The heart of global oil exports thrives amid geopolitical tensions

The Middle East and North Africa (MENA) remain the quintessential oil exporting region, replete with considerable assets and tensions. “Oil markets are very much linked to geopolitical tensions, especially if they are in the Middle East, said Fatih Birol, executive director of the International Energy Agency (IEA), in an interview. “The oil industry is still thriving, and this is shown through different exporting countries like Iraq and Iran, bouncing back from their different sets of challenges, stronger than ever.”

Kuwait and the UAE exemplify regional strength. Kuwait has announced ambitious capacity targets for 2020, that could see the country increase oil capacity from 3.2 MMbpd at the start of this year to around 4 MMbpd by 2020. This includes 85,000 bpd of new heavy oil output. Meanwhile, the UAE, earlier this year, signed a $1.5-billion concession deal with Austria’s OMV to expand oil output 215,000 bopd.

In another sign of regional strength last July, ADES International Holding Ltd. signed a definitive agreement with Weatherford International for the $287.5-million acquisition of 31 onshore drilling rigs, in line with its strategy to strengthen onshore capabilities. ADES will acquire Weatherford’s onshore drilling operations, including associated assets, contracts, management systems, and approximately 2,300 employees and contract personnel spread across Algeria, Kuwait and Saudi Arabia. The acquired assets include 12 rigs in Kuwait, 11 in Saudi Arabia, six in Algeria and two in southern Iraq.

MIDDLE EAST

Saudi Arabia is the world’s second-largest oil producer and largest oil exporter, as well as OPEC’s biggest member, and home to the world’s largest oil company, state-run Saudi Aramco. As Brent crude hit $80/bbl last May, OPEC decided to boost production to meet rising demand and keep prices in check. Saudi Aramco CEO Amin Nasser said oil demand is rising by 1.5 MMbpd to 1.7 MMbpd and will be “healthy” next year. In addition, the U.S. is said to have asked Saudi Arabia and others to relax output restraints put in place since early 2017. As a result, Saudi Arabia boosted oil output to the highest level since October of last year. Its daily production rose 162,000 bopd to 10.030 MMbopd in May, according to Bloomberg.

Saudi Aramco changed plans from pursuing a potential IPO in the parent company, which began in 2016, to offering a stake in chemical giant Saudi Basic Industries Corp., which may be worth $70 billion. In addition, the Kingdom has granted a 40-year concession to Saudi Aramco, with an option for a 20-year extension, to exploit the kingdom’s hydrocarbon reserves. The previous deal was for 60 years, and it ended in 1999. These steps will add value to Aramco, as the crown prince insisted that the company should be valued at $2 trillion or more, but current analysis places the figure much lower.

Iraq holds the world’s fifth-largest crude reserves, according to data compiled by World Oil, and is OPEC’s second-biggest producer. In addition, Iraq has managed to increase oil production slightly, averaging 4.463 MMbpd during 2017. In response to recent progress, the country announced a revised capacity target, with the aim of reaching 6.5 MMbopd by 2022. In July 2018, the country’s rig count average reached 59, 10 units higher than the same period last year. This has been the main contributor to the MENA region’s overall rig count increase.

Within the first few months of 2018, Royal Dutch Shell sold, for an undisclosed amount, a stake in West Qurna-1 oil field to Japan’s Itochu Corp, the latest step in a gradual withdrawal from the region. In addition, Shell EP Middle East Holdings agreed to sell the entire share capital of Shell Iraq B.V., which includes the 19.6% stake in West Qurna-1 oil field, for $406 million, to a subsidiary of Itochu.

To offset a production loss in the north, where a dispute with the semi-autonomous Kurdish region has crippled pipeline exports through Turkey, state-run Basra Oil, in the south, targeted an increase in production to 3.5 MMbopd by the end of the year from 3.15 MMbopd now, according to Director General Ihsan Abdul Jabbar. The firm plans to pump 4.5 MMbopd by the end of 2022. Iraq sees output capacity at 5 MMbopd by the end of 2019.

In addition, Iraq plans to increase output at the southern deposit of West Qurna-1 to 480,000 bopd by December from 450,000 bopd, according to Hassan Mohammed Hassan, head of the field’s joint management committee, during an interview in Basra. Output would jump to 800,000 bopd by the end of 2022, he said.

As an opportunity to increase investment, Iraq held its 5th bid auction during second-quarter 2018, requesting bids for three blocks along the border with Kuwait, seven areas at the border with Iran, and one offshore block in the Persian Gulf. Just over half of the energy deposits were offered to UAE-based Crescent Petroleum Co., China’s Geo-Jade Petroleum Corp., and United Energy Group, with headquarters in Hong Kong.

