MENA energy investments to hit $879 billion over the next five years

Total energy investments in the Middle East and North Africa (MENA) region are expected to increase by 9% to cross US $879 billion over the next five years, according to the MENA Energy Investment Outlook 2022-2026 published by the Arab Petroleum Investments Corporation (APICORP) on Tuesday.

The forecast by the Saudi Arabia-based multilateral financial institution marks a $74 billion increase from the $805 billion estimate in last year’s five-year outlook.

Contrasting impact of geopolitics on energy landscape  

Among the report’s highlights are that the Russia-Ukraine war has led to contrasting impacts on the region’s energy landscape, with net-energy exporters spearheading the increase in project expenditure thanks to the windfall of oil and gas revenues – while global geopolitical volatility and macro headwinds are not seen as curtailing oil, gas, power and petrochemicals investment growth in MENA for the next five years.

The report notes that in the Gulf region, committed projects comprise around 45% of total energy investments – which is 50% higher than the MENA-wide average of 30%. For net-energy importers in the North Africa and Levant regions, their relative vulnerability to geopolitical risks stemming from the war compounded by the economic strains of inflation and debt burdens are beginning to show and impact energy investments, the report found.

Among the other key findings and forecast of the report are:

• Energy Diversification: Energy diversification is at the top of the agenda, with several MENA countries integrating renewables in their generation mix as part of a shared policy objective to diversify the power mix with low-cost, low-carbon energy sources and bolster power supply security.
• Renewables policy targets: The MENA region is expected to add 5.6 GW of installed capacity from renewables in 2022, nearly double the 3 GW which came online in 2021. By 2026, the region is expected to add 33 GW by installed capacity of renewables, with around 26 GW as utility and distributed solar PV.
• Power generation mix: APICORP forecasts that of the energy vectors constituting the power mix in MENA, natural gas – which is already a dominant fuel for power generation – is expected to grow to maintain a power generation share of around 70% to 75% across MENA by 2024. Another positive sustainability signal is oil-fired power, which is expected to drop from 24% of total generation to around 20% by 2024.
• Nuclear power generation: This will remain relatively modest in the region, comprising 3% of the total generation mix in 2021, led by the UAE. Egypt’s first planned nuclear power plant is expected to come online in 2026. Saudi Arabia and Jordan also announced their intent to add nuclear energy to their power mix during this decade.
• Regulations, equity, financial markets: Oil and gas companies are facing tighter financing conditions and addressing evolving regulatory frameworks while trying to contribute to socio-economic development and the provision of affordable energy. Consequently, MENA governments continue to shoulder the main portion of hydrocarbon investments going forward to ensure the security of supply.
• Carbon trading and green bonds: MENA green and sustainability bonds issued in 2021 more than tripled compared to 2020 to $18.64 billion. The year also saw the birth of MENA’s first voluntary carbon trading scheme by the Saudi Stock Exchange (Tadawul), paving the way for the development of a formal carbon market for trading credits and offsets. Under the recent net-zero pledges of the UAE, KSA, and Bahrain, carbon markets are expected to flourish in the region as hydrocarbon, petrochemical and heavy industry producers will need carbon trading platforms to offset part of their emissions especially in the hard-to-abate industries.

“Our latest MENA Energy Investment Outlook shows that the region continues to progress in its unique energy transition path,” Ramy Al-Ashmawy, Senior Energy Specialist at APICORP, said in a statement.

“MENA countries shoulder the largest share of global investments in oil and gas going forward to ensure global energy security and avoid an impending super cycle that may severely hamper the world economy. At the same time, the region continues to invest in decarbonisation, renewables and clean energy as part of the long-term strategic vision for a low-carbon future underpinned by a greener, more balanced, and sustainable energy mix,” Al-Ashmawy added.

Hydrogen markets to start scaling up

According to the APICORP analysis, blue and green hydrogen will dominate the emerging hydrogen markets in the near term across the region.

The report forecasts that hydrogen markets will start scaling up as the market foundations are established, and for the MENA region, especially in the GCC and North Africa, the focus will be on exporting low-carbon hydrogen to demand centres in Europe and SE Asia via ammonia shipments.

“In the medium term, blue hydrogen proves to be a more attractive option to the MENA region. Blue hydrogen can be produced at a relatively low cost, and it will only slightly disrupt the IOC and NOC’s existing business models,” Suhail Shatila, Senior Energy Specialist at APICORP, said in a statement.

“This is a central metric in the energy transition journey since hydrocarbon producers will play a key role in decarbonising the upstream oil and gas sector and help reach net-zero targets by mid-century,” he added.