No slip-up on Mena oil spending

Dubai - $294b projects at pre-execution phase across Mena despite low oil prices

Oil, gas and petrochemicals projects worth about $294 billion are at the pre-execution phase across the Middle East and North Africa region even while concerns about global oversupply continue to suppress oil prices, a new research from Meed said.
Despite lower crude prices, oil producers across the Mena are continuing to spend heavily on oil infrastructure to maintain capacity and, in some countries, meet ambitious capacity expansion targets, said the report.
"Gas spending is also set to increase as countries such as Saudi Arabia and the UAE study higher-cost sour gas and shale gas plays to meet rapidly-growing domestic demand," it said.
The year 2016 saw average crude prices drop to a 13-year low as oil and gas producers in Mena continued to face the impact of global oversupply.
While oil and gas spending globally is expected to continue to decline, Middle East producers are looking to buck the trend and maintain spending in order to meet production targets.
Investment in the Mena hydrocarbons industries hit an eight-year low in 2016 dropped 34 per cent to $32.4 billion, according to data from regional projects tracker Meed Projects.
"The oil, gas and petrochemicals sectors will continue to be the backbone of economies across the Mena region," said Meed editorial director Richard Thompson. "With an estimated $294 billion worth of projects in the pre-execution phase, the sector provides a wealth of opportunity for business from Saudi Arabia's ambitious oil-to-chemicals complex to the re-emergence of the Iran oil industry following years of sanctions."
Although lower oil prices are not expected to result in a collapse of project spending in the GCC and other stable economies in the Mena region, they have already been the driver of major reforms.
The report said the UAE has been the third most-valuable market for hydrocarbons projects, spending $35.1 billion. Abu Dhabi in 2013 and 2014 awarded a string of contracts in the offshore oil sector.
The UAE is also eyeing major gas capacity expansions in the coming years, largely by developing new sour gas reservoirs. These include major projects on the Bab and Hail fields, as well as the expansion of the Shah gas field. Adnoc is merging its two offshore oil producers as well as several logistics subsidiaries to lower costs and streamline operations.
Meanwhile, Saudi Arabia plans to list the world's largest oil and gas company, Saudi Aramco, on the stock market, in an initial public offering that values the company at an estimated $2 trillion.
Saudi Aramco plans heavy investment across the oil and gas value chain by 2025. Meanwhile, Kuwait is expected to spend billions of dollars on energy projects over the next five years to help boost crude production capacity to four million barrels a day by 2020.
Worldwide investment in the development of oil and gas resources from 2015 to 2020 will be 22 per cent, or $740 billion, lower than anticipated before prices plunged in 2014, with the deepest cuts in the US, Wood Mackenzie said in a report on Wednesday. "The impact of falling oil prices on global upstream development spend has been enormous," Malcolm Dickson, principal analyst at Wood Mackenzie, said in the report.
John England, US energy and resources leader and US and Americas oil and gas leader at Deloitte, said the survival mentality in the oil and gas industry seems to have resulted in a mindset shift toward shorter-cycle projects.
"Around $620 billion of projects through 2020 are estimated to have been deferred or cancelled as a result of the downturn, and the appetite for long-term and complex major capital projects has waned, despite a few notable exceptions."
Analysts said oil price dynamics would continue to remain uncertain and volatile. The bright spot is that most of the projections, including from the World Bank, indicate that oil price is on recovery path but it is far away from the sweet spot. The EIA forecasts Brent crude oil prices to average $52 per barrel in 2017 compared to $43 per barrel in 2016, close to 21 per cent upward correction.
The World Bank is giving a more optimistic oil price value of $55 per barrel, whereas BofA Merrill Lynch predictions are highly optimistic with WTI Crude priced at $59 per barrel and Brent at $61 per barrel in 2017. Investment bank Goldman Sachs predicts average WTI price to be $55.6 and Brent to be $57.4 in 2017.
- issacjohn@khaleejtimes.com