October 2017 /// Vol 238 No. 10

Features

Regional Report: MENA

Middle East/North Africa grapples with production cut commitment, despite urge to boost output

Emily Querubin, World Oil

Last year, OPEC members agreed to cut production by as much as 1.2 MMbopd. The group, as well as several non-member countries, has struggled to uphold its obligation—particularly members coping with a weakened economy, due to disruptions, sanctions, political instability, militant attacks and boycotts.

SAUDI ARABIA/QATAR

According to OPEC, the Kingdom of Saudi Arabia holds approximately 22% of the world’s proven petroleum reserves and is the global leader in exports. The Kingdom’s oil and gas industry constitutes about 50% of GDP, and about 85% of its export earnings. According to Saudi Aramco’s annual review, the Kingdom’s recoverable crude oil and condensate reserves stood at 260.8 Bbbl at year-end 2016, while gas reserves had grown to 298.7 Tcf.

As a principal producer, the country led OPEC members in last year’s talks to cut output, counter global oversupply and bolster the price of oil. By that time, however, the nation’s crude production reportedly had swelled to an average 10.5 MMbopd in 2016, up from the 10.2-MMbopd average in 2015. Yet, in July of this year, IEA data showed that Saudi Arabia had significantly exceeded its 486,000-bopd obligation to cut output.

Last year, Saudi Aramco reported the discovery of two new oil fields and one gas field, bringing the Kingdom’s total number of fields to 130. Jubah field was discovered more than 186 mi north of Dammam, in Saudi Arabia’s eastern province, while Sahaban field was found nearly 174 mi south of it. Hadidah gas field was discovered 292 mi south of Dammam.

Also in 2016, significant progress was made at several of Saudi Aramco’s other key projects. At giant Shaybah field, near the northern edge of the Rub’ Al-Khali (which translates to “Empty Quarter”) desert, the company’s second 250,000-bopd expansion project went onstream. This feat brought the field’s overall production capacity to 1 MMbopd, which reportedly is double the facility’s original capacity.

Capacity also was raised at Khurais field, where Saudi Aramco continued drilling wells throughout 2016. Production capacity at the field, situated about 93 mi southeast of Riyadh, is expected to increase another 300,000 bopd, to 1.5 MMbopd, by mid-year 2018.

Fig. 1. To isolate Qatar, participating Middle Eastern nations— including Saudi Arabia, Bahrain, Egypt and the UAE—closed all oil and container ports to vessels traveling in or out of the Persian Gulf state. Photo: Shell Qatar.
Fig. 1. To isolate Qatar, participating Middle Eastern nations— including Saudi Arabia, Bahrain, Egypt and the UAE—closed all oil and container ports to vessels traveling in or out of the Persian Gulf state. Photo: Shell Qatar.

In addition to its role as leader of OPEC’s efforts to curb output and drain global stockpiles, Saudi Arabia has led the way in the Gulf region’s isolation of Qatar. In early June, Saudi Arabia—joined by Bahrain, Egypt and the UAE—cut off economic and diplomatic ties to the country. The Saudi-led alliance claimed that Qatar was guilty of backing rival Iran, as well as a number of extremist groups in the region. Qatar, however, said the accusations were “baseless.”

To isolate the Persian Gulf state, participating Gulf nations closed all oil and container ports to vessels traveling in or out of Qatar, Fig. 1. Qatar’s economy began to show signs of strain by late July, as its credit worthiness was downgraded, and food prices rose. Its LNG exports, however, were only minimally affected.

In April, Qatar Petroleum had reported plans to begin developing a new gas project in the southern sector of North field, which is connected to neighboring Iran’s South Pars field—the world’s largest reservoir of non-associated gas. The plan for development would end a more-than-decade-long ban on new projects. With start-up of the new project, Qatar Petroleum expects to double its output capacity, to 4 Bcfgd. Additionally, it will raise the country’s overall LNG production from 77 million to 100 million tons per year.

