Adipec 2017: Mena investment picking up after lean years, Woodmac says

IOOC's Salman Complex in the Arabian Gulf
IOOC's Salman Complex in the Arabian Gulf

Investment in the Middle East and North Africa (Mena) region is picking up after two years of decline, an analyst has said.

Tom Quinn of energy consultancy Wood Mackenzie (Woodmac) also said there were signs that supply chain costs are starting to lift in the region following several lean years.

He said costs have deflated by as much as 50%, with offshore rig rates halved since crude prices began plummeting in 2014.

The price of crude has since stabilised, which could boost the Mena supply chain.

Speaking at the Adipec conference in Abu Dhabi, Mr Quinn said: “We’re starting to see an inflection in rates. It’s not yet clear whether the cost deflation is cyclical or structural.

“We’ve never seen a recovery from low oil prices where costs did not come up with the oil price. But a price of $50-$60 per barrel is now normal, so we might see continued pressure.”

Capital expenditure from 2015-17 was 12% lower than Woodmac initially expected due to cost cuts, project deferrals and cancellations, and geopolitical instability in Mena.

But Mr Quinn said domestic gas developments and projects in Iran would dominate new investment in the region.

Ten of the 12 projects expected to reach final investment decision in the region from 2015-19 target gas.

Mena’s production is expected to increase by 11% from 2017-20, mainly thanks to output from gas fields.

Despite gas’s dominance on the new projects scene, most investment in the Middle East is still focused on maintaining capacity from existing oil fields, Mr Quinn said.

Regional capital spend is predicted to total $316billion from 2017-20.