Investment in Middle East energy sector to surpass expectations

20 February 2011

Rising global demand for oil and regional power crunch behind increase

Investment in the Middle East energy sector is expected to surpass previous predictions, due to increasing worldwide demand for hydrocarbons and the need for power across the region.

The potential investment over the next five years is now estimated at $530bn by the Arab Petroleum Investment Corporation (Apicorp), a financing house owned by the members states of the Organisation of Arab Petroleum Exporting Countries (Oapec). It had previously put potential investment at only $470bn during the same period.

“[W]e expect growth in energy capital investments to continue recovering from the contraction that occurred during the crisis,” Apicorp says in a report.

“The total amount of investments shelved or postponed is expected to drop to 19 per cent of potential, compared to 29 per cent in the last review. As a result, actual capital requirements should amount to $430bn for the period 2011-2015, compared to $335bn in the last review,” the report adds.

Saudi Arabia is expected to remain the largest investor in the region and its energy sector could receive as much as $130bn in funding.

The UAE could overtake Qatar as the second largest investor, with Apicorp predicting as much as $74bn flooding into the hydrocarbons and power sector.

Qatar could potentially invest as much as $70bn over the same period.

Overall, nearly 70 per cent of regional investment into oil, gas and power will happen in only five countries, with Algeria and Egypt completing the top five.

Kuwait, home to the world’s fourth largest oil reserves, will witness the smallest amount of investment of the 10 Oapec member states, according to Apicorp. This has to do with domestic politics rather than global and regional factors, notes the report.

With close to 42 per cent, the oil sector will receive the biggest share of future funding. The gas supply chain account for 35 per cent of investment, and regional power generation will make up 22 per cent of regional capital requirements of the energy sector.

“Contraction of Arab economies and the apparently lesser demand for electricity, may provide temporary respite to a constrained capacity. Yet, this sector needs to catch up with an unmet potential demand,” the report says of the power sector.

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