Estimated oil and gas investment into MENA region until 2019$685 billion
Estimated oil and gas investment into Saudi Arabia until 2019$173 billion
Energy investment in MENAJanuary 6, 2016
Raed Al Rayes, deputy chief executive and general manager of the Arab Petroleum Investments Corporation (APICORP), discusses investments for oil and gas industry projects in the Arab region, including those for smaller oil and gas companies, and those who operate under the Islamic financial certificate, or the sukuk programme. Established in 1975, APICORP is a multilateral bank that fosters the development of the Arab world’s energy industry.
What are potential areas of interest for investment in the oil and gas industry in Arab countries?
We have estimated that investment in the energy industry in the Middle East and North Africa region will be around $685 billion over a five-year period to 2019. Given its size, Saudi Arabia is expected to have energy project investments reaching $173 billion in the same period.
This is mainly driven by joint venture Saudi Aramco Total Refining and Petrochemical Company, petrochemicals producer Saudi Arabia Basic Industries Corporation and state utility Saudi Electricity Company. The UAE will have the second-largest energy investment at $113 billion. Kuwait, Qatar and Algeria will also have a significant portion of investments.
These investments will cover the entire oil and gas value chain, but the main concentration will be on upstream services. Large national oil companies (NOCs) cannot stop investing in upstream oilfield services because in large producing countries, such as Saudi Arabia, rigs are reaching maturity and need significant investment to maintain their production capability. On top of that, Kuwait is working hard to increase its capacity. This will force the hydrocarbons industry to invest more, even if current market conditions are not the best.
In Saudi Arabia, we expect to see a lot of investments in upstream services to maintain production, especially in artificial lifting services. We expect this to be reflected in the economy, since the downstream sector will also benefit from such investments.
How would you describe the financing needs of large oil and gas companies in Arab countries?
NOCs and other oil and gas companies can be divided into several categories. The first includes NOCs with significant cashflow, such as Aramco, UAE’s Abu Dhabi National Oil Company, Qatar Petroleum and Kuwait Oil Company. Most of their projects are self-financed.
Other NOCs and governmental entities have less cashflow, such as ones in Oman, Egypt and Iraq. We expect that they will accelerate their access to the regional and global debt market to fulfil their challenging financing needs. We have started exploring debt and equity investment opportunities for NOCs that are in more need of cash.
A third category includes the large privately owned companies that are less impacted and do not need leverage. They always have generous investments to maintain their availability of cash. Until now, they have not been significantly impacted by low oil prices, but if prices continue to decline for one or two more years, they may start experiencing difficulties.
How are smaller oil and gas companies receiving financial support?
Small and medium-sized enterprises (SMEs) represent a fourth category, and they normally need large investments. The problem is that they often do not attract the attention from lenders due to limited corporate governance, scale and track record for these institutions to assess.
Given APICORP’s mandate, we are requested to support the development of regional SMEs and SME-led energy projects. However, we have applied a very conservative approach when dealing with this high-risk segment.
In GCC countries with liquidity and no political or economic issues, such as Saudi Arabia, Kuwait, Qatar and the UAE, banks can easily make money by approaching large corporations with advanced banking systems.
Banks give only a small portion of their whole portfolio to SMEs as evaluating a project worth $100 million is just as time consuming as evaluating a project for $1 billion. In Arab countries with more issues, even larger companies find difficulties in receiving financing.
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