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MENA oil investments to slow in next 5 years as gas 'seems to be plateauing': APICORP

Highlights

Saudi Arabia, Qatar face 'last window'

UAE, Saudi, Oman may miss short-term renewables targets

Jafurah set to make Saudi Arabia blue hydrogen exporter

Dubai — Natural gas and oil will miss out on increased investments set to pour into petrochemicals and power plants in the Middle East and North Africa region over the next five years as decision-makers become "more cautious to new project commitments in an era of gas overcapacity", Arab Petroleum Investments Corp. said May 4.

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Oil investments will total $226 billion in 2021-2025, down from $235 billion projected in last year's five-year outlook, while the gas total will drop to $208 billion, from $211 billion, APICORP said in its latest annual outlook.

Planned oil investments are slowing due to delays in Iraq and Iran, while committed projects are down after projects such as Jazan in Saudi Arabia, Al Zour in Kuwait and Mostorod refinery in Egypt were completed without new projects taking their place.

"For hydrocarbons producers, this decade might prove to be the last window for the low-cost producers to firmly re-establish their market share, particularly Saudi Arabia and Qatar," APICORP said in the report. "The diverging economic recoveries observed in the region in 2021 foretell a fragile financial sustainability for several MENA governments as they face the challenge of financing the growing debt and stimulus packages needed to accelerate the economic rebound in 2021 and beyond against worsening balance sheets."

Total committed and planned investments in MENA oil, gas, power and petrochemicals will be $805 billion for 2021-2025, up $13 billion from last year's five-year outlook, APICORP said. The total for power will be $250 billion, with renewables making up 40% even as Saudi Arabia, the UAE and Oman may fall short of targets, APICORP said.

The total for petrochemicals will be $121 billion, up from $115 billion. The $250 billion total for power plants overtakes oil as the biggest share of energy investment and is up from $232 billion in last year's outlook.

"Investments in the power sector continue to surge throughout MENA, while investments in gas seem to be plateauing, notwithstanding Qatar's North Field expansion megaproject, the largest single LNG final investment decision in history," APICORP said. "Oil and gas investments are expected to witness a healthy uptick in next year's outlook given the expected improvement in macro conditions."

World gift

Qatar, Saudi Arabia, and Iraq are the top three MENA countries in terms of committed gas investments, due to Qatar's North Field expansion and Saudi Arabia's gas-to-power drive. The massive Jafurah shale gas development, with an estimated budget of $100 billion and about 200 Tcf of wet gas, has the potential to make Saudi Arabia a global blue hydrogen exporter, APICORP said.

Aramco is testing whether or not seawater near Jafurah can be used in hydraulic fracking so as not to deplete underground freshwater reservoirs, APICORP said. "If the technique proves successful, Saudi Arabia will have gifted the world a breakthrough in developing vast quantities of stranded shale deposits."

Power investments will include $93 billion of committed projects and $157 billion of planned deals. The shift to renewables "is a chief factor behind the rising share of investments in transmission and distribution in the power sector value chain, as the integration of renewables into power grids requires significant investments to enhance and digitize grid connectivity, not to mention storage to accommodate the surplus power capacity they generate," APICORP said.

Algeria is establishing an independent authority to oversee the development of the country's pipeline of projects, and Egypt is trying to "resolve regulatory issues related to its wheeling scheme and the unbundling of its power market," APICORP said.

The MENA region will add 3 GW of renewables in 2021, double last year's total, and about 20 GW by 2025, APICORP said. Jordan's power generated from renewables is about 20%, up from 1% in 2012, while Morocco's is about 37%. Morocco has 4 GW of renewables from wind, solar and hydropower, and has 3.5 GW of projects in the pipeline. Egypt's total installed renewables capacity amounts to around 2.3 GW, including 1 GW of solar photovoltaic and 1.3 GW of onshore wind.

In the UAE, renewables made up around 6% of total installed capacity and 3% of power generated last year. "Although it may just miss its short-term targets, the UAE's solar capacity is projected to grow the fastest in the region with nearly 5 GW of solar projects in the pipeline," APICORP said, noting Abu Dhabi's renewable energy target of 50% of power generation by 2030 and Dubai's 25% target over the same period.

In Saudi Arabia, only 330 MW of utility-scale solar PV projects and just one 2.5 MW wind demonstration project developed jointly by Saudi Aramco and General Electric were operational as of 2020. Even after combining government tenders outstanding, Saudi's total renewables capacity stands at 3.3 GW, against a target of 27.3 GW by 2024, APICORP said.

Oman is "far from achieving" its target of generating 10% of its power from renewables by 2025, with a single 105 MW utility solar PV project and a 50 MW onshore wind project commissioned over the past two years, APICORP said.

In Iraq, the first solar bid round for projects for 755 MW of capacity was announced in May 2019 and bids of short-listed companies were disclosed in September 2020. The country aims to reach 10 GW of solar power generation capacity by 2030 and generate 20% of its power from solar, according to APICORP.