• Home
• /
• Local business
• /
• Energy

UAE expected to see surge in downstream gas investments

Investment across the Middle East and North African gas sector is projected to decline by $70 billion over the next five years on the back of high global gas output, slowing regional demand and financing issues, according to a forecast by Petroleum Investments Corporation (Apicorp).
While two-thirds of Mena countries will see lower planned investments in their upstream gas sectors, the UAE and Qatar are expected to see an increase in their downstream gas investments, said "Gas Investments Outlook 2019-2023" released by Apicorp.
Overall, the decline in Mena committed gas sector investments were most notable in Kuwait (close to 80 per cent), Saudi Arabia (60 per cent) and Algeria and Iran at around 50 per cent.
However, petrochemicals investments for 2019-2023 will jumps by 50 per cent from previous 2018-2022 outlook, the report shows.
According to a recent research, oil, gas and petrochemical projects valued at more than $859 billion are either underway or planned in the Middle East and North Africa. Of these, $283 billion projects are being implemented as the region gets ready to meet the forecast increases in demand for energy over the next two decades.
Saudi Aramco is the largest single spender in the region's oil and gas sector, with more than $31 billion worth of contracts under execution. The next three highest spenders are Kuwait's three largest oil and gas companies with a combined $42.2 billion worth of projects underway while the Abu Dhabi National Oil Company has projects with a combined contract value of $16.7 billion under execution across both its onshore and offshore upstream businesses.
The Apicorp research report said share of government investments in committed upstream gas projects stand at just under 92 per cent. Industrial sector accounts for roughly 30 per cent of total gas consumption in the Middle East.
The research indicates that the total committed and planned investments fell largely due to Saudi Arabia successfully commissioning major projects and lower prospects for Iran's gas sector.
Dr Ahmed Ali Attiga, chief executive officer, Apicorp, said due to higher upfront risks associated with exploration activity, governments are shouldering the majority of the investments on the upstream side. "Currently, government investments account for a little under 92 per cent of committed upstream gas investments compared to just 29 per cent for petrochemicals projects where we are seeing more private sector involvement. This involvement is expected to expand given the increasing share of planned petrochemicals and other downstream gas projects estimated at $134 billion - or 71 per cent - in the overall gas value chain versus upstream and midstream," said Ali Attiga.
Dr Leila Benali, chief economist and head of strategy, Apicorp, said the downward shift is not necessarily an indication of a low investment appetite. "In Saudi Arabia for example, it actually indicates a deceleration from a heavy upstream activity and the commissioning of major projects such as Wasit and Fadhili gas processing plants."
"Nevertheless, with some countries struggling to attract private sector investment, the risks of supply crunch materialising increase again in the region. The other interesting development is that with global gas prices dropping, investors in the gas value chain are using a variety of financing strategies and commercial schemes to get project FIDs," Dr. Leila continued.
In the UAE, industrial needs will become the main driver for gas consumption over the coming years - especially in petrochemicals, the report noted.
Gas demand for power generation purposes is expected to slow down to less than one per cent per annum to 2024 compared to the six per cent rate over the past six years, due primarily to the commissioning of nuclear power units at Barakah and solar power projects.
On the upstream side, the UAE announced a 1.6 trillion cubic metres (tcm) addition to its conventional gas reserves in November 2019, catapulting it to sixth place globally in terms of gas reserves. It also became the first country in the region to list unconventional gas reserves of 4.5 tcm.
The report noted that even though reforms have contributed to the reduction in energy subsidies and improved energy efficiency and renewables programmes, there is still a risk of under-investment in upstream gas. A fair number of greenfield power projects - in Saudi Arabia (12GW) and Egypt (9GW) - will undoubtedly require additional gas supplies. Major upsides will come from Qatar, where tenders for additional LNG processing trains (estimated at $15 billion) - have recently been issued.
- issacjohn@khaleejtimes.com