As is the case worldwide, the MENA energy sector looks to be set for divergent recovery paths that will largely be shaped by policies. This is according to APICORP’S Top Picks 2021 by The Arab Petroleum Investments Corporation, a multilateral development financial institution, highlighting emerging trends within the energy investment and financial landscape in the MENA region in 2021 and beyond.


Policy to shape MENA recovery

Assuming the deployment of effective vaccines and absence of future mutations of the COVID virus, the report notes thatMENA region’s path to economic and energy recovery will continue to be shaped by policy, namely the degree of fiscal and monetary accommodation and oil production management. 


Dr. Leila R. Benali, Chief Economist at APICORP, said,“The recovery will be mixed and not necessarily sustainable across the board. Subdued domestic demand and inflation, along with a weak dollar and debt and stimulus packages, will likely lead to a rebound in 2021. It Is the sustainability of this recovery, however, that remains unclear at this stage.”


Energy investments and sector transformation

The energy sector, both globally and in the region, witnessed a 20%+ year-on-year decline in investments and is facing a recovery that is expected to take longer than the post-2014 oil price collapse. As a result, the energy sector is undergoing amajor transformation – or a ‘Global Reset’ as it has come to be known – that will likely result in industry consolidations, mergers and acquisitions and strategic jostling and repositioning by industry players.


“The current vicious circle of low revenue, low investment, low output needs to be broken, and a virtuous cycle of investments in lower cost, lower carbon, sustainable assets needs to be induced. This gives low-cost oil and gas and low-carbon power producersa substantial advantage and positions them to be among the few energy producers who will emerge as clear winners in the post-Covid-19 world,” Dr. Benali noted.


In its MENA Gas & Petrochemicals Outlook 2020-2024, APICORP noted that committed gas investments in the region held steady, a contrast to the decreased investments in oil and gas investments worldwide. Planned gas investments meanwhilejumped by 29% due to increased commitment to gas-to-power projects, improved monetization of gas as a feedstock and strategic market share positioning for exports.  


Financing energy transition in an era of heightened investor expectations

According to APICORPthe period between 2021 and the end of the decade is expected to be marked by three important global challenges: building a resilient recovery from the pandemic, achieving the UN goal of universal access to sustainable energy for all (SE4ALL) and charting a new course for tackling the ongoing climate change emergency. 


“The energy sector is at present an entrenched industry that has been hit by three crises in a span of just one decade. With its modest growth expectations even before the 2020 crisis hit, the industry has witnessed an investor exodus and registered by far the lowest returns to shareholders over the past decadecompared to the other main economic sectors,” Dr. Benali said.


The key to enabling existing and new low-carbon energy technologies to fully blossom lies in funding and regulations, APICORP notes. As illustrated by renewables, a preferred investment choice currently for infrastructure projects, such technologies still do not offer all the market capitalization, dividends and liquidity characteristics that conventional fundingsources normally seek. While renewables in particular havebenefited from new unconventional mechanisms which have mitigated this funding gap, other parts of the low-carbon value chain – such as carbon capture, utilization and storage (CCUS) – are lagging behind.

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