Middle East Oil & Gas Review

Saudi Arabia’s surprise new production cut, OPEC+ dynamics, and Qatar’s new long-term LNG deal with China were the highlights of the oil and gas sector in the Middle East in the past month.

OPEC+ Extends Cuts Through 2024

The OPEC+ group agreed in early June to extend the ongoing crude oil production cuts until the end of 2024 and tweaked the quotas for African OPEC members Nigeria and Angola, who have long been underperforming compared to their quotas. One of the biggest producers in the Middle East, the United Arab Emirates (UAE), got its output quota raised by around 200,000 barrels per day (bpd) for 2024, to 3.219 million bpd. The production level for Russia, which was at par with the Saudi quota until June, was lowered to 9.828 million bpd in view of its pledge to cut 500,000 bpd and the effect of the Western sanctions on Russia’s oil industry. Saudi Arabia will have a quota of 10.478 million bpd for next year, the OPEC+ ministerial meeting decided.

The OPEC+ meeting also decided to grant the Joint Ministerial Monitoring Committee (JMMC) the authority to hold additional meetings, or to request an OPEC and non-OPEC Ministerial Meeting at any time to address market developments, whenever deemed necessary.

Saudi Arabia Surprises The Market Again

While the OPEC+ alliance collectively decided to extend the current cuts – originally planned to end in December 2023 – into next year, the biggest producer in OPEC and the world’s largest crude oil exporter, Saudi Arabia, announced a unilateral voluntary cut of 1 million bpd for July 2023, “to support the market.” The Saudi cut could be extended beyond July, Saudi Energy Minister Prince Abdulaziz bin Salman said.

After the OPEC+ meeting in Vienna on June 4, Prince Abdulaziz bin Salman said, referring to Russia, “We discussed with Russia the issue of its production and asked it to clarify its data, and we have strengthened the concept of transparency with Russia about its oil production figures.”

Some analysts saw in the unilateral decision from Saudi Arabia a reluctance from other OPEC and OPEC+ producers to continue cutting production in order to support market balances and oil prices.

Neither Saudi Arabia nor OPEC admit they are aiming at a specific price of oil, but estimates from the International Monetary Fund (IMF) showed earlier this year that the Saudis needed at least $80 per barrel oil to balance their budget for 2023.

Between mid-April and the end of June, Brent oil prices lingered in the mid- to low-$70s per barrel, due to concerns about the global economy and the possibility that recessions would depress oil demand while economic data out of China pointed to an uneven recovery.

The latest Saudi cut could also suggest that the Kingdom is worried about lower-than-expected demand, some analysts say.

Some traders and analysts have interpreted the proactive Saudi cut as an admission that demand may not be as strong as initially expected.

But others believe the production cut will tighten the market so much in the second half of the year that prices will rise toward the end of 2023 to above $80 per barrel, and even $90 and $100.

A day after the OPEC+ meeting and the surprise Saudi cut, the Kingdom surprised the market again by raising the official selling price (OSP) of its flagship crude grade Arab Light for July for Asia by $0.45 per barrel to a premium of $3.00 over the Oman/Dubai average, off which Middle East crude for Asia is priced.

The price hike from Saudi Arabia was unexpected; Asian refiners had expected lower prices for Arab Light in July in a Reuters poll. The poll, however, was carried out before the OPEC+ meeting at which Saudi Arabia said it would cut production in July.

OPEC Affirms Oil Demand Outlook Despite Higher Economic Uncertainty

A week later, OPEC affirmed its forecast of global oil demand growth for 2023, but warned of increased economic uncertainties stemming from inflation and higher interest rates.

In its closely-watched Monthly Oil Market Report (MOMR) for June, OPEC said it expected global oil demand to grow by 2.35 million barrels per day (bpd) this year. The growth forecast was essentially unchanged from the 2.33 million bpd estimate in the previous month’s report.

Most of the oil demand growth will come from non-OECD economies, where oil demand is expected to rise by around 2.3 million bpd, while OECD oil demand will increase by only 50,000 bpd, OPEC said in the latest report.

The organisation kept its oil demand growth forecast for 2023 unchanged for a fourth straight month, but warned of higher risks for the global economy. Economic growth is expected at 2.6 percent this year, unchanged from the May report, but OPEC noted that “While economic activities have been steady so far in the 1H22, the global economy continues to navigate through uncertainties including high inflation, higher interest rates in the US and the Euro-zone, and high debt levels in many regions.”

“There are rising uncertainties regarding economic growth in 2H23 amid ongoing high inflation, already elevated key interest rates and tight labour markets,” OPEC said.