Much of the state’s oil output comes from giant Al-Shaheen field. It is situated nearly 50 mi north of Ras Laffan, Qatar’s main industrial site for LNG production. In July, North Oil Co.—a partnership established last year between Total (30%) and Qatar Petroleum (70%)—took over operatorship of the field, which is made up of 30 platforms and 300 wells that produce about 300,000 bopd. This represents nearly half of the country’s total production.

UAE/OMAN

The United Arab Emirates depends on energy production for approximately 40% of its GDP. It is OPEC’s fourth-largest producer.

Because it relies so heavily on its energy sector, UAE Energy Minister Suhail Al Mazrouei expressed mounting concern regarding the industry’s mass of delayed projects last year. “We in the UAE are trying not to postpone projects in a major way,” he said. “All projects around the world should be equal to the amount of demand.”

He argued that delayed projects and decreased oil investment could curb supply in the near future. His argument was in line with what oil executives have said about increasing investment cuts, which purportedly could lead to an oil shortage as early as 2020.

Fig. 2. BP has made significant progress on the Khazzan tight gas project, situated in Block 61, about 217 mi southwest of Muscat. In September, the company announced that first gas had been produced from the field, on time and under budget. Photo: BP.
Fig. 2. BP has made significant progress on the Khazzan tight gas project, situated in Block 61, about 217 mi southwest of Muscat. In September, the company announced that first gas had been produced from the field, on time and under budget. Photo: BP.

The UAE has complied with production cuts, so far. However, it also reportedly is working to boost its production capacity to 3.5 MMbopd, with the expectation that global oil demand will continue growing.

It was reported in late July that the UAE was one of several OPEC members that did not wholly fulfill their pledged output reductions. According to the EIA, the country had only satisfied about 54% of its promised 139,000-bopd cut. Consequently, it agreed to deepen production curbs moving forward.

In neighboring Oman, BP has made significant progress on the Khazzan tight gas project, situated in Block 61, about 217 mi southwest of Muscat, Fig. 2. In October 2016, the company announced that it was nearly finished with the first phase of the project.

The project, which will see more than 300 wells drilled over its lifetime, achieved first gas in September, on time and under budget. Phase One of the development is expected to yield about 1 Bcfgd. However, Phase Two is expected to bring production to 1.5 Bcfgd. Both phases of the Khazzan field development reportedly are expected to produce an estimated 10.5 Tcf of recoverable gas resources in total.

IRAQ

As OPEC’s second-largest producer, Iraq is considered one of the world’s most promising E&P regions, due to its vast reserves of conventional hydrocarbons. However, after years spent battling Islamist insurgents, Iraq is having to put forth every effort to rehabilitate its economy, which relies heavily on its oil sector.

Although the country was aiming to boost production capacity to as much as 5 MMbopd by year-end, it reluctantly agreed to join OPEC’s effort to end the global oil glut last November. Yet, according to the IEA, it has only curbed its output by about half of what was originally pledged.

Bloomberg reported in March that the Iraqi oil ministry was in talks with ExxonMobil to develop Ratawi and Omar fields, in the southern province of Basra. Together, the two fields could add approximately 500,000 bopd to the nation’s production. Additionally, it was reported that the oil ministry soon will invite bids for the development of Dujail, Kumait and Rifaie fields, in southeastern Maysan province.

Gazprom Neft Badra, a subsidiary of Gazprom Neft, commissioned three new production wells at Badra field in early March. The wells—BD-2, P-14 and P-10—produce a total of 23,000 bopd, while the field averages a total daily output of 77,000 bopd. This follows the four new wells that the company commissioned last year.

IRAN

With the world’s second-largest proved gas reserves and its fourth-largest oil reserves, Iran is OPEC’s third-largest producer, making it a global energy giant.

