Sirine Tajer – March 2011              ‘Investment        in Oil & Gas Industry         in the MENA region’  Sustainable D...
CURRENT SNAPSHOT   DATED BRENT PRICE (USD / B)ALL TIME HIGH : USD 144.22/b                24/02 - 30-MONTH HIGH : USD 119....
INTERESTING   CORRELATIONS                                                      INTERNATIONAL FINANCIAL LACK OF LIQUIDITY ...
HISTORICAL AND FUNDAMENTAL                  PERSPECTIVE                                    Conventional                   ...
MIDDLE EAST & NORTH AFRICA: OIL & GAS POSITION                                                                            ...
MENA STRATEGIC INVESTMENTS                                                                                  GEOGRAPHICAL P...
A SIMPLE FINANCIAL CALCULATION ENERGY REVENUES Oil & Gas Investments •Capex •Opex •Financing Costs Social & Economic Refor...
FINANCIAL          FOOD FOR THOUGHT           INTERNATIONAL INVESTORS / LENDERS                                     REGION...
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Sirine Tajer Mena Energy Investments March 2011


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Sirine Tajer Mena Energy Investments March 2011

  1. 1. Sirine Tajer – March 2011 ‘Investment in Oil & Gas Industry in the MENA region’ Sustainable Development is “development which meets theneeds of the present without compromising the ability of future generations to meet their own needs”. Brundtland Report, Our Common Future, United Nations, 1987
  2. 2. CURRENT SNAPSHOT DATED BRENT PRICE (USD / B)ALL TIME HIGH : USD 144.22/b 24/02 - 30-MONTH HIGH : USD 119.79/b Economic boom  Fragile economic recovery Demand-led  Supply-led JASMINE REVOLUTION LEADING TO A … High liquidity  Apparent tight liquidity MENA POLITICAL TSUNAMI  Revolutions, consequential disruptions and medium term recovery in Tunisia, Egypt and Libya  Egypt - Resumed Gas and LNG exports  Libya - 1.3 Mbpd oil exports & of Gas exports stopped  Domino Effect : Bahrain, Oman, Yemen, Iraq, Syria, Algeria…  Iraq - Baiji refinery explosion (not uncommon)  Yemen – Damaged oil pipeline and potential for disruption for Total, DNO & Calvalley… Source: Platt’s FUNDAMENTAL PARAMETERS JAPAN NATURAL TSUNAMIDEMAND:  25 years after Chernobyl China Oil demand hits all time high at 10 Mbpd  Highlighted the danger of nuclear power (17% of world’s electricity) According to IEA, world crude Oil supply rose to an all time high of  Announced Review of Nuclear Plans, Policies and Security by: 89 Mbpd in Feb. 2011  Japan,  Europe (Germany, UK…)  ChinaSUPPLY:  GCC (UAE, Saudi Arabia…) OPEC crude oil output at c. 30 Mbdp with Gulf States mainly  EXPECTATIONS : offsetting the Libyan effect  Difficulties for financing & public approval for any new plants OPEC “effective” space capacity, excluding Libya, is now near 4  Potential Impact on the energy mix (gas, renewables and coal…) Mbpd, its lowest since end-2008 on the medium term 2
  3. 3. INTERESTING CORRELATIONS INTERNATIONAL FINANCIAL LACK OF LIQUIDITY ? Oil & Commodities as a Refuge asset Class  International moderate rates environment with Fed increased expansion in Money supply • Correlation of 86% between the Fed balance sheet and the S&P 500 since 2 yearsSource: Datastream, Erste Group • Strong correlation between S&P500 and the Oil Price • General current increase in commodities prices • According to Erste Group Research :  Since 1991, correlation between the oil price and Food Index of 0.91  Currently, the speculative net exposure on the CBOT has doubled on the Oil and Wheat, increased by 90% on copper and 40% on soy  Source: Platt’s FOOD FOR THOUGHT… In 2009, just after the financial crisis, when RasGas II / III and Mubadala approached the Equity Capital Markets to raise their respective USD 2.3 B and USD 1.25 B Project Bonds, they received a total of USD 33 B orderbook…Source: Datastream, Erste Group 3
