Total committed and planned energy investments in the Mena region, including Iran, will reach $900 billion over the next five years, according to a new report published by the Arab Petroleum Investments Corporation.
APICORP, a multilateral development bank, said in its report "MENA Investment Outlook - Big plans in uncertain times," that despite uncertainties in the region's investment outlook, that $289 billion of investment has already been committed to projects under execution in the region, while an additional $611 billion worth of development is planned.
Leading the investment drive will be Saudi Arabia, along with the UAE and Kuwait, which will look to invest across the energy value chain. Iraq and Iran will play catch-up and are determined to push their ambitious oil and gas plans forward, but will face many above-ground challenges.
In North Africa, Algeria has vowed to pump billions into its upstream sector. Much is also expected in Egypt as recent gas finds promise to meet rapidly rising power demand. Renewable-energy projects will be at the forefront of efforts to meet rising power demand in Morocco, Tunisia and Jordan.
Dr. Raed Al-Rayes, Deputy Chief Executive & General Manager of APICORP, said global investments in oil and gas fell by 20 per cent in 2015 compared with 2014, one of the biggest drops in history. "However, against this trend, we expect the MENA region to continue investing heavily as major energy-exporting countries expand the size of their energy sectors and strengthen their positions within global markets."
Despite the increasing investment plans within the MENA region, APICORP's report also highlights several challenges and constraints that will prove pivotal over the medium term.
Global investments in the oil and gas sector are closely interlinked with oil prices. Although some MENA countries, including Saudi Arabia, Iran, the UAE and Kuwait, announced that they would go ahead with investment plans despite low prices, other countries with low fiscal buffers and competing pressures on its revenues, particularly Iraq, may have to reconsider their ambitious capacity-expansion programmes.
In addition, financing projects has become more challenging. Standard &Poor's Ratings has indicated that credit worthiness in the MENA region has deteriorated over the past six months, with average sovereign ratings of 'BBB'. Although recent efforts to attract foreign investment have seen some success, political and economic concerns mean investors will be cautious.
The region is also in turmoil. Persistent conflicts in Syria, Iraq and Libya, and the emergence of a new coalition in Yemen, is reshaping the geopolitical landscape. Conflicts and instability in these countries will keep investments at bay in the near term. Regional instability is unlikely to recede in the immediate future, and investors will be wary of spill-over effects in neighbouring countries.
Dr. Bassam Fattouh, an energy sector specialist and advisor to APICORP, said 2015 was unsettling for the MENA region at a time of slower global economic growth and low oil prices. Many GCC governments have announced that budget deficits and public expenditure will be tightened in response. But, governments will prioritise critical investments in their energy sectors.
"Saudi Arabia has the largest committed and planned investments in the medium term, while the UAE and Kuwait have ambitious programmes throughout the value chain. The GCC will use their investments to maintain the status quo as the major supplier of energy to the rest of the world. Iran and Iraq will also play catch-up, especially as investments in Iran start flowing back after years of sanctions," said Fattouh.
Samira Ahmad Omar, director-general of the Kuwait Institute for Scientific Research, has said the GCC states plan to pump up to $100 billion (Dh367.3 billion) into renewable energy projects over the coming two decades.
According to Frost & Sullivan, Saudi Arabia will invest more $100 billion to install 54GW of renewable energy by 2040.Energy demand in the Kingdom is expected to grow by 45% from 69GW in 2014 to 100GW by 2040, a figure that is nearly as much as all of the rest of the GCC combined. By 2020, Saudi projects alone will account for 70 per cent of the total value of the GCC's renewable energy projects.