Tension among OPEC members flared last November, as officials struggled to agree on output caps. Much of the rigidity came from Iranian Oil Minister Bijan Namdar Zanganeh, who told reporters that his country would not reduce its production. The country argued that its economy, which is largely reliant on its oil and gas sector, needed time to recover from more than a decade of sanctions. Following extensive negotiations, Iran ultimately secured an exemption from the accord.

In early February, however, the U.S. imposed renewed sanctions on Iran, following a missile test. Of the country’s 56 gas fields, more than half of them reportedly remain undeveloped, as a result of years of international sanctions. With more than 33 Tcm of gas reserves, much of which is untapped, Iran could become a chief global exporter.

Despite sanctions, Iran’s oil exports reached 3 MMbpd in February, a level reportedly not seen since the 1979 Islamic Revolution. In an effort to continue boosting output and to develop as many as 50 oil and natural gas fields, the country is attempting to attract more foreign investment.

With the addition of six new projects, total gas production capacity at Iran’s giant South Pars field was raised to 570 MMcmd in April. The increase reportedly made it almost commensurate with neighboring Qatar, the world’s largest LNG exporter. South Pars, which stretches across the Iran/Qatar border in the Persian Gulf, is the world’s largest natural gas field.

Farzad-B is another chief gas block in Iran. The block, which also is situated in the Persian Gulf, has recently attracted India’s largest oil and gas explorer, ONGC Videsh. The company submitted a revised plan to the Iranian government in early April, which would allow it to develop the field within five years. The company reportedly is willing to spend as much as $11 billion on development of the field and all associated infrastructure.

Other major E&P companies—including Petronas, Gazprom and Royal Dutch Shell—have expressed interest in Iran, as well. In December 2016, Petronas returned to Iran after sanctions were eased earlier in the year. The company signed an MOU to evaluate South Azadegan and Cheshmeh Khosh oil fields.

Just a few weeks prior to the signing, Shell, too, returned to Iran, signing an agreement to evaluate two of the region’s largest oil fields—Azadegan and Yadavaran. The fields are situated near the Iraqi border, in the Persian Gulf. A few days later, Gazprom signed a deal with Iran to study Cheshmeh Khosh and Changuleh oil fields.

LIBYA

In spite of recent political disparity and civil unrest throughout the OPEC nation, Libya’s energy sector is beginning to see signs of recovery. This year, the country’s output had reportedly rallied to a four-year high, after dipping to approximately 400,000 bopd back in 2015—a severe drop compared to the 1.6 MMbopd that it was producing prior to the political revolt that began in 2011.

This resurgence in production was not, however, without complication. While the country continues its struggle to revive one of its most important industries, it also is being forced to deal with terminal closures, protests and pipeline blockades. In March, two of the nation’s primary oil terminals were closed, due to fighting between rival militias. As a result, several fields were forced to stop pumping entirely.

Just one month later, the Zawiya refinery was blocked, albeit briefly, causing a halt in operations at Sharara field, Libya’s largest oil field. The vast majority of the country’s output is pumped from Sharara and El Feel fields in the western region. Sharara field, which is in Libya’s Murzuq basin, produces about 216,400 bopd. Its total proven reserves have been estimated at 3 Bbbl. Likewise, El Feel field (also known as Elephant field) is situated in the Murzuq basin, and pumps approximately 26,500 bopd.

With the largest proved oil reserves and the fifth-largest proved gas reserves in Africa, Libya is a key contributor to the global supply of crude oil. By the end of June, the country—which also is exempt from OPEC’s production cuts—had
restored its production rate to a four-year high of 1.1 MMbopd. Although the increase in production further complicated OPEC’s efforts to re-claim control of the oil market, it was a major accomplishment for Libya, as its state-owned NOC reportedly had been aiming to reach 1 MMbopd by the end of July. It has been reported that the nation is now targeting a production rate of 1.25 MMbopd by year-end.

Despite continued disruptions, evidence that Libya is gradually making a comeback was solidified in August, when Shell loaded 600,000 bbl of crude from the Zueitina port. This was the oil trader’s first Libyan cargo in five years.

