OGV Energy's Middle East Energy Review

The OPEC+ group dominated by Middle Eastern oil producers decided in early November to add 400,000 barrels per day (bpd) to its monthly production in December, ignoring calls from the US Administration and other major consuming nations to boost supply more to tame high oil and petrol prices that could slow the global economic recovery.

The leader of OPEC+, Saudi Arabia, raised by more than expected its official selling prices (OSPs) for December loadings, in a move suggesting that the largest crude oil exporter in the world believed the market would continue to tighten by the end of this year.   

The OPEC+ alliance, however, continues to pump below its target as several members of OPEC from Africa are struggling to raise production.

While the OPEC+ producers look to guide the oil market to balance in a still uncertain macroeconomic situation, the International Energy Agency (IEA) urged Middle Eastern producers to speed up clean energy transition efforts.

Finally, Abu Dhabi National Oil Company (ADNOC) announced several major deals in oil, gas, and renewables development. The announcements were made at the Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC), one of the world’s largest energy forums, which was held in person in the middle of November.

OPEC+ stays the course

The OPEC+ group decided in early November to stick to their monthly increase in production of 400,000 bpd for December, despite continuous calls from the United States and other major consuming economies to add more barrels to the market.

“The meeting reaffirmed the continued commitment of the Participating Countries in the Declaration of Cooperation (DoC) to ensure a stable and a balanced oil market, the efficient and secure supply to consumers and to provide clarity to the market at times when other parts of the energy complex outside the boundaries of oil markets are experiencing extreme volatility and instability, and to continue to adopt a proactive and transparent approach which has provided stability to oil markets,” OPEC said after the meeting on 4 November.  

Partially informing the OPEC+ decision was the expected surplus on the oil market in early 2022, analysts and Middle Eastern energy officials say.

Yet, data from OPEC’s monthly reports and from vessel-tracking firms in recent months have suggested that OPEC and the OPEC+ group are actually pumping and exporting lower volumes of crude than the 400,000 bpd increase they add each month. This has been the result of some African OPEC members, including Nigeria and Angola, struggling to raise their respective oil production because of a lack of capacity and underinvestment in recent years.  

The under-production of the collective quota of OPEC+ has raised questions about how much spare capacity the group has left and how much further it would be willing to reduce that capacity over the next year.

Saudi Arabia Hikes Prices for its Crude  

Days after the OPEC+ meeting, Saudi Arabia announced a much larger-than-expected increase in the prices of its crude in December to all customers. Saudi Aramco aggressively raised the price of its flagship Arab Light crude grade to Asia for December by $1.40 per barrel to a premium of $2.70 a barrel over the Oman/Dubai average, the benchmark off which Middle East’s crude oil exports to Asia are being priced.

“The price increments are much higher than market expectations and give a bullish signal on supply tightness,” ING strategists Warren Patterson and Wenyu Yao said, commenting on the Kingdom’s price hike.

OPEC cuts 2021 global oil demand outlook, leaves 2022 view unchanged

A week later, OPEC said in its Monthly Oil Market Report (MOMR) for November that slower than expected demand from China and India in the third quarter and higher energy prices would slow the pace of recovery in the fourth quarter. In mid-November, OPEC expected oil demand growth in 2021 at 5.65 million bpd over 2020, down from 5.82 million bpd growth expected in the previous month’s report.

Yet, OPEC left its estimates for 2022 unchanged—the organisation still expects global oil demand to grow by 4.2 million bpd in 2022 compared to 2021. Total oil demand next year is estimated to reach 100.6 million bpd, some 500,000 bpd above the pre-COVID levels in 2019.

ADNOC signs deals to raise oil, gas, renewables output

ADNOC, which pumps nearly all the oil in OPEC’s third-largest producer, the United Arab Emirates (UAE), announced on 16 November record investments worth up to nearly $6 billion (AED22 billion) to enable drilling growth as it looks to boost its crude oil production capacity to 5 million bpd by 2030 and drive gas self-sufficiency for the UAE.  

The investments are in the form of procurement awards to top-tier contractors for Wellheads and related components, Downhole Completion Equipment (DCE) and related services, and Liner Hangers and Cementing Accessories, ADNOC said.

“ADNOC’s world record investments in drilling-related equipment underlines our commitment to responsibly unlocking our world-scale hydrocarbon resources and expanding our production capacity to continue providing the world with some of the least carbon-intensive barrels for decades to come,” said Dr. Sultan Ahmed Al Jaber, UAE Minister of Industry and Advanced Technology, and ADNOC Managing Director and Group CEO.  

ADNOC also awarded two engineering, procurement and construction (EPC) contracts totalling $1.46 billion (AED5.36 billion) for the Dalma Gas Development Project offshore the UAE. The two EPC contracts, awarded to National Petroleum Construction Company (NPCC) and a joint venture (JV) between Técnicas Reunidas and Target Engineering, include the construction of gas conditioning facilities, wellhead topsides, pipelines, and umbilicals.

The Dalma field is part of the Ghasha Concession, the world’s largest offshore sour gas development, which is expected to be a key driver of the plan for gas self-sufficiency, ADNOC said.

The UAE energy company signed a strategic partnership that confirms a $6.2 billion (AED22 billion) investment agreement between the company and Borealis AG to build the fourth Borouge facility - Borouge 4 - at the polyolefin manufacturing complex in Ruwais.  

Also at ADIPEC, ADNOC’s artificial intelligence joint venture with Group 42, AIQ, announced a strategic collaboration agreement with Baker Hughes to develop advanced analytics solutions for the global oil and gas industry.

Finally, ADNOC and Abu Dhabi National Energy Company PJSC (TAQA) – Abu Dhabi’s two energy giants – launched a new global renewable energy and green hydrogen venture. The companies aim to create a clean energy powerhouse, with a total generating capacity of at least 30 gigawatts (GW) of renewable energy by 2030, which is set “to position Abu Dhabi and the UAE at the forefront of the energy transition and further advance its global leadership role in green hydrogen,” ADNOC said.

The strategic partnership will focus on domestic and international renewable energy and waste-to-energy projects as well as the production, processing, and storage of green hydrogen and ancillary activities.  

Speaking at ADIPEC, Al Jaber of ADNOC said: “Today’s strategic partnership between two Abu Dhabi energy giants future-proofs ADNOC’s business model, creating compelling business and commercial opportunities, as we fully embrace the energy transition.”  

At the ADIPEC conference, IEA Executive Director Fatih Birol urged Middle Eastern producer economies to accelerate clean energy transition as he accepted a lifetime achievement award.

“More than at any other point in recent history, fundamental changes to the economic model of resource-rich countries look unavoidable. The future will look very different from the past,” Birol said in his acceptance speech.

“We need to deploy traditional strengths in support of economic diversification and low-carbon transformation. First movers – countries that take a proactive approach to this – could do especially well,” the IEA’s Executive Director noted. 

Read the latest issue of the OGV Energy magazine HERE