Gas still a challenge for resurgent Middle East market

The combination of the global economic crisis and political turmoil in the Middle East and North Africa made 2011 a tough year for investment in the region. But the significant increase in oil prices and the return of a degree of stability to several of the affected markets means the outlook for the coming year is much healthier.

The value of major oil and gas contract awards in the six Gulf Cooperation Council (GCC) countries dropped to $26 billion in 2011, from about $40 billion the previous year, according to Dubai-based research organisation MEED Insight.

“2011 was a poor year for the GCC,” said Angus Hindley, director of research at MEED Insight. “The projects slate looks better for 2012. It will probably deliver $35-40 billion of projects. This could potentially increase to $45-50 billion in 2013.”

The increased spend is expected to be underpinned by strong oil earnings in the coming year. The price of a barrel of Brent oil, the European benchmark crude, hit an eight-month high of $120.7 on 17 February, while its US equivalent, West Texas Intermediate, rose by $0.41 to $102.7 a barrel. Market analysts expect oil prices to remain strong throughout the year.

Global oil demand, meanwhile, is expected to increase from 89.8 million barrels a day (b/d) in the fourth quarter of 2011 to 91.1 million b/d for the same period in 2012, according to the International Energy Agency.

The prospect of strong oil earnings will help to shield the region from the threat of a deepening sovereign debt crisis in the Eurozone.

“Most projects in the Middle East are not project financed, so the Eurozone crisis has limited impact,” said Hindley. “European banks are very reluctant to participate in project finance deals, but local banks are very liquid and are more than willing to pick up the slack.”

Regional risk

The perception of political risk in the Middle East has had a serious impact on the appetite for investment in the region over the past year, but in much of the region this is becoming a less critical consideration.

“There are still ongoing political risk issues in the Gulf region, but with the exception of one or two isolated incidents these are now largely confined to Bahrain,” said Hindley. “They are having a very limited impact on project development.”

To view this article in full, please see the Interfax Natural Gas Daily

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Richard Nield is a freelance journalist, photographer and filmmaker covering the Middle East and Africa. In 10 years covering the region, he has been published and broadcast by clients including the BBC, Reuters, Al Jazeera, The Economist, The Financial Times, The Independent and Foreign Policy magazine. He has reported from throughout the region, including Algeria, Egypt, Libya, Morocco, Tunisia, South Sudan, Jordan, Lebanon, Syria, Kuwait and Saudi Arabia.