The Arab Petroleum Investments Corporation (APICORP), a multilateral development financial institution, released its MENA Gas & Petrochemicals Investments Outlook 2020-2024 on the MENA region’s planned and committed investments for the period 2020 to 2024.
This year is witnessing one of the biggest gas demand shocks on record, with a year-on-year (y-o-y) reduction of 4 percent globally. This stands in stark contrast to 2019, which was a record year for liquefied natural gas (LNG) Final Investment Decisions (FIDs).
The 2020 global crisis is expected to reduce the annual growth rate for global gas demand during 2020-24 to 1.5 percent compared to the pre-COVID-19 estimate of 1.8 percent.
Despite the global demand shock, the MENA region’s committed gas investments held steady compared to last year. Planned investments meanwhile increased by 29 percent to reach USD126 billion mainly due to the strong ongoing regional gas drive for cleaner power generation and improved monetization as a feedstock for the industrial and petrochemicals sectors.
Notably, the petrochemicals sector witnessed a y-o-y increase of USD4 billion in planned projects compared to last year’s outlook, while committed projects decreased by USD13 billion due to the completion of several projects in 2019.
The share of government investments in committed and planned gas projects (92 percent) is higher than it is in the petrochemicals sector (72 percent). Given the increasing size of projects, such investments typically rely on a 70:30 or 80:20 debt/equity ratio.
Dr. Ahmed Ali Attiga, chief executive officer, APICORP, commented: “The decrease in gas demand has put fiscal pressures on government and private sectors alike, and we expect a few committed projects to continue facing strong headwinds in terms of payments, supply chain issues and potential project delays. Overcoming these challenges will undoubtedly require strong policy support from governments, as well as enhanced collaboration between the private and public sector.”
Dr. Leila R. Benali, chief economist, strategy, energy economics and sustainability, APICORP, added: “The impact of COVID-19 on MENA gas demand and the petrochemicals sector will accelerate the industrial share of domestic demand. As outlined in our MENA Gas & Petrochemicals Investments Outlook 2020-2024, gas demand is expected to grow by approximately 3.8 percent-4 percent on average in MENA compared to 6 percent in 2019.
This downward revision is due to slower GDP growth and industrial output, the effect of price reforms, nuclear power projects coming online and increased share of renewables. Additionally, a prolonged depression of LNG prices will put further pressure on a few LNG exporters in the region during a time when pipeline exports were already taking a hit.”
The integration of the downstream value chain is expected to continue in the region, in conjunction with Asia. Saudi Arabia, Iran, and Iraq leading the way in terms of committed gas investments. This is driven by the gas-to-power development drive in both Saudi Arabia and Iraq, as well as Iran’s South Pars program and petrochemicals feed.
The UAE has allocated USD22 billion to the country’s continued gas development masterplan realization, which includes unconventional and sour gas development.
In terms of committed petrochemicals investments, Egypt tops the region, followed by Iran and Saudi Arabia, owed to the localization of specialty chemical industries and feedstocks import substitution.