Is the energy momentum shifting away from the Middle East? Energy companies in the region are expected to invest USD133-billion in 2012, or just under 11% of the total global energy investments this year, according to IHS CERA, an energy research consultancy in its latest report published Monday.
The lion's share will go to the energy sector in North America - the United States, Canada and Mexico, which will collectively garner USD324-billon of the USD1.23 trillion being spent by energy companies across the world in 2012.
Indeed, global upstream capital and operating expenditures (capex and opex) is expected to rise to USD1.64-trillion in 2016, according the latest IHS Upstream Spending Report. Capex on new projects and Opex on existing plays are expected to reach new records of USD728-billion and USD500-billion in 2012, respectively.
"The brief lull in expenditures in 2009 and 2010 caused by the Great Recession is behind us. Robust oil prices and the growth of North American unconventional gas--which already accounts for $128 billion in 2012 spending--will create new high water marks for investment in CAPEX and OPEX that surpass pre-recession highs," said David Hobbs, IHS Chief Energy Strategist. "Understanding where spending is headed will be critical for both buyers and sellers in the supply chain to meet market needs."
MIDDLE EAST UNDER INVESTMENT
The Middle East market has been hit by the Arab Spring and regional stability in places like Libya, Syria and Egypt over the past year. Sanctions on Iran have also hurt investments in the world's third largest exporter after Saudi Arabia and Russia.
The International Energy Agency expects MENA to region contribute more than 90% of the required growth in oil production to 2035. The largest increases in production come from Iraq, adding five million barrels per day (mbd), and Saudi Arabia, adding almost 4 mbd; following are Kuwait, the United Arab Emirates and Libya.
"To achieve this growth, upstream investment needs are estimated to average $100-billion per year from 2011 to 2020, before rising gradually thereafter. In the Deferred Investment Case, investment over the period of 2011 to 2015 is assumed to be reduced by a third from this level," said Fatih Birol, chief economist at the IEA, in a report.
Mr Birol worries that such a shortfall would radically alter the global energy balance, arguing that MENA production could be 6 million bpd lower in 2020 compared if the region under invests in the sector.
"Consumers face a substantial near-term rise in the oil price to USD150 per barrel. Higher prices prompt greater investment in resources outside the MENA region, though their higher development costs mean that the shortfall in MENA production is only partially offset," said Mr. Birol. "Higher prices also lead to some loss of demand. While MENA countries gain in the short term from more expensive oil, their loss of market share to producers outside the region diminishes their export revenues over the long term."
SHORT-TERM LULL
The IHS, however, does not expect the lull to continue.
The Middle East is expected to be one of the main growth regions in terms of total spending going forwards, with capex rising by nearly 80% from 2011 to 2016 driven by increased drilling activities in Saudi Arabia and particularly Iraq. This compares to a global capex increase of 45% globally over the same time period.
Libyan oil production has also recovered and exceeded expectations, with output expected to rise to pre‐war levels of around 1.6 mbd by 2014.
Other countries set to contribute significant growth are the UAE and Kuwait.
The IEA notes that the UAE has fast‐tracked a number of projects, with capacity revised higher by 180 kb/d since our previous report. Total UAE capacity is now forecast to rise by 710,000 bpd, to 3.41 mb/d by 2016.
Meanwhile, Kuwaiti production has also surprised to the upside, with capacity boosted 300 kb/d over the 2010‐2011 period, though longer term there is a lack of new projects on the books.
"Kuwaiti capacity is forecast to rise just 100,000 bpd over the 2010‐2016 period, to 2.72 million bpd. Indeed, the latest rise in capacity levels reflects a marked increased in active drilling rigs and debottlenecking at the Mina al‐Ahmadi oil terminal, which has enabled increased production from its giant Burgan oil field," says the IEA.
Still, North America is fast catching up and could eat into the share of Middle East exports, as Asian markets look at far more stable regulatory environments. Asian markets found themselves scrambling for alternative supplies after Libya, Syrian, Sudanese and Iranian were interrupted on various occasions throughout the year and North America presents a more stable regime.
Opec states need to unleash energy investments quicker to meet the rising threat.
© alifarabia.com 2012
