Planned gas investments in the Middle East and North Africa region have jumped 29 per cent to $126 billion in 2020, despite downward demand shock amid the coronavirus pandemic, according to a regional petroleum organisation.
Saudi Arabia-based Arab Petroleum Investments Corporation (APICORP) said the MENA region’s committed gas investments held steady in 2020 compared to last year, mainly due to the strong ongoing regional gas drive for cleaner power generation and improved monetization as a feedstock for the industrial and petrochemicals sectors.
Notably, the petrochemicals sector witnessed a year-on-year increase of $4 billon in planned projects compared to last year’s outlook, while committed projects decreased by $13 billion due to the completion of several projects in 2019, it said in a report titled MENA Gas & Petrochemicals Investments Outlook 2020-2024.
On the demand fluctuations, Apicorp said that 2020 is witnessing one of the biggest gas demand shocks on record, with a year-on-year reduction of four per cent globally. “This stands in stark contrast to 2019, which was a record year for liquefied natural gas (LNG). The 2020 global crisis is expected to reduce the annual growth rate for global gas demand during 2020-24 to 1.5 per cent compared to the pre-COVID-19 estimate of 1.8 per cent,” it added.
The major driver behind the gas investment uptick is the region’s governments. “The share of government investments in committed and planned gas projects (92 percent) is higher than it is in the petrochemicals sector (72 percent),” the report said.
With the decrease in gas demand putting fiscal pressures on government and private sectors alike, CEO of APICORP, Dr Ahmed Ali Attiga, expects a few committed projects to continue facing strong headwinds in terms of payments, supply chain issues and potential project delays.
“Overcoming these challenges will undoubtedly require strong policy support from governments, as well as enhanced collaboration between the private and public sector,” he added.
Meanwhile, the regional gas and petrochemicals demand is rising. Domestic industrial demand is fueling the growth of natural gas in the region and the impact of COVID-19 on MENA gas demand and the petrochemicals sector will further benefit the sector, according to Dr Leila R. Benali, who is the chief economist for strategy, energy economics and sustainability at APICORP.
“Gas demand is expected to grow by approximately 3.8 to 4 percent on average in MENA compared to 6 percent in 2019. This downward revision is due to slower GDP growth and industrial output, the effect of price reforms, nuclear power projects coming online and increased share of renewables. Additionally, a prolonged depression of LNG prices will put further pressure on a few LNG exporters in the region during a time when pipeline exports were already taking a hit,” she said.
The integration of the downstream value chain is expected to continue in the region, in conjunction with Asia. Saudi Arabia, Iran and Iraq leading the way in terms of committed gas investments. This is driven by the gas-to-power development drive in both Saudi Arabia and Iraq, as well as Iran’s South Pars program and petrochemicals fee, according to APICORP.
The UAE has allocated $22 billion to the country’s continued gas development masterplan realization, which includes unconventional and sour gas development.
Following the model set by the $20.7 billion acquisition of a minority stake and lease rights in Abu Dhabi’s ADNOC Gas Pipeline Assets by an international investor consortium, other National Oil Companies (NOCs) in the region with large well-maintained midstream infrastructure may pursue a similar strategy to unlock intrinsic value and monetize strong asset bases, said the report.
In terms of committed petrochemicals investments, Egypt tops the region, followed by Iran and Saudi Arabia, owed to localisation of specialty chemical industries and feedstocks import substitution. “Egypt also saw a $10 billion uptick in planned gas activities, mostly related to recently awarded offshore blocks to companies such as Chevron, British Petroleum and Noble, as well the development of its midstream-downstream infrastructure to bolster its position as a gas hub,” said the APICORP report.
(Reporting by Syed Atique Naqvi, editing by Seban Scaria)
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