Middle East energy investments to near $1 trillion in 5 yrs - APICORP

Mar 21, 2018
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The Arab Petroleum Investments Corporation (APICORP) said almost US$ 1 trillion worth of energy projects will be pushed through in the Middle East in the next five years despite an uncertain geopolitical backdrop.

In its annual MENA Energy Investment outlook, APICORP said around $345 billion has been committed to projects under execution while an additional $574 billion worth of development is planned.

The overall economic outlook remains similar to the forecasts estimated this time last year, with growth of around 3.2 per cent forecast for both 2018 and 2019, it said.

“We expect the MENA region to continue investing heavily as major energy-exporting countries expand the size of their energy sector and strengthen their positions in global markets,” said Dr Ahmed Ali Attiga, Chief Executive Officer of APICORP.

Global investment in the industry is expected to pick up and parts of the MENA region are expected to see a corresponding improvement in investment. Saudi Arabia is expected to lead the way, but the uncertainty over the possible re-imposition of sanctions on Iran mean that it may struggle to attract the foreign investment it needs to develop its industry.  Iraq is also facing challenges, despite the improving security situation.

“We see three important trends materialising in our outlook: the first is a transition towards the power sector, which now accounts for the bulk of planned investments as demand for the energy continues to increase,” said Mustafa Ansari, senior economist at APICORP. “The second is the increase in committed investments, reflecting an improving investment climate and a healthy transition of projects from the planning phase towards execution. And third, the private sector has an increasing role to play in financing energy projects in the Middle-East that will help ease fiscal pressures on governments,” he added.

Saudi Arabia and the UAE represent 38 per cent of planned investments, with $149 billion and $72 billion respectively, over the outlook period, as both countries look to boost their upstream oil and gas sectors. For Egypt, the main focus is the ramp-up of gas production and rising power demand. Planned investments in the country are $72 billion, with the power sector making up over 50 per cent of the total.

Elsewhere planned projects in Kuwait stand at $59 billion over the same period, with over 50 per cent in the oil sector. More specifically, the country intends to increase oil output to 4 million barrels per day (bpd) within the next few years. Similarly, in Algeria planned projects stand at around $58 billion with the Hassi Messaoud Peripheral Field Development accounting for a significant portion of investments in upstream oil. The country will seek to invest in upstream oil and gas to meet its target of increasing production by 20 per cent.

Other major investment in the oil and gas sector will be made in Iran, with an estimated $67 billion in planned projects in the coming period, and Iraq, at $47 billion. Oil investments account for $27 billion with the ENI-led Zubair and the PetroChina-led Halfaya, two of the largest upstream development projects in the country. However, the outlook for those countries is much less certain, with a significantly higher degree of political risk.

There are three main challenges that could potentially hinder the growth of investment in the region. The first is that the global investment in the oil and gas sector are closely interlinked with oil prices, and though the situation as a whole is improving, prices are not expected to return to the high levels seen prior to the sharp drop in 2014.

Another challenge to growth is the rising cost of capital, as some governments will find it harder to attract foreign investment. However, supported by its high reserves, and low debt to GDP ratios, the GCC was successful in issuing record debt of over $50 billion in 2017, surpassing the previous year’s record of $37 billion. Saudi Arabia represents the bulk of this, with over $21 billion of debt raised, followed by Abu Dhabi and Kuwait with $10 billion and $8 billion respectively. Oman ($8 billion) and Bahrain ($3 billion) also tapped the international market.

Meanwhile, the regional geopolitical environment remains fragile, and persistent conflicts in the region are creating instability that deters investors and causes them to become cautious in investing in the entire region.

2017 certainly saw improvements and rebalance in the region. The period of weakest economic growth and oil prices seems to have passed, but the recovery phase will take longer and is not without its challenges. GCC governments have announced expansionary budgets following a few years of tightening expenditures because of lower oil revenues, and will prioritise critical investments in their energy sectors.