“Moreover, it is still unclear as to how and when the geopolitical conflict in Eastern Europe might be resolved,” the cartel said, referring to the Russian invasion of Ukraine.

So far this year, the positive effects of China’s reopening have continued to support global economic growth, and the resilient US growth has also helped.

In the second half of 2023, oil demand in the non-OECD is forecast to grow on average by 2.2 million bpd year-on-year, with China remaining the largest contributor to demand growth, OPEC noted.

Upsides to the economic and oil demand growth could come from “an even stronger-than-anticipated rebound in China” as well as the US keeping the growth momentum and managing at the same time a soft landing after all the rate hikes, OPEC said.

Middle East Company Deals

In company news, the United Arab Emirates’ Ministry of Industry and Advanced Technology (MoIAT) announced it had supported a strategic collaboration agreement between ADNOC, John Cockerill Hydrogen, and Strata Manufacturing, to manufacture electrolysers in the UAE for local use and for export.

“The agreement will be particularly beneficial to the field of hydrogen, which represents one of the most important future industries and underpins a greener economy,” said Omar Al Suwaidi, Undersecretary of the UAE’s Ministry of Industry and Advanced Technology.

In Qatar, state-owned firm QatarEnergy celebrated in early June the steel cutting of the first of its new generation of chartered LNG vessels to be constructed in a Korean shipyard.QatarEnergy decided in 2020 to enter into Ship Slot Reservation Agreements with three Korean shipyards: Samsung Heavy Industries, Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering. In 2022, QatarEnergy signed multiple Time Charter Parties with various shipowners, including affiliates of JP Morgan Asset Management, a fund investing in a wide array of transportation assets.

In late June 2023, QatarEnergy signed definitive agreements with China National Petroleum Corporation (CNPC) for the long-term supply of LNG to China and partnership in the North Field East LNG expansion project (NFE).

Under the agreements, QatarEnergy will deliver 4 million tons of LNG per annum from the NFE project to CNPC’s receiving terminals in China over a span of 27 years, which is the industry’s longest-term sales and purchase agreement. The two parties also signed a share sale and purchase agreement pursuant to which QatarEnergy will transfer to CNPC a 5-percent interest in the equivalent of one NFE train with a capacity of 8 million tons per annum. This transfer will see CNPC become a partner in the NFE project and will not affect the participating interests of any of the other shareholders in the project, the Qatari firm said.

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Themed Zone

Skills and Training for the Energy Industry of the Future

By Tsvetana Paraskova

Skilled and trained workforce is critical to global energy supply now and will continue to be key in the energy transition as more renewable energy sources are being deployed around the world. The right skill set and proper training or retraining can ensure smoother transition for both the energy industry and the employees.

Currently, there are skills gaps in data science and digitalisation in the energy industry, while another gap is emerging in the talent pool for the renewable energy industry. Oil and gas workers are generally paid more than those in renewables which does not help the clean energy sector attract skilled talent from the fossil fuels sector.

The renewable energy industry needs hundreds of thousands of skilled workforce if the UK, the EU, or the US have a chance to meet net-zero goals and install much higher solar and wind power capacity than they are currently having installed.

Safety and Skills

The keys to the UK’s vision for the energy industry in 2030 are safety, skills, and sustainability, according to Alex Spencer, Director of Operations at OPITO, the global skills body for the energy industry.

While the UK has a target of having 50 gigawatts (GW) of offshore wind installed by 2030, with up to 5 GW coming from floating offshore wind, oil and gas will continue to deliver the energy it needs, and in a more sustainable way, Spencer wrote in an opinion piece at the end of May.

“For us, safety is the number one issue in any vision of the energy industry’s future. It is essential to ensure that our workforce has the right training and that this training has safety at its core,” Spencer noted.

“Our health and safety record across high risk industries is now one of the best in the world. But we must never become complacent. Quite simply, we want to ensure that our 2030 energy workforce can continue to go to work and come home safely to their families.”

Skills and Net Zero

Earlier this year, OPITO and the Aberdeen-based National Energy Skills Accelerator (NESA) announced a partnership aimed at providing clarity and support to both the workforce and employers looking to maximise the opportunities presented by the energy transition.

NESA is a collaborative initiative between Robert Gordon University, the University of Aberdeen and North East Scotland College and is supported by key partners Skills Development Scotland and Energy Transition Zone Ltd.

“The collaborative Energy Skills Passport project is being delivered through a £5 million grant from the Scottish Government’s Just Transition Fund and aims to streamline the transfer of skills and address the lack of recognition of cross-sector skills,” OPITO said in February.

“The Passport will display an individual worker’s current qualifications and the required credentials to transition into another energy sector, supporting oil and gas workers move to another energy sector.”