Fig. 1. The Garmian Block consists of an onshore development project area of about 50 mi2, which contains the Sarqala oil discovery. WesternZagros and its co-venturer, Gazprom Neft Middle East B.V., received approval for the Garmian field Development Plan in May 2016. Photo: WesternZagros.

To further boost exports, Iraq has plans to construct export facilities on a man-made island in the Persian Gulf. This $4-billion project will inject seawater into its southern oil fields, to dislodge more crude from the deposits, according to Basra Oil’s Jabbar. The goal is to double output at Majnoon field to 450,000 bopd.

Gazprom Neft Middle East commissioned a second well, Sarqala-2, at its Sarqala field within the Garmian Block, Fig. 1. Cumulative production at the field stood at 7 MMbopd, as of April 2018. Drilling of the Sarqala-3 well was planned for third-quarter 2018, completing Phase 1 of field development. In addition, Lukoil and Basra Oil signed a development plan for West Qurna-2 field that provides for an oil production plateau of 800,000 bopd. According to the plan, production of 480,000 bopd will be reached in 2020, and 800,000 bopd is expected in 2025.

In July, Norwegian operator DNO announced a two-thirds increase in production from Peshkabir field, which is in the Tawke license, to 25,000 bopd, following completion of the Peshkabir-4 well testing program. The next well, Peshkabir-5, has been drilled about 4 mi west of Peshkabir-3. Peshkabir-5 is producing around 8,000 bopd. “At around 35,000 bopd, Peshkabir has now leapfrogged into second place after Tawke among the Kurdistan fields operated by international oil companies,” said DNO Executive Chairman Bijan Mossavar-Rahmani. Also, Peshkabir-6 and Peshkabir-7 were drilling ahead at press time.

Iran has the world’s largest gas reserves, estimated at 1,194 Tcf, and the fourth-largest oil reserves at 155.6 MMbbl, according to data compiled by World Oil. Per the 2017 average of 4.442 MMbpd, Iran is the fifth-biggest oil producer, following Russia, Saudi Arabia, the U.S. and Iraq.

The country is the subject of a second round of U.S. sanctions, due to be implemented on Nov. 4. The forthcoming U.S. sanctions on Iran will impact $200 billion in potential energy deals, according to Bloomberg. However, during the brief period when the sanctions were lifted in 2016, output recovered from 2.9 MMbopd in 2015 to 3.8 MMbopd, surpassing pre-sanction levels of 3.6 MMbopd.

Prior to these newest sanctions, analysis of Iranian crude oil production showed that approximately $21 billion in capex were set to be spent by the country on oil projects between 2018 and 2021, to ensure that output grows to around 4.9 MMbopd in 2021, according to GlobalData. Accordingly, the country would have 66 fields producing liquid hydrocarbons by 2021, of which 38 are conventional oil and nine are heavy oil fields, while 19 are gas fields producing condensate.

Since the first sanctions were eased, Total has been the only Western energy major invested in Iran, committing $1 billion at giant South Pars gas field. Total has a 50.1% stake in the 20-year South Pars project, with China National Petroleum Corp, holding 30% and Iran’s Petropars with 19.9%. However, Total will withdraw from the project, if it doesn’t get a waiver from the U.S.

In May, the U.S. administration withdrew from the landmark 2015 Iran nuclear deal (Joint Comprehensive Plan of Action), set to curb Iran’s nuclear program and reinstate financial sanctions on the Islamic Republic. The U.S. will institute the “highest level” of sanctions against Iran to get them to “zero” exports. According to the U.S., companies with ties to the U.S. that are doing business with Iran have 180 days to get out of oil deals with the Middle Eastern producer or face retaliation. This move will detract foreign investors, thus keeping the country’s output flat or lower through 2025. Iranian President Hassan Rouhani suggested his country would continue to abide by the agreement, but that it was now between Iran and the other signatories, China, France, Russia, UK and Germany and the EU.

In May 2018, the National Iranian Oil Co. (NIOC) signed a heads-of-agreement for a 10-year, $1.16-billion agreement with Pergas Resources International Ltd. to work on Karanj oil field in Khuzestan province. Karanj produces 127,000 bopd, and Iran plans to use gas injection to boost output to 200,000 bopd, with an ultimate recovery of 655 MMbbl of oil over 10 years.

UAE. The UAE announced plans to invest $109 billion in their E&P sector until 2022. The emirates pumped 2.89 MMbopd in June, 20,000 bopd more than in May, according to a Bloomberg survey. Crude and condensate exports rose to a nine-month high in June, on demand from Japan and China.

