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Gulf defies oil financing trends as UN calls for end to fossil fuels

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  • MENA investment in oil and gas projects set to rise again this year
  • Worldwide, funding has yet to return to pre-pandemic levels
  • UN secretary-general says the transition to renewables must accelerate

The Middle East is boosting investment in oil and gas, bucking the global trend even as the United Nations calls for an end to the funding of fossil fuel projects.

The MENA region is forecast to invest $879 billion in energy projects from 2022 to 2026, an increase of 9 percent over the previous five years, according to the latest MENA Energy Investment Outlook from Arab Petroleum Investments Corporation (APICORP).

Saudi Arabia’s APICORP found that global investment in oil and gas stood at $504 billion in 2019, before the pandemic. The figure tumbled to $352 billion in 2020 and is projected to reach $494 billion this year.

“The global industry has not yet recovered from the Covid-19 pandemic,” Ramy Al-Ashmawy, senior energy specialist at APICORP, told AGBI.

“The effect of the Covid crisis, with the impacts on mobility, supply chains and so on, have been exacerbated by the Russia-Ukraine conflict.”

In the Middle East and North Africa, however, investment in oil and gas projects has surpassed pre-pandemic levels and is forecast to rise again this year.

In 2019, the region invested $78 billion in oil and gas, representing 15 percent of global investment.

This fell to $72 billion in 2020, but recovered to $86 billion, 21 percent of global funding, in 2021. In 2022, investment is expected to increase again to $90 billion.

“This shows that the MENA contribution to global energy investments in the oil and gas is actually defying the global trend,” Al-Ashmawy said.

“The region is bearing the burden of maintaining energy security, contrary to the narrative that is now prevailing in the media that OPEC+ is not doing enough to ease the energy crisis. That is not true.”

Robin Mills, CEO of Dubai-based independent consultancy Qamar Energy, also pointed to a global squeeze on oil and gas financing.

“Finance has certainly been very tight for the oil and gas sector over the past two years or so. It may get tighter in the longer term,” he said.

The Middle East is already suffering existentially from global warming, unbearable heatwaves, droughts, increasing sandstorms. This will continue to get massively worse

Hans-Josef Fell, president, Energy Watch Group

Last week, the US Federal Reserve increased interest rates by 0.75 percentage points, its biggest raise since 1994, and Mills said this was also likely to lead to “tighter monetary policy than [the Gulf] would prefer”.

However, he was confident that the sector would remain resilient and the investments in oil and gas forecast by APICORP would materialise.

“The main GCC economies are quite strong, though, as long as oil prices remain high,” he said.

The oil and gas sector is also coming under renewed pressure from the United Nations over its environmental impact.

UN Secretary-General António Guterres hit out at fossil fuel investments in a number of speeches last week, calling for a wholesale abandonment of funding for the sector.

“I call on all financial actors to abandon fossil fuel finance and invest in renewable energy,” he said at the Sixth Austrian World Summit on the climate crisis, held in Vienna on June 14.

“The only true path to energy security, stable power prices, prosperity and a liveable planet lies in abandoning polluting fossil fuels, especially coal, and accelerating the renewables-based energy transition,”

Three days later, at the Major Economies Forum on Energy and Climate in Washington DC, Guterres said: “Even in the short term, it doesn’t make political or economic sense.

“Yet we seem trapped in a world where fossil fuel producers and financiers have humanity by the throat.

“For decades, many in the fossil fuel industry has invested heavily in pseudo-science and public relations – with a false narrative to minimize their responsibility for climate change and undermine ambitious climate policies.”

Hans-Josef Fell, president of the Berlin-based Energy Watch Group, told AGBI that the UN secretary-general was right and called on the MENA to phase out oil and gas financing and focus wholeheartedly on developing its renewable energy sector.

Fell said: “The Middle East is already suffering existentially from global warming, unbearable heatwaves, droughts, increasing sandstorms.

“This will continue to get massively worse if the Earth community does not quickly end the use of fossil fuels, which cause 60 percent of all climate gas emissions.

“One hundred percent renewable energy by 2030 is the most important measure to achieve this.

“The expansion targets for renewable energy in the MENA region are far too weak to achieve 100 percent renewable energy in the MENA region in time.”

The APICORP report found that the region is expected to add 5.6 GW of capacity from renewables this year, nearly double the 3 GW that came online in 2021.

“By 2026, the region is expected to have added 33 GW.

Al-Ashmawy said he believed that Guterres was “misinformed” and it was not realistic to think fossil fuels could be phased out in the short term.

“Fossil fuels make up more than three-fourths of the energy mix in the world.

“You cannot have a quick fix or quick replacement of 75 percent of your energy mix in one year, or two, or even a decade. That’s the key issue here.”