Regional energy trading has ‘huge potential’ for MENA

30 January 2018

Improving local cooperation and trade could help MENA reach its growing energy demands.

Trading energy between states in the region could give government access to cheaper electricity, improve the efficiency of existing capacity and relieve the pressure on governments to invest in new capacity, according to the latest energy report by the Arab Petroleum Investment Corporation (APICORP), a multinational investment bank.

The regional energy market is still lagging substantially behind other parts of the world, despite “huge potential”, said APICORP. 

Although most Arab countries have been investing heavily in power-generating capacity, the report said there has been no coherent strategy to improve regional cooperation and trade of energy despite “obvious potential benefits”.

The report estimates the MENA region will still need to add 7.4% of capacity annually until 2021 – equivalent to more than 130 gigawatts (GW) over the period – and invest around $180bn to meet increasing demand.

It quoted World Bank (WB) statistics that estimate energy trade could save the region between $17-25bn and reduce the required energy capacity by 33GW. According the WB the region is only utilising 42% of its generating capacity and only 10% is interconnected.

According to APICORP, the region lacks the institutional capacity and regulatory framework, despite the creation of the GCC Interconnection Authority (GCCIA) in 2001. “There is a lack of transparency concerning the regulatory framework, as well as limited information around legal, commercial and pricing structures,” it said. 

Escalating geopolitical tensions in the region also produce one of the main barriers to increased energy trading, the report said. “Although in principle trading should improve energy security, the deteriorating geopolitical situation will be one of the key concerns for all Arab governments, which will continue to focus on meeting their own demand through investing in their local power generation.” 

Other barriers include limited storage capacity and state subsidies, as electricity prices need to reflect actual costs for trading to work effectively.

A WB report published last November warned energy demand in the region would continue rise at an annual rate of 1.7% through to 2035, and estimated 3% of GDP needed to be spent on electricity production to keep pace with demand.

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