Mena gas investments drop by $70bn on project completion and Iranian economic woes

Investment in the Iranian gas sector slumped 77 per cent, with six other countries in the region also registering declines.

Barakah nuclear power plant, which is expected to start producing electricity this year or early will help offset some of the demand for gas in the UAE. AFP

Investment in the gas industry in the broader Middle East declined by $70 billion year-on-year following completion of large scale projects in the region and diminishing prospects for growth of the sector in Iran as the country struggles under the weight of  US sanctions, according to the Arab Petroleum Investments Corporation.

Investment in the Iranian gas sector slumped by 77 per cent, with six other countries in the region also registering declines, the energy-focused multilateral bank said in its latest report.

Iran’s economy is projected to contract 8.7 per cent this year after shrinking almost 5 per cent last year, squeezed by lower oil prices and US sanctions against the country, according to the World Bank. Investments in the country's hydrocarbon sector have dwindled particularly after Washington withdrew from a nuclear agreement between Tehran and world powers in May 2018. Inflation in the country is projected to rise to about 36 per cent this year from 30.5 per cent last year, according to the IMF.

"The downward shift is not necessarily an indication of low investment appetite. In Saudi Arabia for example, it actually indicates a deceleration from a heavy upstream activity and the commissioning of major projects such as Wasit and Fadhili gas processing plants," said Apicorp chief economist Leila Benali.

Gas will continue to remain an important fuel in power generation for Middle East economies. However, diversification efforts including adding nuclear and renewables to the mix are likely to slow investment in gas.

The UAE, for instance, is likely to see a slowdown in gas demand for power to 1 per cent by 2024 from 6 per cent seen over the past six years. The slowdown will primarily be due to the expected commissioning of the 5.6 Gigawatt Barakah nuclear power plant as well as the integration of planned solar schemes to the grid.

The country is expected to explore and monetise its newly-discovered gas reserves over the coming years. Abu Dhabi announced the discovery of 1.6 trillion cubic metres of conventional deposits in November, which pushes the UAE to the sixth spot globally, in terms of reserves. The country also has unconventional reserves of 4.5 trillion cubic metres.

Saudi Arabia, which has begun to switch its power stations to run on gas as it looks to free up more crude for export, will also see demand for the cleaner fuel grow at a "historically lower annual average rate" of 1.8 per cent by 2024, noted the report.

The kingdom has transitioned from not having enough availability of gas to having an excess of the fuel amid plans to nearly double gas output to 164 billion cubic metres annually by 2026 from 89 billion cubic metres per annum in 2017.

Egypt will see its consumption of gas rise at a rate of 4 per cent over the next five years due to the increasing demand for power by households and industry.

Oman, which rationed gas supply to industry and undertook electricity reform, is expected to boost annual production by 47 billion cubic metres from the current level of 40 billion cubic metres.

The regional petrochemicals sector will be a bright spot for investment, with spending in the sector expected to increase 50 per cent year-on-year, compared with previous five-year assessments.

Government investments in the regional gas sector account for a little under 96 per cent, compared with 29 per cent for the petrochemicals sector, which has seen greater private sector activity, according to Apicorp chief executive Ahmed Ali Attiga.

"This involvement is expected to expand given the increasing share of planned petrochemicals and other downstream gas projects estimated at $134bn - or 71 per cent - in the overall gas value chain versus upstream and midstream," he added.