Oil and gas prices are likely to continue rising in 2022: APICORP

The Arab Oil Investment Corporation (APICORP) has released its annual Top Pick 2022 outlook on key trends expected to shape the outlook for the MENA energy market this year.

A report from the Multilateral Development Bank examines the impact of oil and gas prices on regional energy investment and the key factors that weigh on a broader economic recovery.

The outlook said the rise in energy investment in the region, which recorded a slight increase of $ 13 billion in the bank’s five-year outlook (issued in the second quarter of 2021), will continue in the medium term.

Dr. Ahmed Ali Attiga, CEO of APICORP, said: Energy investment, including renewable energy and ESG-related projects. Investment in the power sector in MENA is also expected to continue to thrive as the shift to renewables accelerates. Overall, the region plans to add about 20 GW of solar power over the next five years. “

Energy conversion colored by mixed policy signals

The MENA region will be the central stage for the ongoing global energy transition as all eyes shift to Egypt, which will host COP27 in November, and the UAE, which will host COP28 in 2023. Governments are trying to balance emergencies, which are often very difficult to coordinate, such as emission reductions, affordable energy prices, and energy safety, which can be compromised by various policy signals from the government. I have.

Therefore, sustainable and comprehensive policies are needed to avoid overly tilting policy scale in support of one of these factors. This is because it can have unintended consequences such as market distortions, increased volatility and energy shortages.

Fluctuations in commodity prices with uncertainty in energy markets

Already significant pressure on policy makers is expected to be exacerbated by continued volatility in commodity markets in 2022 due to pandemics, macroeconomic policy uncertainty, and supply chain disruptions. Despite a gradual but uneven recovery in 2021, this improvement will move downstream and this year it will take some time to ease cost pressures.

The report predicts that the energy market will remain relatively stable throughout 2022 due to increased oil production, gas production and LNG supply by OPEC + and non-OPEC countries. Brent is expected to average between $ 65 / bbl and 75 / bbl. In terms of gas, JKM and TTF / NBP hub prices in Asia and Europe are expected to cool significantly from 2021, a record high, especially after winter.

Energy investment in MENA supported by rising oil and gas prices

The report suggests that strong oil and gas prices expected in 2022 have created an opportunity to return to pre-pandemic activity. As a result, energy investment in MENA will increase from $ 805 billion in 2022 (listed in the company’s MENA energy investment outlook 2021-2025) and will continue for the next five years, with sustained rises in oil and gas prices. It is predicted. Planned unconventional gas and upstream investment.

For petrochemicals, further integration and streamlining will continue to be promoted, and reconfigurable petrochemical plants will shift to high-margin products such as plastic packaging films and healthcare and sanitary products.

“The strong investment pipeline seen in downstream projects reflects the regional push to direct more money to this sector, especially in brownfield petrochemical and greenfield projects. Nicolas Thevenot, MD of Corporate Banking, said:

The annual Top Pick Report is out! The report focuses on five notable dynamics that will shape the 2022 MENA energy landscape. Find out what they are here. https://t.co/XmuxIVv53T#APICORP #investment #EnergyInvestment #energy pic.twitter.com/ZaHmHqOMEP

— APICORP (@APICORP) February 21, 2022

A new Covid variant to put pressure on economic recovery

Uncertainty about Covid’s recovery continues to affect how market dynamics ultimately work. Given the global vaccine inequity and the ever-evolving virus, the government is still tackling the dilemma of public health and economic recovery.

In addition to global trade, supply chains and services, the current surge in global incidents will also have a negative impact on international travel and tourism. This slows economic growth in 2022, slightly lowers 2022’s GDP growth forecast in some regions, and anticipates an asymmetric global economic recovery that is not always sustainable in all countries. It will be.

Austerity measures to curb rising inflation

Another uncertainty stems from the need for governments to implement austerity measures to curb spending and curb rising inflation. The market closed in 2021 with high returns (27% for the S & P 500 Index), but high employment growth and rising commodity prices pushed up inflation.

As public fiscal stimulus measures are withdrawn, asset purchase programs taper off, and interest rates rise, fears of stagflation are imminent. While these measures are very likely to slow economic recovery, unemployment lag remains relatively high in a boiling inflation cycle that may eventually turn out to be non-temporary. Is expected.