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The Sunday Telegraph (UK): Dubai's burning ambition: “For oil companies struggling to replace dwindling energy reserves, natural gas is an increasingly attractive proposition. As a result, energy companies, including Royal Dutch Shell, have been flocking to the Gulf state, keen to get a slice of the action.”: Sunday 28 August 2005


(Filed: 28/08/2005)


Rocketing oil prices have led to a construction and tourist boom in the Gulf state, where developers are creating luxury islands for sale, reports Sylvia Pfeifer. And other countries in the region are following suit


As the sun sets off the coast of Jumeirah Beach in Dubai, lights begin to glow in the darkness a few hundred metres offshore. Out in the water, machines are busy laying the foundations for hundreds of houses on what will be one of the world's largest man-made islands: Palm Jumeirah.


Built in the shape of a palm tree on piles sunk into shallow waters, Palm Jumeirah is the first of three such islands being created in the Gulf by Nakheel, the property development company owned by Dubai's government.


This self-styled eighth wonder of the world is visible from space and, once completed, will boast villas, hotels, and restaurants. England football stars including David Beckham and Michael Owen were reportedly among the early buyers when the villas sold out in one week last year.


The island is just one of the many projects being built by Nakheel, but it is also a part of a wider phenomenon taking place not just in Dubai but throughout the whole of the Middle East. Thanks in part to record oil prices of more than $60 a barrel, the region is awash with cash.


According to Standard Chartered, the London-listed Asian and African bank, average oil revenues per capita in Qatar soared from about $15,000 (£7,000) to nearly $50,000 in 2004, while in Kuwait, oil revenues per head increased from just over $10,000 to about $25,000 last year.


One consequence has been a boom in Middle Eastern stock markets and property developments. The United Arab Emirates stock market surged more than 95 per cent last year, followed closely by the Saudi Arabian bourse, which rose more than 80 per cent. In the first six months of this year, the Saudi stock market rose 64 per cent. Initial public offerings are almost routinely oversubscribed.


Arab governments, heavily dependent on oil, are among the main beneficiaries. Last week, King Abdullah, Saudi Arabia's new ruler, ordered a 15 per cent increase in public salaries, a move that underlined the government's expectation that strong oil prices will continue.


The decision, issued by royal decree, was the first across-the-board rise in pay for more than two decades. Public pressure to share the accumulating oil wealth with the population had been mounting and the move follows similar decisions taken by other oil-rich Gulf states in recent months.


Brad Bourland, the chief economist of Samba, the Saudi bank, is forecasting oil export revenues for the kingdom will reach $157bn this year, an increase of 48 per cent on last year. In a report published last month, the bank says that this year will be the "best in the kingdom's economic history".


Some of the mountain of oil-fuelled cash is being spent on buying US and European assets but, unlike the 1970s, a significant amount of these petrodollars is being kept closer to home and invested in neighbouring countries.


A very visible result has been an unprecedented construction boom in the region, with Dubai leading the way.


Unlike its larger neighbours, the tiny United Arab Emirates state has few domestic oil and gas resources - less than 5 per cent of Dubai's economy is based on hydrocarbons - and analysts believe its reserves will run out in the next 10 years.


Nevertheless, the state has been busy transforming itself into a tourist and real estate haven for the processing and spending of petrodollars. Its ruler, Crown Prince Sheikh Mohammed bin Rashid al-Maktoum, is masterminding an extraordinary gamble: that he can raise the number of tourists who visit Dubai every year from the current 5.2m to 15m by 2010.


To do this, he has been busy building a land of superlatives, one that not only boasts the world's largest artificial islands but the world's largest theme park, Dubailand. Then there is the world's tallest hotel, the Burj al-Arab, which is shaped like the sail of a dhow, or traditional boat, and Bhurj Tower, due to become the tallest building in the world. And now there is even a copy of the planet itself.


The World - in the Dubai sense - is a collection of 300 private islands being built two miles off the coast, each in the shape of a nation. All that stands between you and your ambition to run your own country is the cost: they will cost an estimated £3m-plus.


Those who have reportedly bagged a territory of their own include singer Rod Stewart, who is believed to have bought Britain. The World should fully emerge from the waves by 2008.


But if Dubai has focused on turning itself into the world's greatest tourist attraction, other Gulf states have been equally busy. Like Dubai, Qatar is only a minor oil producer compared with heavyweights like Saudi Arabia. But the country has the world's third-largest reserve of natural gas at a time when global consumption of the fuel is soaring. For oil companies struggling to replace dwindling energy reserves, natural gas is an increasingly attractive proposition.


As a result, energy companies, including Royal Dutch Shell, have been flocking to the Gulf state, keen to get a slice of the action.


What makes Qatar doubly attractive is that unlike some of the countries in the Middle East it is open to foreign investment and is both politically stable and pro-western.


Judging from the construction sites that are springing up on an almost weekly basis in the region, there is little sign that this oil-fuelled boom is going to end any time soon. Analysts at Goldman Sachs said earlier this month that they expect oil prices to remain above $60 a barrel for the rest of the decade, which means that Sheikh Maktoum's fantastic dreams for Dubai may become a reality.


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