APICORP sees $70 bln drop in MENA gas investments in 5 yrs

The Arab Petroleum Investments Corporation (APICORP) forecasts a US$70 billion drop in MENA gas investments in the next five years, according to its Gas Investments Outlook 2019-2023.

The multilateral financial development institution, on the MENA region’s planned and committed investments for the period 2019 to 2023, highlighted trends and dynamics shaping the gas landscape over the short and medium terms, including the energy transition, gas pricing, private sector participation and emergent technologies.

APICORP’s research indicates 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 (y-o-y) decline, including Iran, which saw its share of projects under execution fall by 77 per cent.

The UAE is expected to see an increase in its downstream gas investments. Overall, the decline in MENA committed investments was most notable in Kuwait (close to 80 per cent), Saudi Arabia (60 per cent) and Algeria and Iran at around 50 per cent.

In terms of total gas consumption at the MENA level, the report indicates that the industrial sector currently accounts for roughly 30 per cent 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 per cent y-o-y increase compared to its 2018-2022 outlook.

Two-thirds of the MENA countries will record lower planned investments in their upstream gas sectors

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. A fair number of the greenfield power projects – in Saudi Arabia (12GW) and Egypt (9GW) – will undoubtedly require additional gas supplies.

Dr Ahmed Ali Attiga, chief executive officer, APICORP, said: “Due to higher upfront risks associated with exploration activity, we are seeing governments shouldering the majority of the investments on the upstream side. Currently, government investments account for a little under 92 per cent of committed upstream gas investments compared to just 29 per cent for petrochemicals projects where we are seeing more private sector involvement. This involvement is expected to expand given the increasing share of planned petrochemicals and other downstream gas projects estimated at $134 billion - or 71 per cent - in the overall gas value chain versus upstream and midstream.”

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,” Dr Leila said.

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 per cent p.a. to 2024 compared to the 6 per cent 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 per cent 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 commissioned. 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.

Egypt expects continuous growth of gas consumption at an average rate of about 4 per cent p.a. for the next five years owed to power generation, gas exports and industrial development.

Egypt’s Industrial Development Plan 2016-2020 forecasts domestic annual gas consumption to reach 72 billion cubic metres (bcm) in 2020 and 92 bcm in 2021. There are concerns about Egypt turning into net gas deficit as soon as 2025, owing to high domestic consumption and once its 12 Mtpa LNG trains operate at full capacity. An analysis on the Egypt Gas Hub initiative shows that some key elements of the gas hub concept are still to be developed.

Oman underwent a period of limited gas rationing for industries as well as electricity reform, but its production is expected to increase.

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 per cent increase in the share of gas in the country’s fuel mix (from 35 per cent in 2015 to 50 per cent by 2025).

Algeria’s rising domestic challenge

Algeria’s domestic demand continues to grow, jumping by 70 per cent from 2008-2018 due primarily to the power sector which relies on natural gas to feed 98 per cent of the country’s total generated electricity. Gas-fired capacity will continue to feature heavily in the Algeria’s estimated $31 billion of new power generation projects over the next five years, which equals 56 per cent of the country’s total energy investment.