Abu Dhabi: While the Middle East still has one of the lowest break-even prices for crude oil, falling oil prices will put pressure on fiscal budgets and could result in a knock-on effect as governments reduce spending on certain projects.
According to Shaheen Chohan, vice-president of global analytics at Industrial Info Resources, a US-based provider of market intelligence, oil prices could trade around the $60 (Dh220.38) a barrel mark over the next 12-18 months.
Such a drop in prices presents challenges for power companies to manage planned projects, finance growth and bring a new generation of projects in time and on budget.
Speaking on Sunday at the Power-Gen Middle East conference, Chohan said that the Middle East will witness growing fallout in power projects, estimated to reach $20 billion in 2016.
The figure is an increase from the $11.3 billion fallout seen in 2014, and the $15.6 billion expected to be seen in 2015.
However, Chohan said that the figures were not alarming, as they are standard fallouts and can be seen in other countries as well.
As for spending in projects in the power sector, the Middle East and North Africa region is expected to see around $311 billion in capital expenditure in the power sector up to 2020.
The UAE alone will see $14 billion worth of projects kicking off in 2016 and 2017, and a total of $31 billion worth of projects commencing between 2012 and 2022.
The Middle East will also see a change in its energy mix as more projects are launched to boost renewable energy, with solar energy accounting for 10 per cent of the energy mix — up from the current two per cent. Meanwhile, natural gas will account for 50 per cent of projects in the region — down from the current 73 per cent, Chohan said.
The Middle East and North Africa region will continue to see an increase in electricity demand over the next 10 years, with an average rate of 6-7 per cent as Oman is set to see one of the highest growth rates (9 per cent) and the UAE set to witness one of the lowest (5 per cent).
Also speaking at the event was Simon Harvey, partner at Pinsent Masons, a UK-based law firm, who said that while oil prices will mainly affect fiscal budgets, they could have a positive impact as GCC countries like Qatar and Oman start looking at frameworks around public-private partnership laws.
Currently in its 13th edition, PowerGen Middle East is currently being held at Abu Dhabi National Exhibition Centre (Adnec), and will run until October 6, discussing various issues in the power generation industry.
PowerGen was officially opened by Suhail Al Mazrouei, the UAE’s Minister of Energy.
