MANAMA: With projections of total investments of $1trillion across MENA on energy sector, Bahrain is looking at raising debt worth $3billion on energy related projects in next five years.
The Arab Petroleum Investments Corporation (APICORP), the multilateral development bank focused on the energy sector, today published its annual MENA Energy Investment outlook. The report forecasts that the MENA region will see a number of critical energy projects pushed through over the next five years, despite the uncertain geopolitical backdrop. Around $345billion has been committed to projects under execution while an additional $574bn 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% forecast for both 2018 and 2019. 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.
Saudi Arabia and the UAE represent 38% of planned investments, with $149billion and $72billion respectively, over the outlook period, as both countries look to boost their upstream oil and gas sectors. For Egypt, the main focus is ramping-up of gas production and meeting rising power demand. Planned investments in the country are $72billion, with the power sector making up over 50% of the total.
Elsewhere planned projects in Kuwait stand at $59billion over the same period, with over 50% in the oil sector. More specifically, the country intends to increase oil output to 4m b/d within the next few years. Similarly, in Algeria planned projects stand at around $58bn 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%. However, low fiscal buffers and competing pressures on revenue may impact Algeria’s efforts to execute its ambitious capacity expansion plans.
Other major investment in the oil and gas sector will be made in Iran, with an estimated $67bn in planned projects in the coming period, and Iraq, at $47billion. Oil investments account for $27bn 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 $50billion in 2017, surpassing the previous year’s record of $37billion. Saudi Arabia represents the bulk of this, with over $21billion of debt raised, followed by Abu Dhabi and Kuwait with $10billion and $8bn respectively. Oman ($8billion) and Bahrain ($3billion) also tapped the international market.