In July, government-run producer ADNOC said that it had “the ability to increase oil production by several hundred thousand barrels of oil per day,” should this be required to help alleviate any potential supply shortage in the market. ADNOC reportedly can pump as much as 3.3 MMbopd and is working to increase output capacity to 3.5 MMbopd.

In addition, Al Yasat Company for Petroleum Operations, a subsidiary of ADNOC, awarded an EPC contract for full development of the Bu Haseer field offshore, to Abu Dhabi’s National Petroleum Construction Company. ADNOC Upstream Director Abdul Munim Al Kindy said, “The award of the EPC contract, to further develop Bu Haseer, one of our most recent upstream developments, illustrates our commitment to growing production capacity and is part of our 2030 smart growth strategy, driving a more profitable upstream.”

Oman. Petrofac received a contract worth $265 million for development of the Marmul Polymer Phase 3 (MPP3) Project to boost oil output in southern Oman. This is the first award to be secured under a 10-year framework agreement with Petroleum Development Oman (PDO), signed in 2017.

In April, BP and Oman Oil Company began development of Ghazeer, the second phase of giant Khazzan gas field. This follows last year’s successful start-up of Khazzan’s first development phase. The project is now producing 1 Bcfd and around 35,000 bcpd. The project should go onstream in 2021 and produce an additional 0.5 Bcfd and over 15,000 bcpd. The Khazzan and Ghazeer developments are expected to produce a total of 10.5 Tcf of gas and around 350 MMbbl of condensate, according to BP.

Fig. 2. The LNG tanker <i>BROOG</i> in the port of Ras Laffan, northeast Qatar. Photo: Total.

In May, Total signed an MOU with the government to develop gas resources in the country. Total and Shell will develop several gas discoveries in the Greater Barik area on onshore Block 6, with respective shares of 25% and 75%. Initial gas production is expected around 500 MMcfd, with a potential to reach 1 Bcfd at a later stage.

Qatar. In September, the world’s biggest LNG producer announced plans to ramp up output, as competing supplies from Australia and the U.S. are also set to come to the market over the next decade. State-owned Qatar Petroleum will build four new liquefaction trains by 2025, up from a previously announced three, CEO Saad Sherida Al Kaabi told reporters in Doha. That will boost production to 110 million tons of LNG/year from 77 million currently. Qatar last year announced plans to boost capacity to 100 million tons within seven years, Fig. 2.

“The decision to increase output even more was driven by rising demand for gas and the good results obtained through recent additional appraisal and testing in North field,” said Al Kaabi, referring to Qatar’s portion of the giant offshore reservoir shared with Iran. Qatar’s total oil and gas production will reach an equivalent of 6.2 MMbpd when the expansion is complete, up from 4.8 million currently, he said. Qatar Petroleum plans to make its FID on the expansion by the end of 2019, and to reach its new 110-million-ton/year target in 2024, Al Kaabi said.

Kuwait announced plans to invest $112 billion over the next five years to boost production, in hopes of increasing oil capacity from 3.2 MMbpd at the start of this year to around 4 MMbpd by 2020. The country’s oil and gas sector accounts for about 40% of its GDP and about 92% of export revenues.

Energy ministers from Saudi Arabia, the UAE and Kuwait planned to meet in Kuwait to discuss OPEC matters, about a week after the Saudis and Russia announced a new policy to increase oil production. The UAE and Kuwait are the two countries, after Saudi Arabia and Russia, that will benefit the most from an agreed increase in production, because they have enough spare capacity.

NORTH AFRICA

Egypt. The country’s gas production has been in decline, falling from a 2009 peak of 5.8 Bcfd to 3.9 Bcfd in 2016, based on estimates compiled by World Oil. This is due to relatively low investment. Meanwhile, domestic demand for energy has grown, driven by economic growth, increased natural gas use for power generation, and energy subsidies, said the U.S. EIA. Oil production also was off 4.4%, at 614,500 bpd.

The West Nile Delta, Nooros, Atoll and Zohr fields were fast-tracked for development by the Egyptian government, Fig. 3. They have begun production, providing a substantial increase to Egypt’s natural gas supply. In addition, Eni announced a gas discovery 19 mi northwest of the Melehia concession. The discovery well was drilled on the Faramid South exploration prospect in the East Obayed concession. The well has been put on production, delivering 25 MMscfd. Eni produces 55,000 boed from the Egyptian Western Desert.

Fig. 3. The startup of a number of natural gas development projects located offshore, in the eastern Mediterranean Sea, near Egypt’s northern coast, has significantly altered the outlook for the region’s natural gas markets. Photo: EIA.

In August, SDX Energy announced that a successful production test had been conducted at its SD-3X appraisal well at South Disouq, Egypt (SDX 55% WI and operator). The well flowed at a maximum rate of 16.1 MMscfd during an 8-hr clean-up period. South Disouq is a 492-mi² concession, located 40 mi north of Cairo.

