Energy projects delay to boost oil

A possible delay in energy projects in the Middle East and North Africa (Mena) is expected to push crude prices to over $150 a barrel after three years while demand and production could fall back, according to an official Arab report.

Over the next 25 years, Gulf oil heavy weights and other Mena countries are projected to pump nearly $2.7 trillion into upstream crude and gas projects, just a fraction of the total global energy capital of $37.9 trillion, said the report by the Saudi-based Arab Petroleum Investment Corporation (Apicorp), an offshoot of the 10-nation Organization of Arab Petroleum Exporting Countries (OAPEC).

The study, authored by Apicorp’s senior consultant Ali Aissaoui, was commenting on a 660-page report released in November by the International Energy Agency (IEA) about global energy investment and possible delay in Mena projects.

It cited the IEA report showing that a total cumulative investment in energy infrastructure of $37.9 trillion (2010 dollars) is needed to balance supply and demand over the next 25 years.

Investment in the oil supply chain is projected to be $10.0 trillion, representing 26% of total while the gas supply chain needs $9.5 trillion, nearly 25% of total. Investments in coal projects are estimated at $1.2 trillion, accounting for three% and those in biofuel at $0.4 trillion or around one%.

The highest share is that of the power sector (generation, transmission and distribution), which amounts to $16.9 trillion representing 45% of total.

The report, sent to Emirates 24|7, showed investment in Mena oil and gas upstream amounts to $2.7 trillion (2010 dollars) for the next 25 years and translates into an average annual investment of about $100 billion from 2011 to 2020 and $115 billion from 2021 to 2035.

 Mena share in global upstream investment – some 17% in the IEA report – appears somewhat low in light of the region’s resource endowment, it said.

 It showed that Mena holds 59% of the world’s proven reserves of crude oil and condensate, but only contributes 36% of global oil output.

Similarly, while holding 43% of proven natural gas reserves, it only accounts for 19% of world gas output.

According to Aissaoui, one explanation for the relatively modest investment share is that Mena upstream oil and gas generally requires comparatively less capital due to lower costs of finding, developing and producing.

“As a resulted of delayed projects, the average IEA crude oil import price, which proxies international oil price, increases rapidly in the short to medium term, as the investment shortfall becomes apparent to the market….oil price peaks to $150 (2010 dollars) in 2016-2017 (equivalent to $176 in nominal terms),” he said.

“In terms of demand, sharply higher oil prices encourage conservation and, in the longer term, a switch to alternatives, increasingly largely in the transport sector. As a result, global oil demand increases by a mere 0.9mn b/d to 88.0mn b/d in 2015….thereafter, demand rise steadily to 97.8mn b/d in 2035.”

The study showed that in terms of production, lower investment in Mena reduces global oil output by 3.8mn b/d at its 2017 peak and 1.5mn b/d in 2035.

It said the he shortfall in Mena production, of some 3.4mn b/d in 2015, peaks at around 6.2mn b/d in 2020 by which time it is partly compensated by an increase in non-MENA production of 3.2mn b/d.

The study said that the likely causes for deferred investment include conservative depletion policies, constraints on financing, renegotiation of upstream agreements, international economic sanctions, higher perceived risks stemming from political instability; and in case of conflict, durable loss of production due to serious damage to infrastructure.

It noted that In the IEA’s central scenario, required new oil and gas production from MENA to meet global demand to 2035 involves upstream investment of over $100 billion per year.

“It is far from certain that such levels, which are comparatively higher that those resulting from our own review, will be forthcoming; neither in the medium term, as underscored in the Deferred Investment Case, nor in the longer term,” it said.

“In the medium term, which involves a bottom-up analysis, the listed causes for delay are all likely, when not already a reality in some parts of the region. However, the key assumption that upstream investment is reduced by the same amount in all Mena countries is arguable.”

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