Mena energy outlay nears $1 trillion

Despite uncertainties that cloud the investment outlook, total energy investments in the Middle East and North Africa are getting closer to the $1 trillion mark over the next five years, Arab Petroleum Investments Corporation (Apicorp) said.

According to the latest edition of the Mena Energy Investments Outlook published by the multilateral development bank, the Mena region has a total energy investments of up to $960 billion across a number of critical projects that are committed and planned.

Overall, $337 billion has already been committed to projects under execution while an additional $622 billion worth of development is planned over the next five years, analysts at Apicorp said.

Leading the investment drive will be Saudi Arabia, which along with the rest of the GCC will invest across the energy value chain. Iraq and Iran will play catch up and are determined to push their ambitious oil and gas plans with investments in Iran starting to flow back after years of sanctions, but will face many above-ground challenges, said the report.

In the UAE, planned investment in energy projects is estimated at $51 billion, of which $18 billion is at the execution phase. The Abu Dhabi Company for Onshore Petroleum Operations consortium - which accounts for more than half of the UAE's oil output - will drive up upstream investment.

Apicorp's latest estimate of the region's total committed and planned investments is up seven per cent over its forecast of $900 billion last year.

"Having recently witnessed one of the biggest drops in history, investments in oil and gas are still struggling to recover on a global level. However, there are clear signs for an upturn, and we have found that energy investments in the Mena region over a five-year period are ahead of the trend," said Dr Raed Al Rayes, deputy chief executive and general manager of Apicorp.

Dr Bassam Fattouh, energy sector specialist and external advisor to Apicorp, said budget deficits and tightened public expenditure are a reality across the region. "However, our research suggests that governments still prioritise critical investments in their energy sectors - some of them to maintain their position as global energy suppliers, some of them in response to local energy supply shortfalls."

The recent drop in oil prices, from around $56 per barrel at the start of March to just over $50 at present, is unlikely to prompt oil producers to have a rethink on their investment plans, according to oil and gas industry analysts.

While oil prices are still above their average of $45 per barrel recorded last year, most oil exporting countries are also now in a much better position following two years of strict austerity measures to confront a prolonged period of low oil prices, they argued.

According to Apicorp, Saudi Arabia and Iran represent 37 per cent of planned Mena energy investments, with $124 billion and $103 billion, respectively, over the outlook period, as both countries look to boost their upstream oil and gas programmes.

Saudi Arabia has concrete plans to increase gas production and to promote the role of gas in its energy mix - it is currently diverted entirely for domestic use in power generation and industry. Additionally, the country has a large number of projects in the pipeline to add significant power-generating capacity. Major projects include the Taiba integrated-solar combined-cycle plant in Madinah which will bring total capacity of 3.6GW by 2020 at an expected cost of $4 billion.

For Iran, total planned investments are $103 billion, of which the majority will go towards oil and gas projects. This highlights the country's desire to boost its oil and gas sectors. Major projects include the $4.5 billion Kish gas development and the $8.5 billion Iran Gas Trunkline - currently at the design phase - that plans to connect Iranian gas to Europe via a proposed pipeline to Turkey.

Iraq is planning to invest $52 billion in energy projects by 2021 while planned projects in Kuwait stand at $60 billion with over 50 per cent in the oil sector. Egypt has plans to invest $83 billion in the energy sector with the power sector representing 75 per cent of the total, Apicorp said.

The power sector accounts for the largest share of investments, at $207 billion. The oil and gas sector will represent $195 billion and $159 billion respectively, with the remaining investments in petrochemicals. Projects under study represent by far the largest portion of planned investments at $282 billion.

"Given the current investment climate and uncertain outlook, we do not anticipate that all projects under this phase will move to the execution phase. In our view, contracts under design and execution phases are more likely to materialise in the medium term. Projects under execution amount to $125 billion, while those under design reach $78 billion," the report said.

Source: Khaleej Times