Why global energy giants are increasing their presence in the Middle East and North Africa

Al-Monitor Pro Members

Gerald Kepes

President, Competitive Energy Strategies, LLC

March 27, 2023

International energy is a government business. Governments make the rules, regulate investment and ultimately determine performance as much as the investors. This is especially true of the national oil companies (NOCs) in the Middle East and North Africa (MENA) region; whether high performing or not, these government-owned entities will inherit their energy sectors.

The MENA region possesses many of the most attractive hydrocarbon basins worldwide. As government-owned entities, regional NOCs have had upstream operations since the 1960s. Significant attention has been put into increasing institutional capacity. In many cases, these NOCs had no or little competition vis-à-vis opportunities. Many have partnered with foreign energy companies, benefitting from decades of joint venture experience. So, why does most of the MENA region continue to require upstream investment from foreign companies?

Growth in institutional capacity for most MENA NOCs has stagnated or failed to keep pace with resource maturation and steepening technical challenges in their countries. For some, the culprit is international sanctions, war and political instability. Often political and institutional ambitions of governments/NOCs exceed their capacities. More recently, evolving political and economic needs of regional governments have made new demands.

Foreign equity investment policy in a number of MENA countries has evolved or devolved to very targeted opportunities, as opposed to broad openings. Most are struggling with antiquated contractual structures which are inadequate for the challenges their upstream sectors face. Some lack the political consensus to bring about needed changes.

Global energy companies (GEC) have evolved their strategies to fit this varied competitive landscape. Shaped by the status and contribution of their non-MENA portfolios, as well as differing operating signatures, they have all made the strategic assumption that they will be able to invest in E&P in the region for several decades to come. And that they must.