Until late 2011, only about $7bn of project finance deals had been completed in the Middle East. Qatar’s Barzan gas project has changed that significantly by adding another $10bn to the total in mid-December.

In a tumultuous market, the success of the Barzan deal is a huge achievement for Qatar, but it is a poor indicator of where the project finance sector is heading.

“Project finance schemes will be scarce, with overall activity largely dependent on one or two huge deals”

Barzan was a success for two reasons. Firstly, it is a strong project executed by an experienced team. More importantly, Qatar is rich and has huge spending plans. This is what has attracted most banks to the deal. Some of the lenders on the Barzan scheme had limited experience in project financing and had to be helped by Doha’s own advisers.

Most of the 30 banks financing Barzan will not reappear on other project finance deals in 2012. As European banks struggle with liquidity issues, the number of lenders for project finance is falling. This means that large projects will be harder than ever to finance. With the exception of Saudi Arabia, there is perhaps less than $1bn for each project that can be raised in bank debt.

Project finance deal flow will remain muted as a result, with overall activity stuck at about $20bn a year and largely dependent on one or two huge projects, which will mainly be in Saudi Arabia, and a few smaller ones.

The possibility of developing a project bond market, or being able to tap local bank liquidity could offer a new source of funding. But in the short term, both are likely to disappoint. Project bonds will remain more suited for refinancing operational developments and local bank liquidity is available only in local currencies, not dollars, which sponsors prefer. There are also signs that liquidity is tightening in local markets.

For the next year at least, the financing of projects can be expected to be more difficult.

Read: Project finance faces a tough year