Middle East project spending to rise on oil price rebound
30 Dec 2021
Research by GlobalData projects unlocking of region’s project spending in 2022 as crude prices keeps heading north on renewed energy demand
The outlook for project contract awards in the GCC region is looking much brighter on increased oi process going into 2022 compared to its levels in 2020-2021, according to new research by Global Data.
The data and analytics company based its projections on the fact that there has been a rise in project contract awards in the fourth quarter of 2021 following the surge in oil prices to above $85 a barrel in October last year.
“For six years, companies in the GCC have endured some of the toughest business conditions ever seen in the region, as volatile oil prices forced governments to implement strict fiscal controls. The austerity measures saw the value of contract awards crash from an annual average of around $228 billion a year in the Middle East and North Africa region in 2013-15, to around $111bn a year in 2020 and 2021,” said Richard Thompson, editorial director of MEED, part of GlobalData.
“The lack of new projects and rising payment delays created a cash flow crisis that is still continuing. Companies restructured and downsized, people departed the region and businesses collapsed. As we head into 2022, the outlook is looking much brighter. The rebound in energy demand saw oil prices surge above $85 a barrel in October, and Brent crude is expected to average about $71.5 a barrel in 2021, its highest since 2014. Forecasts are even stronger for prices in 2022. With an average fiscal breakeven oil price of $68.5 a barrel in the GCC in 2021, and $62.5 a barrel in 2022, the return of budget surpluses is transformative.”
Thompson added that there was a backlog of projects in the MENA region with “over $1.7 trillion-worth of projects in pre-execution”. Forecasting a rebound in project spending in 2022 and 2023, he said the figure could be high – “perhaps as much as 20%” - with Saudi Arabia and Egypt, in particular, set for strong growth.
“However, the end of austerity does not mean the end of challenges. The industry has been weakened. The reduction in capacity, combined with the requirement to increase local content, creates delivery challenges, while disrupted supply chains and inflation present a significant financial risk. Companies can look forward to a new growth cycle. However, they must proceed with caution,” Thompson observed.