The region will need US $1.1 trillion in gas and power investments by 2030, study reveals.
The politically volatile Middle East and North Africa (MENA) is in the early stage of an “unprecedented investment boom,” according to a new study by IHS CERA.
The study, “Thirst For Growth: Outlook for Gas and Power in the Middle East and North Africa,” finds that despite an unprecedented number of upheavals in the region during the past 18 months, key demographic, socioeconomic, energy, and capital market drivers have, for the most part, remained unchanged. In addition, “These drivers point generally toward a long-term boom in gas and power investments.”
Such investment could result in MENA becoming the most electricity-intensive region in the world during the next 20 years, the study suggests, and that the potential exists for “one or more gas/power hubs to emerge across the region.”
The study estimates that the region will need to add 310 gigawatts and will need $1.1 trillion in gas and power investments by 2030. Of the 310 gigawatts that are needed, 190 will be available for the private sector, primarily in Saudi Arabia, the United Arab Emirates, Oman, Morocco, and Egypt, and are estimated at $155 billion worth of investments.
Two major factors drive those investments: An urgent political imperative for all governments in the region to develop their national economies to provide a higher standard of living to young, increasingly urbanized and growing populations, and a huge buildup of capital in the hands of certain MENA states due to high oil prices and a growing determination to invest these funds domestically or regionally.
Although the study claims key drivers remain relatively unchanged despite the popular unrest, investors in the region still face challenges. Ten of the 18 countries in the region theoretically have enough proven gas reserves to cover export commitments and cumulated demand for the next 20 years, but the reality is much more dire.
“Much of this gas is either locked in reservoir caps, is required for reinjection, or is not economic to develop based on current local pricing and upstream fiscal terms,” the study states. North Africa’s supply will be particularly tight without major reforms on supply and demand, but it is hoped that shale gas in Algeria, Jordan, and Saudi Arabia could reverse shortages.
The study also theorizes that though there is a momentum in the region to increase prices, prices are unlikely to fully reflect opportunity costs. “This would be politically difficult to push through and unnecessary for sustained financing,” according to the study. “Tariff adjustment will be a gradual and staged process reflecting the conflicting policy pressures of investment needs, tight government budgets, consumer sensitivities, and legacy drag.”
Contact the author, Caroline Evans, at cevans@hartenergy.com.
