Supply and demand curve written on glass with a hand pointing to equilibrium.

Supply, Demand and Politics

Breakbulk Magazine Issue 2 2017 CoverBy Janet Nodar

Although we are beginning to hear some faint (very faint), cautious (very cautious) optimism from engineering, procurement and construction companies, see some stability in oil prices, and see a mild rebound in commodity prices, a punishing project market and widespread geopolitical instability continue to take a harsh toll.

Central Asia and the CIS region are economies driven by natural resources. As energy prices fell, EPC projects and new exploration went by the wayside, according to Siddique Khan, president and CEO of Globalink Logistics Group, based in Almaty, Kazakhstan.

No one was willing to spend when gas was less than $50 a barrel. Although oil prices are showing some stability, they’re still not sufficient for smaller producers to invest in new projects. So, they are producing, but there is no new drilling. Meanwhile, oil majors are merely completing previously made investments.

“My main concern is not today, but the projects that go into the pipeline. Projects designed five years ago are moving now. Over the next five years, what will happen? Nobody has put anything into the future pipeline,” Khan said. The same cold reality applies to commodity extraction.

China’s slowdown has also hit the region hard. Kazakhstan, like most commodity exporters, learned to rely on China, so long a ravenous consumer of raw materials as well as a primary investor in the projects market. Bright spots are difficult to pinpoint and political factors are running through it all. “There are so many buts and ifs,” Khan said.

Rebuilding troubled areas in MENA/CIS cannot go forward without a better sense of geopolitical stability and the removal of sanctions. Regarding Iran, “we are now hearing about the reinforcing of sanctions; it puts all investors, including ourselves, on the back foot. Nobody wants to experiment,” Khan said. “The same goes for infrastructure and oil and gas investments. Nobody wants to go full throttle into the market.”

Project business is also thin on the ground in Turkey, according to Emre Eldener, general manager of Kita Logistics in Istanbul, Turkey. Political turmoil there has taken a harsh toll. “I’m hoping things will start getting back to normal in terms of investment later in 2017,” he said.

Yet, the mega-projects spoken of in Turkey for years rumble on: work continues on the multibillion-dollar Ataturk airport. Eldener noted some 60 tower cranes there when he drove by the site recently. And a contract for a US$2.7 billion bridge over the Dardanelles was recently awarded, while a long-discussed nuclear power plant is back on track.

Hicri Guneri, country manager for BBC Chartering/Normed, also based in Turkey, sees an ongoing state of emergency there, as well as continuing regional risk. “It’s all about politics,” he confirmed. The loss of transit cargo to Iraq and Russia, Ukraine and the Black Sea region has been painful. There’s interest in Iran, but nothing is moving yet and sanctions continue. “It is a prospect, but not for this year,” Guneri said. Maybe in 2018.

Peace in Syria would be an enormous boon, geopolitically, humanely and in the most practical business sense. Rebuilding there and in other war-ravaged areas would be a source of project business for Turkish EPCs and logisticians. Eldener sees Iran very slowly opening to the rest of the world, with a few power plant and manufacturing projects. And normal relationships with Russia, assuming stabilized and even increasing oil prices, would go a long way toward easing Turkey’s woes.

One interesting project trend is the dismantling and moving of small, older natural gas-fired power plants from Turkey and other regions to Africa. Locked by contract into buying relatively high-priced feedstock in Turkey, these 40- to 60-megawatt plants cannot compete with cheaper, more efficient hydroelectric and coal-fired power producers. Africa’s power production remains woefully underserved. Thus, Guneri has also noted a few dismantled power plants out of Turkey, India and Sri Lanka for Africa.

The project logistics community has a front-row seat when it comes to the ups and downs of the global economy. Few other disciplines are as aware of or affected by trade flows, the vagaries of supply and demand, and the way politics can skew business practice.

Janet Nodar is content director of Breakbulk Events & Media

Photo credit: Shutterstock


Subscribe to Breakbulk Magazine. Published six times a year, the magazine includes insight and analysis on the biggest issues facing the project cargo and breakbulk industry, profiles and commentary from leading shippers, event previews and lots more. Digital is free – just sign up! The print subscription is $48 a year, which includes shipping worldwide. You might also like our weekly Newswire – try it out, it’s always free.


Breakbulk Events

Related News