UAE energy investment put at $107bn in 5 years

UAE is second largest investor in MENA after Saudi Arabia

The UAE needs to pump nearly $107 billion into energy projects over the next five years, second only to Saudi Arabia in the Middle Eastand North Africa (MENA), according to official Arab data.

Saudi Arabia, the largest Arab economy and world’s top oil exporter, maintained its rank as the largest energy investor in MENA as its capital requirements are estimated at about $165 billion during 2013-2017.

This means the UAE and Saudi Arabia account for almost 36.5 per cent of MENA’s total energy investment requirements of around $740 billion during that period, showed the figures by the Saudi-based Arab Petroleum Investment Corp (Apicorp), an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries (OAPEC).

The report, sent to Emirates 24/7, showed energy investment requirements in MENA are picking up after a period of stagnation in the past few years mainly because of the 2008 global fiscal distress. 

“Within this framework, MENA energy capital investment is expected to add up to $740bn for the five‐year period 2013‐17. Compared to past assessments, which have been uniformly and consistently revised to reflect the full scale and scope of the power sector, investment appears overall on the rise again, driven mainly by costs and acatch‐up effect,” it said. 

“Indeed, our ‘average project cost’ index, which has been subdued in the wake of the global financial crisis, is once again on an uptrend.” 

The report, authored by Apicorp’s senior consultant Ali Aissaoui, showed a little more than three quarters of energy capital investment are shared by seven countries among the biggest holders of oil and gas reserves 

 which have not faced such turmoil. These exclude Libya but include Iraq, notwithstanding its enduring troubles. 

 In Saudi Arabia, investment is projected to reach $165bn, mostly engendered by Saudi Aramco, SABIC and its affiliates as well as Saudi electricity company (SEC), as stand‐alone domestic private investors have continued to struggle to attract capital. 

“The UAE has established itself for the second consecutive review as the region’s second largest investor, with projects worth $107 billion.” 

Pending further implementation decisions Algeria has jumped in the region’s rankings, overtaking both Qatar and Iran as the third potential investor, the four-page monthly report said. 

In contrast, tighter international sanctions, and the retreat of foreign companies, have ended up taking a toll on Iran’s elusive energy investment program, which has tentatively been put at $68 billion, it said. 

“Finally, despite moving up the rankings ahead of Qatar and Kuwait, Iraq with $56 billion worth of capital requirements is still far below its huge potential…..under‐investment, which has been particularly apparent in Kuwait, is now the case in Qatar as well.” 

In Kuwait, the report said, government policy has often been at odds with parliamentary politics and efforts to align the two have been repeatedly frustrated. “As a result, major components of the upstream development continue to be questioned and key downstream projects such as the long-delayed giant al‐Zour refinery are still striving for materialization.” 

In contrast, the report added, Qatar’s stagnation is the result of the lack of a pure policy decision on whether or not to extend the ongoing moratorium on further development of the North Field, beyond the domestic market oriented Barzan project.“ As a result, and despite a shift in emphasis on enhancing oil recovery and expanding the petrochemical industry, energy investment in Qatar has lost momentum.” 

The report said energy projects in the region face many challenges, including rising costs and feedstock supply, mainly natural gas. 

It noted that the cost of an ‘average energy project,’ which has risen almost three times between 2003 and 2008, has resumed its upward trend after somewhat stabilizing in the middle of the global financial crisis.  

“However, the relatively moderate seven per cent upward trend underpinning the current review should not mislead. The extent to which project costs are predictable depends on the outlook for the price of engineering, procurement and construction (EPC) and its components.” 

It said these include the prices of factor inputs, contractors’ margins, project risk premiums and an element that mirrors general

price inflation in the region.” Not to mention the cost of what we have dubbed ‘excessive largeness,’ the documented fact that large‐scale projects tend to incur  significant delays and cost overruns.” 

“Energy project costs would have certainly quadrupled during the last ten years, if not for the dampening effect of the global financial crisis. The likelihood is that costs will continue rising. However, despite efforts to quantify in a meaningful way each of the above mentioned parameters, we have found it difficult to infer how far up and for how long the overall cost trend is likely to be when combining all components.” 

The reported cited feedstock supply as another key challenge, primarily natural gas to the petrochemical industry and the power sector. 

“Our main findings are that while aggregate MENA proved gas reserves are substantial and their dynamic life expectancies are fairly long, the acceleration of depletion appears to have reached a critical rate for more than half the gas‐endowed countries,” it said. 

“If production continues not to be replaced in Bahrain, Kuwait, the UAE and to some extent Saudi Arabia it could lead to a supply crunch (obviously sooner rather than later in Bahrain). Libya, Yemen and Iraq ‐ although Iraq can still increase supply by cutting down on gas flaring ‐ face a similar prospect .”

 

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