  4. 4. HISTORICAL AND FUNDAMENTAL PERSPECTIVE OIL PRODUCTION FORECAST BY TYPE IN MBPD OIL DISCOVERIES SINCE 1960S IN MBLSource: EIA World Energy Outlook 2010 Source: EIA, Oil & Gas Journal, Erste Group, OPECSource: BP Statistical Review 2009 – including Canadian Oil Sands 4
  5. 5. HISTORICAL AND FUNDAMENTAL PERSPECTIVE Conventional THE END OF CHEAP OIL ? Oil  Expectations : • Enhanced Oil Recovery (EOR) • Multidirectional and horizontal wells Heavy Oil • Moving down the Resources Triangle • Offshore & Deeper horizons (Pre-Salt) • Efficiency technologies • Seismic R & D Bitumen  Increasing technological requirement  Increasing production costs Oil Shales CHART OF THE MONTH REAL OIL PRICE: FROM 1861 TO PRESENT  Table shows the oil price in real terms the past 150 years  If Brent crude remains at its year to date average, 2011 would become the strongest year for oil price since 1864  Consequences : • Relevant time for investments • GDP burden and consumers’ impact • Incentives for alternative energies FOOD FOR THOUGHT… “The Stone age came to an end not by a lack of stones”Source: BP Statistical Review 2010, Datastream, Bloomberg, JP Asset Management 5
  6. 6. MIDDLE EAST & NORTH AFRICA: OIL & GAS POSITION STRATEGIC GEOGRAPHIC LOCATION MENA OIL FLOWS (in Mbpd) Country Crude Products Suez Canal Egypt 0.8 – 1 1.2 SUMED Pipeline Egypt 1.1 - Bab El-Mandab Yemen 0.8 2.5 Strait of Hormuz GCC / Iran 15-17 2 Source: BP Statistical Review, Barclays Capital, Wells Fargo RESOURCES STRATEGIC IMPORTANCE 2030 HORIZON : SAUDI ARABIA & IRAQ BRIDGING ROLES MENA Oil & Gas proven reserves : • With c. 820 Bbl Oil reserves: 61% of world conventional oil reserves and 56 % of world total oil reserves • With c. 83 Tcm in Gas reserves: 44% of world gas reserves• MENA Oil & Gas exports : • More than 45% of world oil exports • Around 20% of world gas exports Saudi Arabia: 1st oil reserves in the world & 2nd producer Qatar: 3rd gas reserves & world’s leading producer of LNGproducer with 77 MT pa celebrated in Dec 2010 Iraq: 4th oil reserves with strong upside potential According to WEF, MENA expected to provide up to 80% inworld’s growth in energy demand by 2030 Source: BP Energy Outlook 2030Source: OPEC, EIA, BP Statistical Review, World Economic Forum 6
  7. 7. MENA CHALLENGES & INVESTMENT REQUIREMENTS DISCREPANCIES & ENERGY GAPS KEY CHALLENGES: SUSTAINABLE DEVELOPMENT  ECONOMIC & SOCIAL REFORMS :Combined population of 320 M & Combined GDP of USD 2 T • Young population (median age <30 years), high level ofwith strong GDP growth expectations unemployment & strong growth • Private sector development & Economic diversification GENERAL REGIONAL OIL & GAS DEPENDENCY : in 2009, oil alone : • 21% of combined GDP  INFRASTRUCTURES UNDERINVESTMENT : • 60% of total exports • World Bank: 20% shortfall in installed electricity capacity • General gap : transportation, education, hospitals… REGIONAL DISCREPANCIES : • GDP p.c : from Qatar (USD 69754) to Yemen (USD 1118)  CRITICAL INVESTMENTS IN ENERGY EFFICIENCY: • Growth in Total primary energy demand at 3% p.a. and • Net Oil-importers (Bahrain, Egypt, Jordan, Lebanon, Electricity demand doubling by 2020 Morocco and Tunisia) • 60% more energy intensive than OECD Countries • Oil-exporters (most of GCC, Algeria, Libya, Iraq, and Iran) • Study on 11 MENA Countries: 17.9 GW or 13.3% of total  Dependency on light