Middle East Energy Review October 2022

By Tsvetana Paraskova

The token output cut from the OPEC+ group, the Saudi warning of very low spare production capacity, and a number of deals and collaborations marked this past month’s oil and gas industry news flow from the Middle East.

OPEC+ Reverses Small Output Increase

At the meeting in early September, OPEC+ decided to cut their collective oil production target by 100,000 barrels per day (bpd) for October, reversing the increase of the same amount approved for September in early August. The energy ministers of the OPEC+ production pact agreed to return the targeted production levels to the August quotas, with OPEC saying that the 100,000-bpd increase was intended only for September.

“The Meeting noted that higher volatility and increased uncertainties require the continuous assessment of market conditions and a readiness to make

immediate adjustments to production in different forms, if needed, and that OPEC+ has the commitment, the flexibility, and the means within the existing mechanisms of the Declaration of Cooperation to deal with these challenges and provide guidance to the market,” OPEC said in a statement after the short meeting on 5 September.

The next OPEC+ meeting is scheduled to be held on 5 October

The small cut in the production target for October is actually quite irrelevant considering that OPEC+ is estimated to be more than 3.5 million bpd behind collective quotas.

But the more important outcome of the September meeting was the decision of the OPEC+ group to “request the Chairman to consider calling for an OPEC and non-OPEC Ministerial Meeting anytime to address market developments, if necessary.” This statement, analysts said, means that the group – and its de facto leader Saudi Arabia – could call an emergency meeting and take any steps it considers appropriate to stabilise the il market and prices.

The OPEC+ alliance, however, is nowhere close to reaching its oil production targets. The gap between the quota and the actual oil production from OPEC+ countries widened to as much as 3.58 million bpd in August, Argus reported in mid-September, citing delegates and OPEC data it had seen. In August, the two biggest laggards in production quotas were Russia of the non- OPEC group and Nigeria of OPEC, the data showed. Russia’s oil production was 1.25 million bpd below its target, while Nigeria was 700,000 bpd behind its quota. The underperformance in September is expected to be even higher because the group lifted its collective target by 100,000 bpd for the month of September.

Saudi Aramco Warns of Low Spare Capacity

Global spare capacity is at very low levels, mostly because of years of underinvestment in the oil and gas industry, Amin Nasser, chief executive at Saudi Arabia’s oil giant, Aramco, said at the Schlumberger Digital Forum on 20 September.

“These are the real causes of this state of energy insecurity: under-investment in oil and gas; alternatives not ready; and no back-up plan. But you would not know that from the response so far,” the CEO of the world’s biggest oil firm and top crude oil exporter said.

Commenting on the current energy crisis, Nasser said “oil inventories are low, and effective global spare capacity is now about one and a half percent of global demand.”

“Even with strong economic headwinds, global oil demand is still fairly healthy today. But when the global economy recovers, we can expect demand to rebound further, eliminating the little spare oil production capacity out there. And by the time the world wakes up to these blind spots, it may be too late to change course,” Aramco’s chief executive noted.

He also reiterated Saudi Arabia’s long-held view that the world needs a realistic energy transition plan which acknowledges the role of oil and gas as energy sources needed for decades to come.

“Because when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right,” Nasser said.

“Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away. And billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged,” he added.

Major Deals in the Middle East

Saudi Aramco and major oilfield services provider Schlumberger announced plans in September to collaborate and develop a digital platform that will provide sustainability solutions for hard-to-abate industrial sectors. The proposed platform will enable companies in industries such as oil and gas, chemicals, utilities, cement and steel to collect, measure, report and verify their emissions, while also evaluating different decarbonization pathways, Schlumberger said.

Saudi Arabian Investment Minister Khalid Al-Falih met Eni’s chief executive

In the United Arab Emirates, Abu Dhabi National Oil Company (ADNOC) awarded a $548 million (AED2.01 billion) contract to build a new main gas line at its Lower Zakum field offshore of Abu Dhabi. The award will increase Lower Zakum field’s gas production capacity from 430 million to 700 million standard cubic feet per day, supporting ADNOC’s plans to enable gas self-sufficiency for the UAE and cater for increasing global energy demand.

ADNOC has also awarded five framework agreements valued at $1.83 billion for Directional Drilling and Logging While Drilling (LWD) to support its efforts to expand production capacity of its low-carbon oil and gas resources.

ADNOC made its first shipment of low-carbon ammonia from the UAE bound for Hamburg, Germany—the first ever cargo of low-carbon ammonia to be shipped to Germany.

“Our collaboration with customers in Germany also underlines ADNOC’s ambitious growth plans for the production of clean hydrogen, and its carrier fuels such as ammonia, which will play a critical role in decarbonizing hard-toabate industrial sectors,” said Sultan Ahmed Al Jaber, UAE Minister of Industry and Advanced Technology and ADNOC Managing Director and Group CEO.

The top executives of ADNOC and Italy’s Eni discussed in Abu Dhabi in September further opportunities to help increase global gas supply security. The executives discussed the acceleration of the multi-billion-dollar Ghasha project, which is estimated to hold significant recoverable gas and is expected to produce more than 1.5 billion cubic feet of gas per day (bcfd) in addition to more than 120,000 barrels of high-value oil and condensates per day.

Petrofac said it had been awarded a twoyear Field Maintenance Services contract extension with ADNOC Group. Under the agreement, Petrofac will continue to support operations at the Haliba oil field, located onshore along the south-east border of Abu Dhabi, providing specialist personnel to maintain and support facilities.

In Qatar, QatarEnergy has selected TotalEnergies as the first international partner in the North Field South (NFS) expansion project, which comprises 2 LNG mega trains with a combined capacity of 16 million tons per annum (MTPA) and will raise Qatar’s total LNG export capacity to 126 MTPA.

QatarEnergy’s affiliates QatarEnergy Renewable Solutions and Qatar Fertiliser Company (QAFCO) signed agreements for the construction of the Ammonia-7 Project, the industry’s first world-scale and largest Blue Ammonia project.

“Our investment in this project speaks to the concrete steps we are taking to lower the carbon intensity of our energy products, and is a key pillar of QatarEnergy’s sustainability and energy transition strategy,” said Saad Sherida Al-Kaabi, the Minister of State for Energy Affairs, President and CEO of QatarEnergy.

QatarEnergy also signed a Memorandum of Understanding (MoU) with General Electric (GE) to collaborate on developing a carbon capture roadmap for the energy sector in Qatar. The focus of the MoU is to explore the feasibility of developing a world-scale carbon hub at Ras Laffan Industrial City, which as of today, is home to more than 80 GE gas turbines.

The roadmap will target to develop a carbon capture and sequestration hub in Qatar, utilize low-carbon fuels such as hydrogen in GE gas turbines to reduce carbon emissions, and explore the potential of using ammonia as a fuel in GE gas turbines globally.

Minister Khalid Al-Falih