OGV Energy's Middle East Energy Review

The surprise decision of the OPEC+ alliance in early March and a flurry of oil and gas contracts and strategic agreements signed by some of the biggest companies in the Middle East were the key developments in oil and gas in the region this past month.

OPEC+ Surprises Oil Market

OPEC and its non-OPEC partners led by Russia decided on 4 March to keep their collective oil production nearly flat in April, compared to March. The ministers of the OPEC+ group decided to roll over the production levels of March for the month of April, with the exception of Russia and Kazakhstan, which will be allowed to increase production by 130,000 barrels per day (bpd) and 20,000 bpd respectively, due to continued seasonal consumption patterns. In addition, Saudi Arabia will keep its unilateral extra cut of 1 million bpd into April, although it had initially said the additional cut would only last for February and March.

The OPEC+ decision to basically roll over the 7-million-bpd cut into April and the extra Saudi cut took the oil market by surprise, as most analysts and forecasters had expected easing of the cuts by as much as 500,000 bpd and Saudi Arabia reversing the additional reduction.

“OPEC+ took the market by surprise today when it decided to roll over its quota, saying that rather than anticipate a demand recovery, the group would wait to see it actually recover,” Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said, commenting on the decision.

“If OPEC+ does not increase output in April, except the small amounts for Russia and Kazakhstan, the stock draw will be significantly more than 1 million b/d next month, as the summer demand season looms. We expect oil prices to rise toward $70-$75 per barrel during April,” WoodMac said.

Oil Prices Spike

As a result of the OPEC+ decision, oil prices rallied amid expectations of even tighter oil market going forward. Brent oil prices even hit $70 a barrel on 8 March, for the first time since the pandemic started, after Saudi Arabia said the previous day there was an attempt to target the Ras Tanura Port, one of the world’s largest oil shipping ports.

However, analysts and major oil-importing countries such as India have started to warn that high oil prices could stall the still fragile global oil demand recovery. India is outright saying that oil prices nearing $70 could undermine the consumer-led recovery in demand, as petrol and diesel prices in the world’s third-largest oil importer hit record highs at the end of February.

According to WoodMac’s Hittle: “The risk is these higher prices will dampen the tentative global recovery. But the Saudi Energy Minister, Prince Abdulaziz, is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

Middle East Set To Lead Shelf Developments

The Middle East will be likely to lead shelf developments with 40% of the total value as global offshore commitments are poised for a record recovery through 2025, Rystad Energy said in a report in early March.

For the purpose of the analysis, Rystad Energy has defined that a project is committed when more than 25% of its overall greenfield capital expenditure (CapEx) is awarded through contracts.

Rystad Energy expects 592 commitments of global offshore projects between the beginning of 2021 and the end of 2025, more than the 355 project commitments in the period 2016-2020 and more than the 478 projects in the period 2011-2015, before the previous oil price crash.

Between 2021 and 2025, “We expect ultra-deepwater activity to be primarily concentrated in South America, with over 50% of the total committed value, while the Middle East is likely to lead shelf developments with 40% of the total value,” Rystad energy noted.

Contracts & Strategic Agreements 

The major state oil and gas firms in the largest oil and gas producers in the Middle East – Saudi Arabia, the United Arab Emirates (UAE), Kuwait, and Qatar – signed many development contracts with western firms as well as strategic agreements to deliver oil and gas to the most important oil and gas growth market, Asia.

Petrofact said that its Lower Fars heavy oil development project team had completed the successful integration of Kuwait Oil Company’s new Crude Oil Control Centre, where Petrofac’s expertise was used to upgrade technology and equipment, improving the effectiveness of operations.

UAE-based Lamprell was awarded an Engineering, Procurement, Construction and Installation (EPCI) contract by Saudi Aramco as part of their Long-Term Agreement Programme (LTA) with Lamprell. The works will consist of two offshore production deck modules and associated pipeline and subsea cables in Saudi Aramco’s Marjan Field in the Gulf, off Saudi Arabia’s East Coast and is one of the largest oil and gas fields in the region.

“Marjan is a strategic asset of global significance and we are honoured to play a role in its development. The award reinforces our commitment to our strategy and we look forward to working on further opportunities in the region,” Lamprell’s chief executive Christopher McDonald said in a statement.
Italy’s Saipem was awarded by Qatargas a contract for the offshore development of the North Field Production Sustainability Project worth approximately US$1.7 billion, the engineering, drilling, and construction firm said. Saipem’s scope of work will include the Engineering, Procurement, Construction and Installation of various offshore facilities for the extraction and transportation of natural gas, including platforms, supporting and connecting structures, subsea cables, and anticorrosion internally cladded pipelines.

Qatar Petroleum, which has recently approved the North Field expansion project, awarded in early March a major engineering, procurement, and construction (EPC) contract to Samsung C&T Corporation for the expansion of the LNG storage and loading facilities located within Ras Laffan Industrial City as part of the North Field East (NFE) Project.

A few days before that, Qatar Petroleum signed long-term LNG supply agreements with Bangladesh and Pakistan. Under the 10-year agreement with Pakistan, Qatar will supply up to 3 million tons per annum of LNG, beginning in 2022 and until the end of 2031. The agreement for Bangladesh saw Qatar Petroleum entering into a long term Sale and Purchase Agreement with commodity trading giant Vitol for the supply of 1.25 million tons per annum of LNG to Vitol’s final customers in Bangladesh. 

Qatar Petroleum also signed a multi-party agreement with LNT Marine, the American Bureau of Shipping (ABS), and Shanghai Waigaoqiao Shipbuilding (SWS) to collaborate on the development of new medium and large LNG carrier designs. Other signatories to the Agreement include Qatargas and affiliates of ConocoPhillips, ExxonMobil, Shell, and Total, Qatar Petroleum said on 10 March.

In the UAE, the Abu Dhabi National Oil Company (ADNOC) said on 3 March  it would remove destination restrictions on its Murban, Upper Zakum, Das, and Umm Lulu crude grades, starting from the first traded contract month of the new ICE Murban Crude Oil Futures Contract. 

ICE plans to launch the ICE Futures Abu Dhabi (IFAD), Murban Crude Oil futures, and related cash settled derivatives and inter-commodity spreads, on 29 March 2021.

“By lifting destination restrictions, ADNOC crude grades will become more attractive to global customers and the wider trading community. This is another important step as we prepare for the launch of the new Murban Futures Contract on the 29th March,” said Khaled Salmeen, Executive Director of ADNOC’s Downstream Industry, Marketing and Trading directorate.

ADNOC also signed a strategic framework agreement with Malaysia’s Petroliam Nasional Berhad (PETRONAS) to explore opportunities for collaboration across the full oil and gas value chain. As part of the agreement, ADNOC and PETRONAS will jointly explore opportunities for collaboration in the exploration, development, and production of conventional and unconventional hydrocarbon resources in the Emirate of Abu Dhabi.

ADNOC signed in early March another agreement—to explore opportunities to boost the hydrogen economy. ADNOC and South Korea’s GS Energy agreed to explore opportunities to grow Abu Dhabi’s hydrogen economy and carrier fuel export position.

“As a stakeholder and a partner of the ADNOC Upstream Concessions, we are excited to strengthen this partnership by jointly seeking opportunities within the blue hydrogen ecosystem,” said Yongsoo Huh, President and CEO of GS Energy.

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