refined products (Saudi Arabia capacity lost in transmission – a 10% reduction would & UAE vis a vis) save USD 5.5 B for new infrastructure investments  Gas regional shortage (Dolphin, first LNG imports by Kuwait)  WATER SCARCITY: Water available p.c to be halved by 2050 OIL & GAS INVESTMENTS REQUIREMENTS IN THE FULL VALUE CHAIN : • Oil new production, EOR & transportation FOOD FOR THOUGHT… • Oil vertical integration (refineries with higher complexity factor and petrochemicals)  Interdependent dynamics of Oil & Gas, Power, Infrastructures, • Gas new production (non associated & Sour, e.g. Shah Water & Energy efficiencies field in U.A.E ) & transportation, • Gas-based vertical integration (petrochemicals &  Saudi Case : fertilizers)  Capacity increased from 21 MW in 2000 to 41 MW in 2010 • Storage capabilities  Nearly 1 Mbpd for power generation  Potential cost of 3 Mbl by 2028 with danger for international energy balance 7
  8. 8. MENA STRATEGIC INVESTMENTS GEOGRAPHICAL PATTERN OF ENERGY INVESTMENTS ENERGY INVESTMENTS (APICORP Research Feb. 2011)• USD 530 B potential but 20% projects shelved (vs 29% in 2010)• USD 430 B of actual capital requirementsSECTOR DISTRIBUTION : 22% Oil & related 42% Gas Power generation 36%• USD 180 B in Oil & related• USD 154 B in Gas & related• USD 155 B in USD 95 B in Power generationCOUNTRIES DISTRIBUTION :• 70% in 5 countries (KSA, U.A.E, Qatar, Algeria & Egypt)• USD 130 B in Saudi Arabia• USD 74 B in UAE• USD 70 B in Qatar (maintained North Field moratorium)• USD 57 B in Algeria and USD 42 B in Egypt Source: Apicorp Rsearch Feb-March 2011 SELECTED OFFICIAL FIGURES MENA Energy Investments according to OPEC : • USD 167 B in natural gas investments (expanded capacity, production & transportation) up to 2015 • Expected 39 Tcm of gas reserves to be discovered Qatar MOF: USD 170 B in Oil & Gas and Infrastructures in the next 10 years WEF 2010: • MENA Minimal required Energy & Infrastructure investments : USD 100 B p.a. (5% of annual GDP) • Half assessed to be currently mobilized 8
  9. 9. A SIMPLE FINANCIAL CALCULATION ENERGY REVENUES Oil & Gas Investments •Capex •Opex •Financing Costs Social & Economic Reforms Infrastructure Investments & Energy efficiency RenewablesREQUIRED DISCIPLINED & SUSTAINABLE INVESTMENTSEquity & Debt Optimization – Cost Minimization 9
  10. 10. FINANCIAL FOOD FOR THOUGHT INTERNATIONAL INVESTORS / LENDERS REGIONAL INVESTORS / LENDERS Risk of shrinkage of traditional foreign financers with risk  Potential for Co-investment between Government & premium & D/E ratio reduction private players: e.g. Mostorod refinery in Egypt.. Geographical diversification of contractual relationships &  Relatively solid regional banks (e.g. SATORP / Jubail) associated ECAs financing  Strengthening (Credit bureaus in UAE & Qatar)  Higher degree of pioneering & selective regional Rediscovering the Silk Route : PetroChina / Fujairah Oil diversification Storage projects ; Saudi Aramco in Fujian and potentially Qingdao refineries in China while Sinopec to take a stake in  Deeper contribution of Islamic financiers required (e.g. the RSRC in Yanbu ; KPC interest in Zhanjiang Refinery… Sukuk market vis a vis SATORP / Jubail) Financing diversification : Structured Financing, Asset Securitizations, Project Bonds PPP Development for Infrastructure investments TRANSVERSAL ACTIONS Marshall Plan Governmental global sustainable investment (IFC Study) Rigorous projects’ profiling & management – Hedging & Barter potentials Regulatory & Legal framework maturity Geographical diversification, Technology, R&D Investments National employment development & know-how transfer 10