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05 December 2023

UAE to invest $74bn in energy

UAE has overtaken Qatar to become the Mideast's second largest energy investor (FILE)

By Nadim Kawach

The UAE has overtaken Qatar to become the Middle East’s second largest energy investor with its potential capital in the sector totaling around $74 billion during 2011-2015, official figures have shown.

Saudi Arabia is expected to remain the dominant investor in the oil and other energy sectors in the region as it could pump nearly $130 billion in the same period, showed the figures by the Saudi-based Arab Petroleum Investment Corporation (Apicorp), an affiliate of the 10-nation Organisation of Arab Petroleum Exporting Countries.

In a study sent to 'Emirates 24|7', Apicorp sharply revised up its forecast for pan-Arab potential energy investment to $530 billion during 2011-2015 against $470bn during its previous review.

It said the upward review was prompted by the fact that global energy demand is recovering from the 2008 financial distress and oil prices are expected to stabilise at relatively high prices. 

By contrast, gas investors, which face a more challenging market, may put higher value on the option to wait, the report said.
It noted that forecasts of higher than anticipated demand would encourage investors to bring back in line some of the oil-based projects they had previously shelved or postponed because of the crisis and to slate for development new ones.
“On this basis, we expect growth in energy capital investments to continue recovering from the contraction that occurred during the crisis….the total amount of investments shelved or postponed is expected to drop to 19 per cent of potential, compared to 29 per cent in the last review. As a result, actual capital requirements should amount to $430 billion for the period 2011-2015, compared to $335bn in the last review,” the report said.

Its estimates showed nearly 70 per cent of the investments are located in five countries - Saudi Arabia, UAE, Qatar, Algeria and Egypt. The GCC area accounts for nearly two thirds of the region's potential and within that region, the UAE takes over Qatar as the second biggest potential energy investor.

“In Saudi Arabia, potential capital investment is estimated at $130bn. With Saudi Aramco and SABIC reaffirming their commitment to implementing their investment programs, shelved or postponed projects are expected to decline to six per cent of potential, compared to 21 per cent in the previous review,” it said.

“In the UAE, revised potential investment totals $74 billion with projects made redundant amounting to 20 per cent.”
The report estimated potential capital investment in Qatar at $70bn, becoming the third largest investor in the Middle East. “In this country, we continue to assume that the moratorium on further development of the North Field (beyond the Pearl and Barzan projects) will not be lifted during the review period,” it said.

“Accordingly, shelved and postponed projects, even though much less than the 36 per cent found in the last review, are likely to remain relatively high at around 32 per cent of potential.” In Algeria, Sonatrach is anticipated to recover fully from its 2010 paralysis and resume normal investment activities, according to the study, authored by Apicorp chief economist, Ali Aissaoui, an Algerian.
“Hence, potential investment has been revised upward to $57bn, while postponed projects are expected to drop to 19 per cent of potential, compared to 31 per cent in the last review,” he said.

“Finally, in Egypt, we keep to the revised potential investment of $42bn with the hope that, despite recent internal turmoil, project redundancy will be contained to 17 per cent of potential.” Turning to Kuwait, which controls the world’s fourth largest oil reserves, Apicorp said it has the highest rate of postponed and shelved projects in the region during the current review. But it noted that this has more to do with the dynamics of domestic politics and policy than the effect of global and regional uncertainties.

“In this context, it is difficult to estimate the country’s actual capital requirements as long as major components of the upstream program remain at a standstill, or key downstream projects such as the al-Zour refinery are undecided,” the study said.

“Iraq, where the ambitions to achieve the full development of the oil sector have been revived, the extent of foreign investors’ contribution will depend on the ability of the Iraqi authorities to provide an ultimate solution to recurrent security problems.”

Sector-wise, the oil supply chain will have the lion’s share of the actual investment, accounting for nearly 42 per cent
The report said this would be needed to develop new production and transportation capacity, sustain current production through enhanced oil recovery (EOR) programmes, and finalize the expansion program of the refining and oil-based refining/petrochemical sectors.  The gas supply chain accounts for 36 per cent and projects will cover development of new production and transportation capacity for both natural gas and the associated NGLs, expansion of capacity to meet domestic requirements and finalising of ongoing export based projects, including gas based petrochemicals and fertilisers.

Capital requirements in the oil-, gas- and nuclear-fuelled power generation sector represent the remaining 22 per cent, the study said, adding that capital expenditures for nuclear based power generation is implicit in the UAE’s case).
“It should be noted that contrary to other links of the energy supply chains, where future investment is project-based, investment in the power sector is growth-based,” it said.

“Therefore, no assumption of shelved or postponed projects is made. Contraction of Arab economies, and the apparently lesser demand for electricity, may provide temporary respite to a constrained capacity. Yet, this sector needs to catch up with an unmet potential demand.”

Concluding the study, Aissaoui said that despite heightened uncertainty stemming from the ongoing turmoil in parts of the Arab world, global economic and financial fundamentals will continue supporting the resumption of energy investment growth in the region.

He said the impetus for recovery would be strongest in the GCC area despite project sponsors facing many of the same challenges, i.e. cost uncertainties, feedstock availability and funding accessibility.

“However, access to funding will be most testing in countries affected by the turmoil,” he said. “While the predicament they face could turn for the better, the likelihood is that of a deteriorating investment climate that could deter both domestic and foreign capital for some time. Meanwhile, faced with more pressing social demands, governments will hardly be capable of funding the resulting shortfalls.”