Middle East energy sector will see sharp drop in investments between 2020-24
Investments in the Middle East energy sector will see a $173 million decline between 2020-24 to $792 billion. This according to the latest outlook from Arab Petroleum Investments Corporation (Apicorp), which had projected investments of $965 billion in last year's five-year outlook for the region's energy industry.
It expects Brent prices remain in the $30-$40 a barrel range through this year and the next. "With regards to the decline in oil prices, Apicorp expects that it will lead to a restructuring of the oil and associated gas industry, as well as an accelerated closure of the lowest efficiency parts of the capital stock, and mergers and acquisitions (M&A)," the report states.
"The impact of COVID-19 is already deeper and longer lasting than past downturns," said Dr. Ahmed Ali Attiga, CEO. "Indeed, the profound restructuring in oil and gas will hit energy investments for a potentially long period of time, sowing the seeds of supply crunches and price volatility.
"Therefore, we expect a W-shaped recovery for the MENA region." Apart from uncertainty over demand, a potential global liquidity crunch can also get in the way of new investments finding their way into the energy sector.
"Although central banks and multilateral financial institutions are stepping up, concerns linger that such massive stimulus plans might create enormous unproductive debt overhangs that will slow economic growth," the Apicorp outlook says.
Meanwhile, Saudi Aramco purchased 2.1 billion shares, or 70 per cent, of Saudi Basic Industries Corp (SABIC) for 259 billion riyals ($69.1 billion) in four special transactions on Sunday.
Saudi Aramco began executing the acquisition through block trades on Sunday. A total of 2.1 billion Sabic shares changed hands on the Saudi exchange in four transactions as the oil company moves ahead with the purchase from the kingdom's Public Investment Fund.
Aramco will pay 93.3 billion riyals (about $24.8 billion) this week as a first installment in the dea1. As previously announced, the price per share was 123.4 riyals ($32.8). "The deal completion is on-track with expectations to be finalized before the end of the second quarter. All necessary preclosing regulatory clearances have been obtained.
We will make a completion announcement in due course," Saudi Aramco told Al Arabiya English in a statement.
The oil giant signed a deal last year with Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF), to take the majority shareholding in the petrochemicals company. The payment for SABIC, the world's fourth-largest petrochemicals firm, will be funded in part by four bonds issued by Aramco to the PIF, reports indicated late last year.
The purchase of Sabic is a key part of Aramco's strategy of expanding from oil production into chemicals, and it also serves as a way to help PIF raise cash to fund its investment plans.
The deal could see injection of billions of dollars into the PIF, giving it the firepower to proceed with its plans to create jobs and diversify the largest Arab economy beyond oil exports, including a mega business zone in the northwest of the country.
Aramco has been increasing its investments in refining and petrochemicals to secure new markets for its crude, as it sees growth in chemicals as central to its downstream expansion strategy. Aramco indicated that 36 per cent of the purchase price - which could be adjusted for certain expenses - will be paid in cash, while 64 per cent will be paid in the form of a seller loan.
Therefore, the proceeds to the PIF in the form of cash will amount to $500 million, and the five additional bonds will be worth $2.5 billion.
The initial agreement involved Aramco paying 123.4 riyals ($32.85) a share for Sabic, a value 39 per cent higher than the price of the stock on Sunday. Sabic lost 0.1 per cent to trade at 88.90 riyals as of 2:16 p.m. in Riyadh, while Aramco declined 0.3 per cent to 32.25 riyals.