In September, production capacity at the Zohr project, developed by the consortium of Eni, Rosneft, BP and Mubadala, together with Egyptian companies, was increased more than 25% to greater than 2 Bcfd. The increase was achieved through the commissioning of the fifth gas train at the site, as well as start-up of the second export pipeline and new wells. The field is expected to reach production capacity of 2.7 Bcfd by the end of 2019. During first-half 2018, 109.5 Bcf of gas were produced at the field.

Algeria holds the world’s third-largest, technically recoverable, unconventional gas reserves, with about 707 Tcf of shale gas resources, according to EIA. This contrasts with conventional reserves of 14.6 Bbbl of oil and 151.1 Tcf of gas. Oil and condensate output averaged 1.305 MMbpd during 2017.

The head of the country’s state-owned oil and gas company, Sonatrach, is telling IOCs that Algeria is looking to attract more foreign investment to help tap its rich shale reserves. Sonatrach first met with Exxon Mobil about a new partnership in January, according to Abdelmoumen Ould Kaddour, the company’s CEO. Since then, the companies have sat down together several times. Ould Kaddour hopes to iron out a deal by the end of the year.

“We need a lot more companies to come explore,” Ould Kaddour said in an interview at the World Gas Conference in Washington. “We’re talking to all the big companies.” Sonatrach is responsible for 90% of oil and gas E&P in Algeria, but Ould Kaddour wants to change that. He hopes that Sonatrach will ultimately get help from partners for about half of all its drilling activity.

Sonatrach, Total, Repsol and Alnaft signed a new 25-year concession contract to extend exploitation of Tin Fouyé Tabankort (TFT) gas and condensate field. This new contract gives Total a 26.4% interest alongside Sonatrach (51%) and Repsol (22.6%). The partners will carry out the drilling and development required to develop additional reserves estimated at more than 250 MMboe.

In addition, Sonatrach and Eni signed an agreement for the Berkine basin. In combination with the existing assets of Blocks 403 and 405b, the aim is to create a gas hub in the area. This agreement strives to develop an ambitious program to relaunch exploration and development in the area, by optimizing existing infrastructure and putting them in synergy with the ones newly built—a 112-mi line that will quickly connect existing assets, transforming them into the Berkine basin’s main gas hub. Eni CEO Claudio Descalzi, commented, “This is a further step forward in the strategic expansion of our upstream activities in Algeria, and in Eni’s renegotiation of long-term gas supply contracts.”

In addition, Pertamina Algeria EP awarded Bonatti a $98.7-million EPC contract for a gas capacity increase project for Menzel Lejmet North (MLN) field, in the north of Block 405a, about 149 mi southeast of Hassi Messaoud. The field consists of five structures—MLN, KMD, MLC, MLNW and MLW—with 46 wells, including 29 producers and 17 gas injectors.

Libya is investing more cautiously in E&P, having suffered inconsistent output, due to regular production outages caused by civil unrest and geopolitical tensions. While different operations in the country were hit, net output has improved after a restarting of the 330,000-bpd Sharara field, with further increases expected following National Oil Corp.’s (NOC) $450-million acquisition of Marathon’s 16.3% stake in the 300,000-bpd Waha Oil consortium. As a result, Libya’s production returned to 1 MMbopd this year for the first time since 2013.

Libya holds Africa’s largest proven reserves of crude oil, at 48.4 Bbbl. The nation pumped about 970,000 bopd in August, an increase of 310,000 bopd from July. Even so, the output level is far below the 1.6 MMbopd produced prior to the 2011 uprising against the late Muammar al-Qaddafi, former ruler of Libya.

In September, oil production climbed as high as 1.278 MMbopd, the most since 2013, said NOC Chairman Mustafa Sanalla. If sustained for the whole month, that would be an increase of about 600,000 bopd since June, keeping pace with the drop in Iranian exports over the same period. Output could go even higher, if the security situation improves, Sanalla said, but numerous threats remain.

Tunisia. State firm ETAP said that two 3D surveys were run in first-half 2018, covering 198 mi². In addition, two 2D seismic surveys were run on two permits, and 252 mi were acquired. ETAP said that it drilled the Jebel Kebir-2 well (Kb-2) on the Nord des Chotts permit during March and April this year. In March, Xodus Group delivered a decommissioning and abandonment study for wells, surface and subsea facilities in Tunisia on behalf of Thyna Petroleum Services (TPS). In August, DNO completed the sale of its Tunisia assets to Panoro Energy. Tunisian oil output averaged 38,698 bpd during 2017, down 15.4% from 2016’s level.