India. Firms in engineering, real estate, construction and building material will benefit.

Merrill estimates infrastructure spending in the Middle East at around $225 billion over the next three years, Russia’s at $195 billion, Central and Eastern Europe’s at $45 billion, Turkey’s at $50 billion and South Africa’s at $60 billion. That is more than the $510 billion China and India are expected to spend over the same period.

Caliburn invests in a variety of hedge funds to diversify risks and has $850 million under management. In the 10 months to end October it has returned 23%.

Giving Away Petrol

Mr. Bouckley thinks analysts who say China and India will drive crude demand over the next few years are underestimating demand from oil producing countries. “One of the biggest drivers of energy demand today is the Middle East. Societies like Saudi Arabia and Iran are effectively giving away petrol to the locals as part of a social contract,” he said. “It’s a really bizarre situation … Iran is selling petrol at around 12 (U.S.) cents a liter, you’ve got super growth in domestic demand and exports, if they are not already falling, will be very soon.”

Iran with 7 million cars is using 1.5 million barrels a day compared with 1.8 million barrels a day in Britain, which has 35 million cars, Mr. Bouckley said. He added that part of the reason why so many analysts have consistently underestimated oil prices over recent years is because they forecast demand and assume supply will rise to match that number.

“But supplies are limited, they will plateau and eventually decline,” Mr. Bouckley said. “The oil price will soar. Our sources are arguing for $130 to $150 a barrel.”

According to the consensus view, oil supply and demand this year will be nearly 86 million barrels a day. Experts expect oil demand to grow by 1.5 million barrels a day for each of the next five years and supply to shrink by 1.5 million barrels a day each year because of ageing oil wells, depletion and no new major finds, Mr. Bouckley said.

“This means the world five years from now has to find another 15 million barrels a day,” he said. “Saudi Arabia is regarded as the only place where you can have capacity increases and even they admit they can’t go above 12 million barrels a day for any length of time.” Saudi Arabia produces just under 9 million barrels a day and is the world’s top producer.

By Pratima Desai

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