John McDonald, CEO of OPITO, said,

“We recognise that there is much to do to streamline the skills landscape and ensure training is safe, effective and accessible to meet the demands of an integrated energy sector. Meeting this challenge will require renewed focus on collaboration and that is why our partnership with NESA is an important step to realising this ambition.”

Despite the higher skill requirements in most cases, jobs in renewables are not paying more than high-carbon jobs, which “is problematic for attracting workers into low-carbon jobs,” a study by London School of Economics’ Grantham Research Institute has found recently.

By comparing job vacancy data from the US and UK, the study found that across the US and UK, jobs in clean energy have greater requirements for technical, managerial, and social skills compared with other jobs. Low-carbon jobs require higher-level IT and cognitive skills too, which are also in high demand due to the ongoing digital transformation.

“The emerging skill gap resulting from the low-carbon transition is therefore larger and broader than previously considered,” the authors of the study noted.

Moreover, “The lack of a positive wage premium in recent years despite these jobs having higher skill requirements is problematic for attracting workers into low-carbon jobs,” according to the study.

Net Zero and Skills/Wage Gap

Across Europe, a skills gap could be a constraint in the energy transition.

For example, the WindEurope association said in April that the offshore wind workforce in Europe alone would need to grow from 80,000 today to 250,000 by 2030 if Europe wants to achieve its energy transition and offshore wind installation targets.

“Investments alone don’t manufacture blades, navigate vessels or operate wind farms. Above all, national Governments must support build up the necessary skills base,” the association added.

To address the shortage of talent, renewable energy trade associations and representatives of installers of clean technologies, with the support of the European Commission, have set up a large-scale skills partnership for the renewable energy industries.

In 2020, around 1.3 million people were employed in the EU renewable energy sector, but if the EU wants to meet its target under the REPowerEU plan, it will require the creation of over 3.5 million jobs by 2030, the European Commission said.

In the UK, the government is funding training courses and programmes to boost numbers of skilled retrofit, energy efficiency and heat pump installers.

In offshore wind, the UK has the advantage of an early-mover, but unless development and approval processes are sped up, and the skills and expertise of the existing offshore oil and gas workforce are transferred, the UK could lose this advantage, Offshore Energies UK’s Supply Chain and People Director Katy Heidenreich says.

“We must work together to engineer for a successful, sustainable energy future that not only builds on our current offshore energy skills, but harnesses our existing supply chain for a healthy, diverse energy future,” Heidenreich added.

The UK’s existing offshore wind workforce has increased to over 32,000, including more than 17,000 direct jobs and nearly 15,000 indirect jobs, a new report by the Offshore Wind Industry Council (OWIC) showed in June. In the short-to-medium term, a rapid growth in jobs is needed as several offshore wind farms progress to the construction phase – 88,509 jobs are forecast to be required by 2026, which is over 56,000 more than today’s workforce.

The industry will require 104,401 people by 2030 to meet current targets – an increase of 6,936 since last year’s forecast, OWIC says.

“To ensure we can meet the existing ambition, it’s essential for us to work right across our own industry, across adjacent industries with transferrable skills, and with the next generation, to make offshore wind an attractive career choice for people from the widest range of backgrounds and with a whole variety of different skill sets,” said Jane Cooper, Director of Offshore Wind at RenewableUK, commenting on the report.

Earlier this year, a survey by UK-based Energy Systems Catapult showed that there is a digital and data skills gap in the energy sector.

At least 40 percent of surveyed businesses in the energy sector found it difficult to hire data scientists with the skills needed to meet the challenges of a data-led future, the survey found. 39 percent of companies in the energy sector had teams of four or fewer data scientists, while 68 percent of the data science teams were created in the past five years.

Among data scientists, 95 percent believe the most common modelling technique implemented is forecasting.

Survey respondents highlighted the relative immaturity of the adoption of data science within the energy industry in comparison to other sectors such as FinTech, for example.

“This is despite an increasing need and demand for the technical skills and experience of data scientists to overcome the challenges faced by organisations in the pursuit of Net Zero,” Energy Systems Catapult said.

“We expect that as the opportunities from the energy sector become more evident, there will be a rapid uptick in organisations trying to build their data capabilities. We have already witnessed the gradual occurrence of this over the last five years, and as this is ramped up, it will put further stress on recruitment and training,” said Dr Stephen Haben, Digital & Data Consultant at Energy Systems Catapult.

“If we do not demonstrate the exciting challenges facing the industry or provide the necessary upskilling to the next generation of data scientists, then the energy industry risks losing out to other sectors such as social media and FinTech,” Haben added.

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