Mena upstream investments less vulnerable than global peers

Upstream investments in the Middle East and North Africa region will not fall as much as globally as countries continue to invest in their gas value chains, according to the chief executive of Arab Petroleum Investments Corporation.

"We estimate that the impact on Mena upstream will be lower than globally – which is around 30 per cent on average looking at capex cuts of IOCs [international oil companies], NOCS [national oil companies] and large independents," Ahmed Ali Attiga told The National.

A decline in upstream oil investment is likely to be offset by ongoing investment in the gas value chain, which is set to grow 13 per cent compared with 2019, he added.

The regional gas investment spend will be driven by the development of unconventional gas, non-associated gas for domestic consumption as well as strategic gas market positioning.

Energy firms globally are facing their toughest challenge since the Great Depression, with IOCs like Shell forgoing their dividend for the first time since the Second World War. Meanwhile, US majors ExxonMobil and Chevron are planning to shut in as much as 800,000 barrels per day after oil prices plunged nearly 80 per cent from their most recent peak in January.

A global pact between Opec+ and G20 countries is also in place since May 1 to keep global inventories in check. Opec+, led by Saudi Arabia and Russia, will cut 9.7 million bpd until June, with tapered cuts in place through until 2022. Such restrictions will have an impact on upstream spend globally, as producers hold back output amid limited storage options.

Many Gulf producers are also looking to ramp up investments in gas for power generation and export purposes. The UAE, Opec's fourth-largest producer, announced vast discoveries of gas that has moved the country up to sixth position globally for hydrocarbon reserves last year.

Apicorp estimates the slump from the Covid-19 pandemic on investments is likely to be "deeper and likely longer lasting" than the price crash between 2014-16.

"In 2015-2016, investments were cut 25 per cent per annum during two consecutive years before increasing again," Mr Attiga said.

"The long-term nature of the triple crisis the world is facing (health, economy and potentially financial) and the profound restructuring taking shape in oil and gas will hit energy investments for a bit longer this time," he added.

Apicorp is a multilateral lender owned by the 10 members of the Organisation of Arab Petroleum Exporting Countries including Saudi Arabia, UAE, Kuwait, Libya, Iraq, Qatar, Algeria, Bahrain, Egypt and Syria. The Dammam-based multilateral lender last week rolled out a $500 million (Dh1.84 billion) support package to help clients in the energy sector fund projects amid the pandemic.

"I think the end result of all this mobilisation funding will be really useful for a number of countries, including Egypt, Bahrain, Jordan, Morocco, Iraq, all have projects that could be affected unless additional funding from us and others could help," said Mr Attiga.

Iraq, Opec's second-largest producer, has also approached the lender to secure support for schemes, both private and public across the country, from the Kurdistan region to Basra.

Apicorp is helping the country tap additional funds and is also looking to help the oil producer with its renewable energy schemes.

"There is a huge solar power tender that went out and some of the potential bidders of the project have approached us," said Mr Attiga.

On Tuesday, ratings agency Moody's reaffirmed Apicorp's Aa2 issuer rating and its stable outlook, highlighting its high capital adequacy ratio, robust asset quality and low levels of nonperforming assets.

"Apicorp’s concerted efforts to diversify the asset portfolio both sectorally and geographically, coupled with our already strong financial position, have been key in maintaining our status as the only financial institution in the Mena region with an ‘Aa2’ rating, even against the current backdrop of global market challenges," Mr Attiga said.