7 minute read
Middle East Energy Review
By Tsvetana Paraskova
OPEC+ decided to proceed with its monthly production increases, Saudi Arabia cut the prices of its oil to Asia, OPEC believes the market will be well-supported through 2022, companies signed major oil, gas, and renewable development deals, and an attack on the United Arab Emirates (UAE) marked the first weeks of the New Year in the Middle East’s energy sector.
OPEC+ continues to unwind cuts
The OPEC+ group of oil producers decided in early January to proceed unwinding the collective oil output cuts by another 400,000 barrels per day (bpd) in February, signaling confidence in global oil demand despite the Omicron wave of record-high COVID cases in many countries.
So in February, the OPEC+ group will be allowed to pump up to 40.894 million bpd, of which 24.808 million bpd for the ten OPEC members of the OPEC+ pact and 16.086 million bpd for the non-OPEC producers part of the deal.
Yet, analysts have been warning for weeks that many members in the OPEC+ group, especially African OPEC members, do not have the capacity to increase their production and pump to their quotas. This will lead to fewer actual barrels coming on the market than the 400,000-bpd planned monthly production increase from OPEC+.
Moreover, higher production has started to shrink the spare capacity globally, most of which is located in the Middle East—another bullish factor for the oil market these days.
Following the OPEC+ meeting, Saudi Arabia reduced its official selling prices (OSPs) to Asia for February, having hiked those prices in the two previous months. All Saudi grades sold in Asia in February will see their official selling prices reduced by between $1.00 and $1.30 per barrel. Industry officials had widely expected a cut in Saudi prices for Asia for February, after the large increase n OSPs for January.
OPEC confident in oil demand in 2022
OPEC expects the oil market to be wellsupported through 2022, despite the Omicron wave and the expected monetary tightening of major central banks, including the Fed, the organization said in its Monthly Oil Market Report (MOMR) on 18 January.
OPEC left its global oil demand growth forecast for 2022 unchanged at 4.2 million bpd, expecting average global consumption to reach 100.8 million bpd and exceed pre- COVID levels.
The impact of the Omicron variant on oil demand turned out weaker than OPEC had expected, the cartel said and adjusted its oil demand forecast for the fourth quarter of 2021 higher, “mainly to account for strongerthan-expected demand in Americas and the Asia Pacific and despite the emergence of the new COVID -19 variant (Omicron).”
OPEC said in its monthly report for January.
For yet another month, OPEC’s production increase was lower than what it is entitled to under the deal, per secondary sources in the organization’s report. OPEC’s crude oil production rose by 170,000 bpd in December, lower than the 253,000-bpd allowed monthly increase under the OPEC+ agreement.
Houthi attack on UAE raises risk premium in oil
An attack on the United Arab Emirates (UAE), claimed by the Iran-aligned Houthi rebels in Yemen, raised the geopolitical risk premium from the Middle East as the market started fretting about renewed tensions in the region and a possible effect of those tensions on the ongoing talks in Vienna about the US and Iran returning to the so-called nuclear deal.
An attack with drones on 17 January, for which the Houthis claimed responsibility, killed three people, and blew up fuel tanker trucks near storage facilities owned by the Abu Dhabi National Oil Company (ADNOC).
The three victims were employees at ADNOC, the company confirmed in a statement, adding that “We are working closely with the relevant authorities to determine the exact cause and a detailed investigation has commenced.”
The attack, alongside simmering tensions between Russia and the West over Ukraine, pushed oil prices to the highest since October 2014 as market participants moved their focus from the (so far unfounded) Omicron threat to oil demand to the geopolitical risk premium in prices.
Deals & projects
Shell, along with its partners, OQ and Marsa Liquefied Natural Gas LLC, a joint venture between TotalEnergies and OQ, signed at the end of 2021 a concession agreement with Oman to develop and produce natural gas from Block 10. The parties also signed a separate gas sales agreement for gas produced from the block.
said Wael Sawan, Shell Integrated Gas, Renewables and Energy Solutions Director.
ADNOC announced in early January the award of a $946 million Engineering, Procurement, and Construction (EPC) contract for the strategic long-term development of its Umm Shaif field. The investment supports ADNOC’s plan to boost its oil production capacity to 5 million bpd by 2030, as the scope of the award covers engineering, procurement, fabrication, installation, and commissioning activities required to maintain Umm Shaif’s 275,000- bpd crude oil production capacity, increase efficiencies, and enhance the field’s longterm potential.
ADNOC and Abu Dhabi National Energy Company PJSC (TAQA) have also announced a $3.6 billion strategic project to significantly decarbonize ADNOC’s offshore production operations. The project will see the development and operation of a first-of-its-kind high-voltage, direct current (HVDC-VSC) subsea transmission system in the Middle East and North Africa region. The system will power ADNOC’s offshore production operations with cleaner and more efficient energy, delivered through the Abu Dhabi onshore power grid, owned and operated by TAQA’s transmission and distribution companies.
TotalEnergies, Masdar, and Siemens Energy announced on 19 January a collaboration agreement to act as co-developers in a Masdar-led demonstrator plant project focused on green hydrogen to produce sustainable aviation fuel (SAF).
“In this project, TotalEnergies brings its expertise in renewables energy as well as SAF manufacturing and marketing advanced sustainable fuel production with the aim of acting directly on the carbon intensity of the energy products used by our customers,” said Francois Good, Senior Vice President, Refining and Petrochemicals Africa Middle East and Asia at TotalEnergies.
McDermott International said on 10 January it had won a mega offshore contract from QatarEnergy to deliver engineering, procurement, construction and installation (EPCI) for the North Field East (NFE) Topsides and the North Field East (NFE) Offshore Pipelines and Subsea Cables projects. The North Field East development is vital to Qatar’s plans to boost its LNG processing and export capabilities.
bp and the Ministry of Energy and Minerals in Oman signed on 17 January a Strategic Framework Agreement (SFA) and a Renewables Data Collection Agreement which will support the potential development of a multiple gigawatt, world-class renewable energy and green hydrogen development in Oman, by 2030.
“Today’s agreement represents what bp is able to offer as an integrated energy company. These projects will build on our gas business, and bring wind, solar and green hydrogen together in a distinctive and integrated way supporting Oman’s low carbon energy goals,” bp’s chief executive Bernard Looney said.
Saudi Aramco, the world’s largest oil company and single largest oil exporter globally, announced the acquisition of 30 % in a 210,000 barrels per day refinery in Gdansk, Poland, 100 % in an associated wholesale business, and 50 % in a jet fuel marketing joint venture with bp. The investment of Saudi Arabia’s oil giant is an expansion of its downstream activities in Europe in a region traditionally dominated by oil supplies from Russia.
the Saudi company said.
