15 October 2019

Sector Focus: Energy

The energy sector outlook remains positive in an evolving business climate

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As the energy sector transitions to a greener future, the outlook remains bullish. Hanan Ahmed, HSBC’s Director, Sector Head, Energy, CMB, MENAT, says the way forward for the sector involves complex financial transactions, greater privatisation and an international approach.

A future-focused approach to sector transformation

The energy sector of the Middle East, North Africa and Turkey (MENAT) region comprises all the industries involved in the production and sale of oil and gas, electricity, mining, metals, petrochemicals and renewables. The Middle East alone is home to 48% of proven global oil reserves and 38% of global gas reserves1. The sector assumes additional importance due to the presence of some of the world’s biggest oil producers.

With concerns on peak oil demand and ongoing volatility in crude markets being the norm, national oil companies (NOCs) in the region are reinventing themselves to adapt to the changing business climate. This is true particularly in the UAE, Qatar, Egypt and Saudi Arabia, where the most radical changes are focused on the forth industrial revolution, with a focus on digitalisation, transformation to cleaner energy or lower carbon imitation, integration across the value chain, and operation cost efficiency.

Other key trends in the sector are:

  • Digitalisation
  • Focus on gas as an alternative
  • Greening the sector, which creates bullish growth in renewable energy
  • Financially sophisticated deal structures to combat volatility and drive international presence

Untapped opportunities lie in sector transformation

OPEC+ Cartel plays a key role regionally and globally in maintaining the price level by striking a balance through supply and Brent Oil prices and they shall continue to play this role in the near/medium future.

We are expecting to see in the region diversify more in regards to the end consumer products and this is expected to touch industries such as petrol chemicals, metals and greener energy solutions.

Natural gas and renewables in focus

With gas being the cleaner alternative and geo-political factors favouring capacity increase, there is consistent activity in the sub-sector. UAE Government measures and a global move towards greening the energy sector continues to result in new joint ventures and emerging market players. As a result, there is as much activity in the renewables sector as MENA countries progress with the projects to achieve their Paris agreement commitments:

UAE

Al Dhafra solar (2GW) tendered in 2019 and another (2GW) is planned for tendering in 2020.

Mohamed Bin Rashed Solar park fifth phase is running as planned (5GW).

Egypt

Main components of Berban park been completed and (1.4GW) been commissioned, and a first contract of (200MW) in Kom Ombo is allocated. Commencing on the Gulf of Suez wind project, second phase of (700MW).

Oman

Tendering for two additional phases of 500MW solar PV.

Financial foundations of the energy sector

As regulators amend policies and jurisdictions to be more business friendly and enhance foreign direct investment (FDI), investors will tend to be more selective as per post covid-19 implications and change in behaviours taking into consideration the slowdown in aviation, stronger appetite for greener solutions and integration across the value chain. The government policies and strategies post covid-19 will play a great role on the investors decision and the business environment i.e. taxes, subsidies and sector focus.

Access to global financial institutions and agencies is crucial for local clients who are seeking to grow across international and regional platforms. A recent example in the MENAT region is in precious metals leasing, where HSBC was instrumental in supporting an Egypt-based client to lease a platform for the catalyst.

The transaction, which originated in Egypt, was facilitated by the MENAT team, and was executed from London, which truly tapped into the bank’s global footprint. The deal resulted in considerable cost savings for the client, and the turnaround time for on-boarding the two sides, including a new client, complete with all credit approval, documentation and negotiation, was just one week.

The financing aspects of the energy sector are gaining prominence not only as demand for globalised services increases but also as new technologies increase cost efficiencies. HSBC’s international footprint and focus on evolving technologies are key aspects of an effective financial partner in the energy sector.


1 https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/country-and-regional-insights/middle-east.html


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