MENA Energy Industry Needs Substantial Capital Investment Post-COVID: APICORP

Countries in the Middle East and North Africa (MENA) will require substantial capital input from the private sector to develop their energy sectors over the next five years following the COVID-19 pandemic, the Arab Petroleum Investments Corporation (APICORP), said in a report.

The energy sector, both globally and in the region, saw a 20% year-on-year decline in investments and is facing a recovery that is expected to take longer than the post-2014 oil price collapse, the Saudi-headquartered multilateral development bank said in the report highlighting emerging trends within the energy investment and financial landscape in the MENA region in 2021 and beyond.

As a result, the energy sector is undergoing a major transformation, or a ‘Global Reset’ as it has come to be known – that will likely result in industry consolidations, mergers and acquisitions and strategic jostling and repositioning by industry players, APICORP said.
More investments required

Dr. Leila R. Benali, chief economist at APICORP, said: “The current vicious circle of low revenue, low investment, low output needs to be broken, and a virtuous cycle of investments in lower cost, lower carbon, sustainable assets needs to be induced.”

This gives low-cost oil and gas and low-carbon power producers a substantial advantage and positions them to be among the few energy producers who will emerge as clear winners in the post-COVID-19 world, she noted.

The need for private sector investment remains true even if the MENA region continues to tap the debt capital markets, like in 2020 when GCC governments and companies issued a record US$126 billion in USD and Islamic securities.

Assuming the deployment of effective vaccines and absence of future mutations of the COVID virus, the report notes that MENA region’s path to economic and energy recovery will continue to be shaped by policy, namely the degree of fiscal and monetary accommodation and oil production management.

“The recovery will be mixed and not necessarily sustainable across the board. Subdued domestic demand and inflation, along with a weak dollar and debt and stimulus packages, will likely lead to a rebound in 2021. It Is the sustainability of this recovery, however, that remains unclear at this stage,” Benali said.

In its MENA Gas & Petrochemicals Outlook 2020-2024, APICORP noted that planned gas investments jumped by 29% due to increased commitment to gas-to-power projects, improved monetization of gas as a feedstock and strategic market share positioning for exports. This contrasted with the decreased investments in oil and gas investments worldwide.