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11 December 2023

UAE to pump $76bn into energy projects

By Nadim Kawach

The UAE is expected pump nearly $76 billion into energy projects in the next five years to emerge as the second largest hydrocarbon investor in the Middle East and North Africa (MENA) after Saudi Arabia.

Official figures showed MENA’s total energy capital requirements during 2012-2016 are estimated at $525 billion, unchanged from earlier forecasts despite the current political upheaval in the region.

The figures by the Dammam-based Arab Petroleum Investment Corporation (APICORP), an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries, showed Saudi Arabia remained the dominant energy investor in the region, with an estimated $141 billion during 2012-2016.

“The current macroeconomic indicators and market trends have not invalidated our September review of MENA energy investment, which is mainly project-based,” APICORP’s senior consultant Ali Aissaoui said in a new review of Arab energy investment requirements sent to Emirates 24/7.

“Neither have the ongoing political turmoil in parts of the region and the resulting negative perceptions of the overall investment climate. In this context our review of MENA energy investment for the five-year period 2012-2016 continue to points to a sustained outlook.”

The study showed capital requirements remained at around $525 billion, adding that even if still 15% to 20% lower than potential, it is the highest since the onset of the downturn caused by the 2008 global financial crisis.

A little more than two-thirds of the energy capital investment potential continues to be located in the same five countries, namely Saudi Arabia, UAE, Iran, Qatar and Algeria, none of which has faced the sort of upheaval witnessed in the countries aforementioned.

It showed Saudi Arabia tops the ranking with $141 billion and that investment has mostly been generated by the state-owned Saudi Aramco and SABIC as domestic private investors have continued to struggle to attract capital. “Taking over from Iran, the UAE has become a distant second with nearly $76 billion worth of investment,” Aissaoui said.

According to the report, tighter international sanctions, and the retreat of foreign companies, have ended up taking a toll on Iran’s energy investment, which now stands at $58 billion.

Similarly, but for completely different reasons, investment in Qatar has also been on a sharp downtrend. With the moratorium on further development of the North Field, the world’s largest gas reservoir, still in place, energy capital requirements have plummeted to $41 billion.

The same low amount is found in Algeria where investment recovery seems to be slower than progress in repairing broken governance within Sonatrach.

“Finally, it is worth highlighting the peculiar circumstances of Kuwait and Iraq, where energy investment has remained chronically below potential.”

The report said that in Kuwait the problem seems to be one of policy paralysis induced by indecisive politics.

As a result, major components of the upstream program and key downstream projects such as the giant al-Zour refinery are still to be decided.

In Iraq, there seems to be no major disagreement about the vital need to achieve the full development of the oil and gas sectors, it said.

But it stressed that for the commitment to be credible, the federal government needs to pass a long-awaited package of hydrocarbon legislation and provide durable solutions to recurring security threats and logistic complications.

“With stalled global recovery and ongoing regional political turmoil, MENA region continue to face the challenges of uncertain times. However, while lingering uncertainty hampers forecast, it does not significantly affect our assessment of energy investment for the 2012-2016 period, which points to a sustained outlook,” said Aissaoui, an Algerian.

“Driven by the oil downstream and the power sector the anticipated level of capital requirements of $525 billion, even if still lower than potential investment, is the highest since the onset of the downturn caused by the global financial crisis.”

But the report said it saw obstacles besetting investors and project sponsors, including cost uncertainty, feedstock availability and fund accessibility, with the latter becoming most serious.

“Given the structure of capital requirement highlighted in the review, internal financing should not be a problem as long as the value of OPEC basket of crudes remains above $90 a barrel,” it said.

“In contrast, external financing, which comes predominantly in the form of loans, is expected to remain relatively scarce in face of deteriorating loan supply and high cost of borrowing.”

The report said it believes governments in the region may not be able to make up for funding shortfalls as they face more pressing social demands.

“Going forward, the best option should be for policy-makers to strive to keep private investment from losing further momentum.”