In April, the Arab Petroleum Investments Corporation (Apicorp) issued a special report — MENA energy investment outlook — Big plans in uncertain times — dealing with current and planned investments in the region’s energy sector.

The report is set against a background of global and regional economic expectations and oil market development and concludes that “Mena will push through critical energy projects, despite uncertainties that cloud the investment outlook for the region.”

The International Monetary Fund in January downgraded its forecast of global economic growth to 3.4 per cent for 2016 and 3.6 per cent for 2017, which is 0.2 percentage points less than before, and cited factors such as the slowdown in China and the lower growth for the US.

For oil exporters, the sharp price fall has increased fiscal pressures and deficits. Even countries with large fiscal buffers have been forced to adjust spending. The impact on economic growth of importers has been less than anticipated. Thus, “In Mena, growth has been revised down to 3.6 per cent for both 2016 and 2017, from 3.9 per cent and 4.1 per cent” previously, according to the Apicorp report. (Apicorp is a multilateral development bank established in November 1975 under the terms of an agreement signed by the 10 member-states of the Organisation of Arab Petroleum Exporting Countries (OAPEC). It was to contribute to the development of the Arab oil and gas and energy sector “through the provision of financial solutions, such as equity investments and loans, and research”.)

Naturally, countries that have a reserve cushion such as Saudi Arabia, the UAE and Kuwait are less affected than others with limited reserves such as Algeria, Iraq and Egypt. But all have been cutting government spending and many introduced reforms on energy pricing.

The views of Apicorp on the oil and gas markets are not far from the mainstream as crude prices remain depressed and many producers continued to increase supply, led by Iraq and Saudi Arabia and the return of Iran.

Global oil demand

While the market is rebalancing, price recovery may come “as deep investment cuts and reduction in the number of rigs in most parts of the world start affecting production”. An US output decline is expected this year and the next and across the world “decline rates in mature fields are also expected to accelerate”.

The report says that “we still expect global oil demand to grow strongly, by more than 1-mbd, as low prices persist. But such demand growth will not be enough on its own to rebalance the market and supply has to adjust”, while stocks have to come down or prices should remain relatively weak.

Gas prices were affected by “lower oil prices, weaker demand and additional supplies” as “gas demand has been disappointing: LNG imports dropped off particularly in Asia but also in Europe and South America. In Japan, the restart of some nuclear plants displaced gas used in power generation.” Thus, LNG prices collapsed to reach $7 (Dh25) per million Btu and “prices are expected to remain under pressure”.

Given the above conditions the report finds that “fully $289 billion has already been committed to projects under execution” in Mena, though, “according to the IEA, global investments in oil and gas have fallen by 20 per cent in 2015 compared with 2014.”

Clean products project

The report gives a detailed account of projects for each country and each sector. Major projects under execution are the Jazan refinery and power plant and the Fadhili gas plant in Saudi Arabia, further development of Iraq’s upstream and downstream sector, the UAE Upper Zakum and Barakah nuclear plant, Al Zour refinery and clean products project in Kuwait, 4.8GW combined-cycle power plants and new gas development in Egypt and so on.

Planned investments, some under bidding or design, are much higher at $611 billion, with the power sector accounting for the largest share. Examples of these are the Hasbah sour gasfield expansion and the Taiba integrated-solar combined-cycle plant in Madinah in Saudi Arabia, Al Zohr gasfield in the Mediterranean Egypt, the Fujairah refinery in the UAE, additional development at the Hassi Messaoud field and Ghardaia refinery in Algeria, the refineries and many power plants in Iraq, the Duqm refinery and Liwa petrochemical plant in Oman, refinery expansion in Bahrain and renewable energy projects in Jordan and Morocco.

Challenges remain as investments “are closely interlinked with oil prices”. Countries with reserves are expected to go ahead, but others may be delayed unless external financing is somehow secured.

The turmoil in the region is increasing geopolitical risk and “will keep investments at bay in the near term”.

Let us hope for better times to come and for all these much needed projects and others to go ahead.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.