Middle East Review

The threat to international shipping in the Red Sea from attacks on vessels bound for the Suez Canal has grown in recent weeks and cargo shipping firms and international oil majors have been on edge since attacks from the Iran-aligned Houthi rebels intensified in the middle of December.

Threat to Shipping throughthe Red Sea

UK oil supermajor bp said in December it was pausing all shipments through the Red Sea following the spate of attacks on commercial vessels in the area earlier in the month.

Major container shipping groups, including Maersk Tankers, A.P. Moller - Maersk, Hapag-Lloyd, MSC, CMA CGM, and Evergreen, have also rerouted vessels away from the Suez Canal, sending them on the longer journey via the Cape of Good Hope south of Africa. The longer route has the potential to roil global supply chains again as delivery times and costs are set to increase, stoking inflation just as major central banks, including the Fed, signalled that interest rate cuts were in the cards for 2024.

The attacks prompted the United States to announce the establishment of Operation Prosperity Guardian, a new multinational security initiative under the umbrella of the Combined Maritime Forces and the leadership of its Task Force 153, which focuses on security in the Red Sea.

“The Red Sea is a critical waterway that has been essential to freedom of navigation and a major commercial corridor that facilitates international trade,” US Secretary of Defense Lloyd Austin said in a statement.

Royal Navy Destroyer HMS Diamond has joined the Operation Prosperity Guardian task force to protect merchant shipping in the Red Sea and Gulf of Aden, the UK government said.

Despite the task force, attacks continued into the new year and forced A.P. Moller – Maersk to announce a decision topause all vessels bound for the Red Sea / Gulf of Aden in light of an incident involving Maersk Hangzhou and ongoing developments in the area.

“The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level. We have therefore decided that all Maersk vessels due to transit the Red Sea / Gulf of Aden will be diverted south around the Cape of Good Hope for the foreseeable future,” A.P. Moller – Maersk said in an updateon 5 January.

“While we continue to hope for a sustainable resolution in the near-future and do all we can to contribute towards it, we do encourage customers to prepare for complications in the area to persist and for there to be significant disruption to the global network.”

As 2024 began, Iran upped the ante in the area, sending a warship to the Red Sea, after the US Navy destroyed three boats used by the Houthis.

Despite the rising tensions in the Middle East, oil prices did not move above $80 per barrel in the first week of 2024, as concerns about economies, rising inventories, and surging non-OPEC+ crude oil production offset geopolitical risks.

OPEC Expects Rising Non-OPEC Supply

OPEC, the organization led by Saudi Arabia and other major oil producers in the Middle East, also acknowledged the higher-than-expected supply from the United States and other producers that are not part of OPEC or the wider OPEC+ group in its Monthly Oil Market Report (MOMR) for December.

OPEC noted in the report that “US crude and condensate production as well as NGL output continue to reach new highs. Total US liquids output reached a record 21.6 mb/d in September due to persistent outperformance of onshore and offshore production.”

OPEC expects US liquids supply to grow by 1.3 million bpd in 2023.
The non-OPEC liquids supply growth forecast remained unchanged at 1.8 million bpd for 2023, driven by the US, Brazil, Kazakhstan, Norway, Guyana, Mexico, and China, the cartel said.

For 2024, non-OPEC liquids production is expected to expand by 1.4 million bpd, broadly unchanged from the previous month’s assessment. The main drivers for liquids supply growth this year are expected to be the US, Canada, Guyana, Brazil, Norway, and Kazakhstan. In addition to the US shale basins, accounting for about 48 percent of expected non-OPEC liquids supply growth, offshore project ramp-ups are expected to substantially support growth in 2024, OPEC said.

The organization also maintained its oil demand growth forecasts for 2024, citing better-than-expected economic performance in 2023 and blaming “exaggerated concerns about oil demand growth” for the slump in oil prices in December.    

For 2024, OPEC expects world oil demand growth at 2.2 million bpd, for an average of 104.4 million bpd, unchanged from the November assessment.

“Oil demand is expected to be supported by resilient global GDP growth, amid continued improvements in economic activity in China,” the cartel said.

“Continuous improvements in economic activity, steady manufacturing, and transportation activity mostly in China, Other Asia, and the Middle East, as well as in India and Latin America, are expected to account for the bulk of oil consumption,” according to OPEC.

Deals and Projects

In company and project news, Abu Dhabi National Oil Company (ADNOC) entered into a sale and purchase agreement with OCI Global, under which ADNOC would buy OCI’s entire majority shareholding in Fertiglobe plc, the world’s largest seaborne exporter of urea and ammonia combined, the largest nitrogen fertilizer producer in the Middle East and North Africa, and an early mover in sustainable ammonia, with production facilities in Egypt, Algeria, and the United Arab Emirates (UAE).

ADNOC also signeda 15-year Heads of Agreement with ENN LNG (Singapore) Pte. Ltd. for the delivery of at least 1 million metric tons per annum (mmtpa) of LNG—the first long-term LNG deal from the Ruwais Low-Carbon LNG Project. The LNG will primarily be sourced from ADNOC’s low-carbon Ruwais LNG project, which is currently under development in Al Ruwais Industrial City, Abu Dhabi. The deliveries are expected to start in 2028, upon commencement of the facility’s commercial operations.  

QatarEnergy, the state firm of Qatar, has signed a five-year crude oil supply agreement with Shell’s unit Shell International Eastern Trading Company, Singapore, to supply up to 18 million barrels per year of Qatar Land and Qatar Marine crude oils to Shell starting January 2024.

“This agreement further strengthens QatarEnergy’s relationship with Shell, which is not only a reliable crude oil off-taker, but also a major customer and a strategic partner of QatarEnergy. We look forward to building on our historic relationship and hope we achieve greater success with Shell,” said Saad Sherida Al-Kaabi, Qatar’s Minister of State for Energy Affairs and President and CEO of QatarEnergy.

QatarEnergy and Shell have a long-standing strategic partnership through several shared investments in the energy industry in Qatar and globally, including in QatarEnergy LNG projects and the Pearl GTL Plant.

Saudi Arabia’s oil giant Aramco said that its Yanbu Refinery had become the fourth Aramco facility to be added to the World Economic Forum (WEF) Global Lighthouse Network, having been recognised for its pioneering deployment of cutting-edge technologies to deliver a range of operational, commercial and environmental benefits.

Only manufacturing facilities that can demonstrate the successful adoption of Fourth Industrial Revolution (4IR) technologies at scale are considered for inclusion in the Network. Yanbu Refinery is Aramco’s fourth facility to be included, joining the Abqaiq oil processing and crude stabilization facility, the Uthmaniyah Gas Plant, and the Khurais oil complex.

Saudi Aramco has also signed definitive agreements to buy a 40-percent equity stake in Gas & Oil Pakistan Ltd, a downstream fuels, lubricants and convenience stores operator, which is one of the largest retail and storage companies in Pakistan.

The planned acquisition is Aramco’s first entry into the Pakistani fuels retail market, advancing the oil giant’s strategy to strengthen its downstream value chain internationally. The deal would enable Aramco to secure additional outlets for its refined products and further provide new market opportunities for Valvoline-branded lubricants, following Aramco’s acquisition of the Valvoline Inc. global products business in February 2023, the Saudi firm said.

Read the latest issue of the OGV Energy magazine HERE