Skyrocketing costs threaten energy sector

COSTS SOAR: Crippling price escalations could hamper future energy sector projects for Arab states. (Getty Images)

Skyrocketing costs present the biggest risk to energy projects in the Arab world, forcing developments to be axed and threatening future energy investment, according to the Arab Petroleum Investments Corporation (Apicorp).

The projected capital requirements needed to cover energy projects in the region between 2007 and 2011 has risen to a massive $345 billion, up 22% from previous estimates, due to raw material and labour costs, Apicorp said in a report cited by UAE daily Emirates Business 24/7.

Ballooning costs has already forced a substantial number of multi-billion dollar projects to be either delayed or cancelled completely, Apicorp said.

It said ExxonMobil and Qatar Petroleum (QP) were forced to abandon plans to build what was going to be the world’s largest gas-to-liquids (GTL) plant last year due to uncontrollable price escalations.

Previous studies had attributed rising costs associated with projected developments in the energy sector to an increase in the number of projects planned, it said.

Apicorp said the most recent study, however, indicates that the number of planned projects has in fact declined in the face of higher prices, showing a 10% reduction across the region with the exception of the UAE.

Despite the fall in planned projects, investment required over the 2007-2011 period will still sap around 21% of total Arab gross domestic investment, a figure which may rise even higher as costs of raw materials on the global market soar to new highs, according to Apicorp.

Saudi, the world’s largest oil producer and exporter, is set to invest the most in the energy sector at $105 billion, while Qatar is second with $65 billion, and the UAE third.

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