KUWAIT

A founding member of OPEC and its fifth-largest producer, Kuwait has supported the group’s mission to extend production cuts. Kuwaiti Oil Minister Issam Almarzooq said that extensions would “accelerate the rebalancing of the global oil market, and will contribute to the return of prices to levels acceptable for producing countries, and for the petroleum industry in general.”

In February, state-run Kuwait Oil Co. (KOC) announced its plans to boost oil capacity by about 500,000 bopd in preparation for the deal’s expiration. Bloomberg reported that that company had already signed agreements with Shell and BP for the development of new E&P projects. KOC said it was planning to drill its first exploration wells by year-end, including several wells near Failaka Island, in the Persian Gulf. “KOC is producing 2.7 MMbpd now, and we will maintain this under the deal,” KOC CEO Jamal Jaafar told Bloomberg in February. “At the moment, we have the capacity to reach 3.15 MMbpd, but we will stick to the OPEC agreement.”

It was reported in May that the state was willing to join Saudi Arabia and Russia in extending production cuts through first-quarter 2018. Almarzooq explained, “There are signals that have started to show, as April and May monthly reports are showing that global stockpiles have fallen significantly.”

ALGERIA/TUNISIA

Last year, Algeria’s state energy producer, Sonatrach Group, reported plans to boost production 20% in the next four years. Salah Mekmouche, Sonatrach’s V.P. of E&P, said that the company expects to bring the Tiguentourine, In Salah and Timimoune natural gas projects onstream, as well as a number of oil wells in the Berkine basin. He said that the company also planned to increase output from older oil wells in Hassi Messaoud, in eastern Algeria’s Ouargla province.

Bloomberg reported in December that company data showed an annual production rate of 69 million tons of oil equivalent, which was up from the 67 million tons produced in 2015. Gas ouput reportedly increased from 128.3 Bcm in 2015 to 132.2 Bcm, as well.

Although Algeria agreed to terms of the OPEC agreement to curb production in November, Sonatrach’s associations division head, Farid Djettou, said that the company will invest as much as $9 billion in new exploration projects over the next four years, alone. Overall, Djettou said the company plans to invest more than $50 billion in its operations through 2021. During an interview, Djettou said that the company expects its annual production to exceed 230 million tons of oil equivalent by then.

The production boost coincides with a five-year plan set forth by Algerian Prime Minister Ahmed Ouyahia, which seeks to reverse the country’s deficit and balance its budget by 2022.

In the neighboring Republic of Tunisia, Eni reported substantial progress during September 2016. The company completed operations on the Laarich East-1 discovery well, nearly 435 mi south of the capital city, Tunis, and resumed its exploration activities in the region. Laarich East-1 reportedly reached a depth of nearly 13,488 ft, uncovering hydrocarbons in sandstone layers of Silurian and Ordovician age. According to a company release, production tests showed delivery capacity of approximately 2,000 bopd.

EGYPT

Egypt reportedly is the largest non-OPEC producer of oil, and the second-largest dry gas producer in Africa. With plans to start exporting natural gas in 2019, the country has intensified exploration in the region.

As the Middle East’s most populous country, becoming an exporting nation would consequently make it self-sufficient, no longer relying on imports to meet its energy needs. It had been a net exporter of LNG until 2014, when waning output and power shortages, resulting from political turmoil, strained its energy sector and forced it to begin importing.

While there is considerable potential for new discoveries offshore—particularly near the giant Zohr field in the Mediterranean Sea—the onshore Nile Delta region shows promise, as well. SDX Energy commenced drilling operations in the South Disouq concession in March. It is found in the prolific Abu Madi-Baltim trend, which reportedly consists of 10 discoveries to date. According to the company, South Disouq, alone, is estimated to contain 1.3 Tcf of resource potential. wo-box_blue.gif 

The Authors ///

Emily Querubin Emily.Querubin@worldoil.com

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