Energy and power projects totalling US$622 billion in Mena and Iran could materialise between now and 2021 depending on oil prices, creditworthiness of countries and geopolitics, according to the multilateral energy lender Apicorp.
The Arabian Gulf region is the leading destination for $337bn worth of committed investment in projects under execution in Mena and Iran between now and 2021, Saudi Arabia-based Apicorp said yesterday.
It is cautiously optimistic about the level of investment given the challenges facing the region, Bassam Fattouh, a senior energy adviser to Apicorp, said in Dubai.
"The biggest challenge is the low oil price environment and the fact that many of these economies have to adjust to this low price environment, and they have taken some serious structural reforms," Mr Fattouh said.
"The creditworthiness of some of the players in the region has been affected and, of course, there are some countries in the region that suffer from political instability and a deteriorating business environment, which is affecting the degree of investment in the sector."
The credit rating of countries such as Saudi Arabia, Oman and Bahrain has been downgraded by ratings agencies because of the impact of low oil prices on their economies, which will make it harder and more expensive for them to borrow to finance projects in general.
Some countries will have to resort to private financing for their projects, such as power plants.
"Many of the net energy exporting countries in the region will continue to experience sort of constrained budgets and will have to tighten their government spending, and this causes challenges for the region," said Mustafa Ansari, an analyst at Apicorp.
"Therefore they will have to target potentially private financing and private investment, which is also an issue given the fact that the creditworthiness of the region has not seen any improvement."
Committed energy investments are 2 per cent higher than last year’s projection for the 2016 to 2020 period, and planned investments are 17 per cent higher, Apicorp said.
Of the planned investments, the lion’s share goes to power projects with $207bn, followed by oil with $195bn, gas with $159bn and the remainder in petrochemicals.
Projects under study worth $289bn are the largest part of planned investments. Nineteen per cent of all planned investments are in Saudi Arabia.
"Saudi Arabia has concrete plans to boost its gas output and increase the role of gas in the power-generation mix," Mr Ansari said.
"They are also pushing ahead with the petrochemical industry as part of efforts to diversify their energy sector and integrate petrochemicals with the downstream refining sector."
Cost deflation is helping countries, national oil companies and international oil companies to implement projects, particularly since costs are not expected to go up quickly, according to Mr Fattouh.
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