By Sam Bridge
Arab Petroleum Investments Corporation highlights big fall in total committed and planned investments in the gas sector
The Middle East and North Africa (MENA) has seen a $70 billion decrease in total committed and planned investments in the gas sector, according to new research.
The Arab Petroleum Investments Corporation (APICORP), a multilateral financial development institution, has released its Gas Investments Outlook 2019-2023.
APICORP’s research indicated that the total committed and planned investments fell largely due to Saudi Arabia successfully commissioning major projects and lower prospects for Iran’s gas sector.
Out of the nine countries with committed upstream investments in the 2018 outlook, seven of them saw a year-on-year decline, including Iran, which saw its share of projects under execution fall by 77 percent.
By contrast, the UAE is expected to see an increase in their downstream gas investments.
Overall, the decline in MENA committed investments was most notable in Kuwait (close to 80 percent), Saudi Arabia (60 percent) and Algeria and Iran at around 50 percent.
In terms of total gas consumption at the MENA level, the report indicated that the industrial sector currently accounts for roughly 30 percent of the region’s total gas consumption.
By contrast, APICORP’s annual MENA Gas Investments Outlook shows petrochemicals investments as a bright spot, with a 50 percent annual increase compared to its 2018-2022 outlook.
Even though reforms have contributed to the reduction in energy subsidies and improved energy efficiency and renewables programmes, there is still a risk of under-investment in upstream gas, the report said.
A number of the greenfield power projects – in Saudi Arabia (12GW) and Egypt (9GW) – will undoubtedly require additional gas supplies, it added.
Dr Leila Benali, chief economist and head of strategy, APICORP, said: “The downward shift is not necessarily an indication of low investment appetite. In Saudi Arabia for example, it actually indicates a deceleration from a heavy upstream activity and the commissioning of major projects such as Wasit and Fadhili gas processing plants.
“Nevertheless, with some countries struggling to attract private sector investment, the risks of supply crunch materialising increase again in the region. The other interesting development is that with global gas prices dropping, investors in the gas value chain are using a variety of financing strategies and commercial schemes to get project FIDs,” she added.
The report said that in the UAE, industrial needs will become main driver for gas consumption over the coming years – especially in petrochemicals.
Gas demand for power generation purposes is expected to slow down to less than 1 percent per year to 2024 compared to the 6 percent rate over the past six years, due primarily to the commissioning of nuclear power units at Barakah and solar power projects.
On the upstream side, the UAE announced a 1.6 trillion cubic metres (tcm) addition to its conventional gas reserves in November 2019, catapulting it to sixth place globally in terms of gas reserves. It also became the first country in the region to list unconventional gas reserves of 4.5 tcm.
In Saudi Arabia, gas demand is set to grow at a historically lower annual average rate of 1.8 percent to 2024, with medium-term consumption largely driven by power generation and industrial activities.
Investments in Saudi Arabia’s gas sector are projected to decline relative to previous outlooks as major projects are comissioned. The country has gone from gas tightness to excess gas and has ambitious plans to boost sales gas output from 89 billion cubic metres per annum (bcma) in 2017 to 164 bcma by 2026.
Oman underwent a period of limited gas rationing for industries as well as electricity reform, but its production is expected to increase, the report noted.
It added that Oman continues its upstream reform drive by awarding three blocks to international IOCs in 2019. Over the next five years, the Sultanate’s gas production is expected to increase by 47 bcma from its current level of 40 bcma. This increased production will underpin the 15 percent increase in the share of gas in the country’s fuel mix - from 35 percent in 2015 to 50 percent by 2025.