Oil producers in the Middle East and North Africa plan to invest $ 740 billion in energy projects in the next five years, led by the Kingdom, according to Arab Petroleum Investments Corp.
Saudi Arabia tops the list with committed investments of $ 165 billion, mostly generated by Saudi Aramco and Saudi Basic Industries Corp. (SABIC), followed by the UAE that plans to invest $ 107 billion in the period, added the report from Apicorp Research.
Algeria overtook Qatar and Iran as the third-biggest investor, with $ 71 billion of potential spending, largely the result of catch-up investment.
Iran's energy spending program has been put at $ 68 billion, said the report.
Despite moving up the rankings ahead of Qatar and Kuwait, Iraq with $ 56 billion worth of capital requirements is still far below its huge potential.
The report said MENA energy capital investment is expected to add up to $ 740 billion for the five-year period 2013-17. Compared to past assessments, which have been uniformly and consistently revised to reflect the full scale and scope of the power sector, investment appears overall on the rise again, driven mainly by costs and a catch-up effect, the report said.
It said investment has been affected to different degrees in countries still facing political and economic uncertainties and/or a precarious environment. This is the case in Egypt, Libya and to a larger extent Yemen.
Notwithstanding sustained expansion of investment, power supply has fallen short of needs. To catch up with unmet potential demand, medium-term capacity growth, which has been worked out on a country by country basis, is expected to be much higher than that of economic output: 7.8 percent for the period 2013-17 against 4.5 percent for GDP.
According to the APICORP report, the cost of an "average energy project," which has risen almost three times between 2003 and 2008, has resumed its upward trend after somewhat stabilizing in the middle of the global financial crisis. However, the relatively moderate 7 percent upward trend underpinning the current review should not mislead. The extent to which project costs are predictable depends on the outlook for the price of engineering, procurement and construction (EPC), and its components.
In a context of widespread deleveraging, the financing of energy projects is expected to be structured with less debt. On one hand, the upstream, midstream and T&D systems in the power sector will continue depending heavily on internal funding in the form of either corporate retained earnings or state budget allocations. On the other, the hydrocarbon downstream, which has traditionally relied on debt, typically in a proportion of 70 percent, will need more equity.
In addition to the deteriorating investment climate, three issues continue to confront investors - rising costs, scarcity of natural gas supply and funding limitations.
Countries in the region can finance projects on their own as long as the basket of OPEC crudes stays at more than $ 100 a barrel, the report said.