Petroleum & Gas Investments and Projects in Middle East

Despite the lower oil prices, Arab Petroleum Investments Corporation (APICORP) expects the launch of more investments in the energy sector in the Middle East and North Africa due to the increasing local consumption on the one hand, and the desire of the petroleum and gas exporting countries to maintain its productive capacity and exports on the other hand.

This has been illustrated in APICORP report issued in April 2016 under the title "Investment Forecast in Energy in the Middle East and North Africa, Large Plans in Times of Uncertainty" which has summed up the projects under implementation and projects planned for - in the sector of energy - and the amounts expected to be spent from now till the end of 2020 in the region.

APICORP is a "multilateral development bank established on 23 November 1975 pursuant to the articles of an agreement signed between ten members in the Organization of Arab Petroleum Exporting Countries (OAPEC)" in contribution to the development of the sector of gas, oil and energy through providing the financial solutions such as the contribution in investments and providing loans and researches.

Since the establishment of APICORP, it has helped in financing a large number of important projects in Arab countries, and proved to be one of the most successful Arab partnerships in pursuit to develop Arab countries and its economic evolution.

Thus, its subscribed capital has increased constantly to two billion US dollars, with total imports of 162 million dollars in 2015, and with fixed assets over 5.6 billion dollars.

Status of the Global Economy:

APICORP has prepared its report taking into account the status of the global economy and the economy of the region in addition to the development of the development of the petroleum markets' status, and it has concluded that "the region will put its investments in critical power projects despite the uncertainty and the blurry investment expectations in the region", however it admits the presence of many challenges such as the petroleum lower prices, conflicts and instability which affect the economic future as well as the planned investments.

The International Monetary Fund has lowered its expectations regarding the international economic growth to 3.4% for the year 2016 and 3.6% for the year 2017; which means 2.0 points lower than the expectations of October 2015 due to the slowing economic growth in China, and lowering the growth expectations in the United States of America due to the rigid monetary policy and the power of the US dollar, in addition to the huge decrease of the petroleum and gas investments there.

For the petroleum exporters, the steep decline in prices since 2014 exposes them to great financial pressure due to the great budget deficiency – even those who have financial reserve – this situation pushes them to adjust the ways of spending money.

The lower petroleum prices have negatively affected the exporters, however, its effect on the consumers was less than expected due to the decrease of investments in those countries and the increase of unemployment as mentioned above. The study described the economy of the region as "the growth rates have declined to 3.6% for 2016 and 2017 compared to 3.9% and 4.1% expected previously for the same years".

Countries with huge financial reserve like the KSA, the UAE and Kuwait are usually less affected than those countries which don't have enough reserve like Algeria, Iraq and Egypt. However, all of them have decreased the governmental spendings and started to apply reforms in the prices of energy.

The Movement of Oil Prices:

The vision of APICORP regarding the petroleum and gas market is similar to the general idea exposed in the specialized analyses about keeping the oil prices pressed while a number of producers continue to increase production such as Iraq, KSA and Iran after lifting sanctions. As the oil market regains its balance, the oil prices' recovery may be a result of "the huge reduction of investments and the drilling towers in most regions around the world which affects production". The company believes that "the decreasing numbers of drilling towers working in the US has led the companies producing shale oil to convert from the pattern of increasing the production growth to working within the possible cash flow", and it is expected that the US production will decrease during this year and the next year, and "the normal production of oil fields will decline more rapidly".

The report says also that "we still expect that the demand for oil will strongly increase with more than one million barrel daily in one year due to the continuous prices drop. However, such growth will not be enough to make the market balanced; the supply shall be amended and inventories shall be reduced, otherwise the oil prices will continue to be relatively low.

Regarding the gas prices, it has been affected by "the reduction of oil prices, weak demand and increase of supply" as the "demand was disappointing, and it was represented in the lower imports of LNG especially in Asia, Europe and South America". In Japan, re-operating some nuclear power stations has led to dislodging the gas used in generating electricity. Thus, the LNG prices have been reduced to seven dollars/million BTUs, and "prices are expected to be fixed due to the introduction of new producers and the low demand".

Energy Projects in the Region:

According to the above-mentioned, the report says that "289 billion dollars have been allocated for projects under-construction at the time being, in addition to 611 billion for projects still on the stage of design and planning", which means that the total amounts to nine hundred billion dollars in the region, despite the fact that the "International Energy Agency says that the international investments in oil and gas have been declined by 20% in 2015 compared to its size in 2014".

Allocations of under-construction projects are divided into 110 billion dollars for oil, 76 billion for gas, 81 billion for power and 22 billion for petrochemicals. However, allocations for planned projects are divided into 194 billion dollars for power, 190 billion for oil, 149 billion for gas and 78 billion for petrochemicals.

The report adds that its is not expected that all the planned projects shall turn to be projects under-construction, especially there are about 262 billion dollars for projects under study. However, projects that may turn to be under-construction include 117 billion dollars for projects under referral, and 66 projects for projects pending engineering designs. The report gives all the details of each project in each country and in each sector. Either those projects are under-construction or planned. Among the main under-construction projects; the refinery and power plant in Jizan, Al Fadely Gas Hub, complementary projects for producing and treating oil and gas in Iran and Iraq, the project of developing Upper Zakum Oil Field, Al Baraka nuclear plant in the UAE, Al Zour Refinery, refining oil products in Kuwait, developing new gas fields in Egypt etc.

Among the planned projects, we point out the expansion of Al Hasaba project for processing sour gas, Taiba compound solar power plant, developing a gas field newly appeared in Egypt, Al Fujairah Refinery in the UAE, and the additional development of Hasi Masoud field, Gharadia Refinery in Algeria, in addition to two refineries and a number of power plants in Iraq, Duqm Refinery, Liwa complex for petrochemicals in the Sultanate of Oman, expanding refineries of Bahrain, as well as projects of renewable energy in Morocco and Jordan.

Big challenges are still there due to the link between investments and prices of oil; countries with large cash reserves will continue executing its projects, however, other countries will stay behind, unless it finds external financing sources.

The report finally reaches the conclusion that instability in the region leads to an increase of the geopolitical dangers, in addition to "the investments' stop in the short run".

We only have to hope that the future will be better, in order for these desired projects and other projects to be implemented.

By: Mohamed Fawzy Elsaman