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Badr Jafar: time to liberate MENA's energy markets

by Arabian Oil & Gas Staff on Sep 19, 2012

Badr Jafar, president of Crescent Petroleum advocates a stronger private sector presence in MENA's energy sector, and a more prominent role for gas ov
Badr Jafar, president of Crescent Petroleum advocates a stronger private sector presence in MENA's energy sector, and a more prominent role for gas ov

Badr Jafar, president of Crescent Petroleum, gave a stirring speech at the NOCs & Governments summit on the need to invigorate the private sector and gas development, and how the complement each other. Here are the highlights.

Only by having a robust and broad-based economy, with a healthy role for the private sector in order to encourage competition and the pursuit of best practices, can our region ensure that it is able to provide ample and reliable energy supplies.

I believe that there are two central steps that MENA Region policy makers can take to optimise energy policy:

First, allowing a greater role and freedom for the private sector to compete in the energy sector of the economy.

This is not to deny in any way that there is a crucial function of the state.

Second, a shift in energy policy to allow natural gas to assume a primary role in the MENA region's economy, addressing the subsidies which prevent natural gas from being utilised in the most economically efficient way, and in-turn encouraging the development of gas infrastructure to increase Regional integration.

To maximise the benefit from the second, one need's the first policy shift: the private sector can be a key partner in ensuring that the full transformative effect of natural gas on the economy is realised.

In combination, greater roles for the private sector and natural gas can go a long way towards delivering the countries of the MENA Region more sustainable, more diverse and more robust economic growth.

Given the strong economic growth of the region over the last decade, one may wonder why such shifts are needed when the current arrangement appears to have served the region well. From 2004 to 2011 the MENA region's nominal GDP has grown by about 160%, but one must bear in mind that much of that GDP rise was driven by average oil prices going from around $40 to $100 per barrel.

Such a secular shift in the price of oil is unlikely to be repeated.

Furthermore, such strong growth in one part of the economy, may have accidentally skewed economic development elsewhere.

Without broad-based economic growth it is difficult to ensure broad-based jobs growth and sustained high employment. There is a risk that the MENA Region’s economy is doubly fragile: over-dependent on oil revenues, and at the same time vulnerable to instability. The Region needs to diversify its energy sector to build on this economic boom, and ensure that further growth can be delivered on a more stable platform.

Furthermore, current policies and development plans within the E&P sector have still left the MENA region with the conundrum of huge reserves and relatively low production, particularly in natural gas. With 42% of proved global gas reserves, the region only produces less than 20% of global gas output. Consequently, the Region has the longest gas reserve life in the world, able to produce at current levels for at least 130 years, compared to the global average of 64 years.

With an increasing abundance of gas being found around the world, and falling gas prices first in North America and now Europe following the breaking of oil linked pricing, the window of opportunity for the MENA region to use its cheap gas endowment as a competitive advantage in industry at home or for export abroad, is closing.


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