The Arab Petroleum Investments Corporation (APICORP), the multilateral development bank focused on the energy sector, has predicted $805 billion of investments in the Middle East and North Africa energy sector over the next five years.
According to APICORP’s annual MENA Energy Investment Outlook, the MENA region will see a modest rise in energy demand due to several factors like the comeback of Libyan projects – which alone accounts for around $10 billion in planned projects-, a rapid advance in the pace of clean energy technology, and a rise in overall demand due to strong confidence in the rebound of global GDP.
“Our MENA Energy Investment Outlook 2021-2025 indicates that energy industries are entering a period of relative stability in terms of investments as most MENA countries return to GDP growth in 2021 and the energy transition showing no signs of slowing down. We anticipate a slow but steady recovery of the energy sector from the fallout of the COVID-19 pandemic, supported by continued investment from the public sector and an upswing in demand,” says Dr. Ahmed Ali Attiga, chief executive officer of APICORP.
While the region’s economic forecasts suggest that commodity prices and exports will drive the rebound expected for most MENA countries in 2021, economies will continue to remain under fiscal strains due to unprecedented high debt levels and decline in oil prices, tourism/Hajj revenues, and personal remittances.
With this increased demand, developing energy storage is key. The expanding share of renewables, growth in power demand, and balancing supply and demand on a real-time basis necessitates the integration of modern, digitized energy storage solutions. Despite its significant potential in this area, the MENA region suffers from the limited role of storage in networks. To overcome this, regulations will need to evolve to reflect energy storage’s current functions, including leveraging flexibility from consumer aggregation or grid congestion.
Renewables investments
As the world attempts to reduce its carbon footprint and reliance on high-polluting fossil fuels, it is no surprise that the MENA region is also transitioning to cleaner energy sources. As a whole, the MENA region expects to add an estimated 3GW of solar power in 2021 – doubling its total from 2020 – and almost 20GW by 2025. Wind and other sources such as hydropower are also coming into their own as countries step up their energy diversification plans.
In the UAE, renewables constituted around 6% of total installed capacity and 3% of power generated as of 2020. Although it may just miss its short-term targets, the UAE’s solar capacity is projected to grow the fastest in the region with nearly 5GW of solar projects in the pipeline.
Jordan, for example, managed to increase the percentage of power generated from renewables by twenty fold. Egypt’s total installed renewables capacity amounts to around 2.3GW, including 1GW of solar PV and 1.3 GW of onshore wind.
In Saudi Arabia, only 330MW of utility-scale solar PV projects and just one 2.5MW wind demonstration project developed jointly by Saudi Aramco and General Electric were operational as of 2020. Even when combined with the tenders under its National Renewable Energy Program, the total renewables capacity of the Kingdom totals 3.3GW, around 24GW short of its stated target of 27.3GW by 2024.
Gas investments
With a rise in renewables, completion of several megaprojects in 2020,and countries generally being more cautious to new project commitments in an era of gas overcapacity, committed gas investments in MENA for the period 2021-2025 are expected to decrease by $9.5 billion less than the previous outlook.
Qatar, Saudi Arabia, and Iraq are the top three MENA countries in terms of committed gas investments. This is owed to Qatar’s North Field East megaproject, Saudi Arabia’s gas-to-power drive and the massive Jafurah unconventional gas development – which is poised to make the kingdom a global blue hydrogen exporter – and Iraq’s gas-to-power projects and determination to cut flaring and greenhouse gas emissions.
Planned investments meanwhile held relatively steady at $133 billion for 2021-2025, signalling the region’s appetite for resuming its natural gas capacity build-up – particularly the ambitious unconventional gas developments in Saudi Arabia, UAE, Oman, and Algeria – once macro conditions improve.
Power investments
Power investments in MENA for 2021-25 remain largely unaffected compared to APICORP’s previous outlook. Notably, the sector’s total investment amount of $250 billion is the highest of all energy sectors – with an estimated $93 billion and $157 billion in committed and planned projects, respectively, over the next five years.
With a share of around 40%, renewables form a significant part of those investments as countries push ahead with their energy diversification agendas. In the GCC, Saudi Arabia’s Renewable Energy Project Development Office and Public Investment Fund projects continue to progress. North African countries are also showing measurable development in the renewables realm, with Algeria establishing an independent authority to oversee the development of the country’s strong pipeline of projects, and Egypt working to resolve regulatory issues related to its wheeling scheme and the unbundling of its power market.
This shift to renewables is a chief factor behind the rising share of investments in transmission and distribution (T&D) in the power sector value chain, as the integration of renewables into power grids requires significant investments to enhance and digitize grid connectivity, not to mention storage to accommodate the surplus power capacity they generate.
Petrochemicals investments
Planned investments in this sector are forecast to increase to $109 billion in 2021-2025, a $14.2 billion jump compared to last year’s outlook. By contrast, committed investments dipped by $7.7 billion to around $12.5 billion due to the completion of several megaprojects in 2020.
Despite MENA petrochemical markets seeing an overall improvement in demand owed to the increased consumption of basic materials as vaccination drives continue and economies recover, some MENA committed petrochemical investments are nonetheless being re-evaluated and rationalized due to fiscal strains, capital discipline and cost efficiencies and evolving market dynamics.
The hydrogen and ammonia race
MENA is also a strong candidate for becoming a major hydrogen-exporting region thanks to its combination of low-cost gas resources and renewable energy. A few countries, such as Saudi Arabia and Morocco, have already made headways as low-cost exporters of blue and green hydrogen, net-zero ammonia and other low-carbon products, while other countries, such as Oman, UAE, and Egypt are attempting to catch up.
