OGV Energy's Middle East Energy Review April 2022

Middle Eastern oil producers and the OPEC+ group they are part of continued with their planned moderate monthly production increase despite the Russian invasion of Ukraine and the skyrocketing oil prices and the potential of a supply deficit the war has brought. OPEC put its demand growth forecast for 2022 under assessment, warning of a potential slowdown in global oil demand. As a result of high prices and regional benchmarks, as well as a tight global market, Saudi Arabia, the world’s largest crude oil exporter, raised the prices of its crude to Asia in April to all-time high premiums over the Dubai/Oman benchmark, off which Saudi supply to Asia is being priced.  

In addition, the biggest oil company in the world, Saudi Aramco, posted bumper profits amid rallying oil prices and signed several deals to expand its downstream presence in China, while the state energy firms of the United Arab Emirates (UAE) and Qatar announced partnerships to grow upstream, downstream, and in alternative energy sources such as hydrogen.     

OPEC+ Leaves Production Unchanged Despite $100-Plus Oil

In early March, the OPEC+ alliance in which Russia is a key member left its oil production plan intact, deciding to raise output by 400,000 barrels per day (bpd), and without mentioning the Russian invasion of Ukraine. 

During the meeting, “it was noted that current oil market fundamentals and the consensus on its outlook pointed to a well-balanced market, and that current volatility is not caused by changes in market fundamentals but by current geopolitical developments,” OPEC said in a statement.

According to the production schedule for April provided by OPEC, the OPEC+ alliance’s collective quota is 41.697 million bpd. The leaders of the pact, Saudi Arabia and Russia, each have a quota of 10.436 million bpd for April.

Following the OPEC+ meeting, and amid expected strong demand for Middle Eastern crude in the wake of buyers’ shunning of Russian oil, Saudi Arabia raised the prices for its crude going to Asia in April by more than $2 per barrel, and some grades are being sold at a record-high premium over the Oman/Dubai prices. The price of the flagship Saudi grade, Arab Light, was hiked to $4.95 a barrel over Oman/Dubai—an all-time high differential for this type of crude.  

OPEC Warns Of Slowdown in Demand Growth

In its Monthly Oil Market Report, OPEC warned of a potential slowdown in global oil demand growth this year, due to the war in Ukraine that sent energy prices skyrocketing, inflation accelerating, and supply chains disrupted once again. The Organisation of the Petroleum Exporting Countries left its outlook of global oil demand growth at 4.2 million bpd, “for the time being”, but flagged “the extremely high uncertainty surrounding global macroeconomic performance.”

“Looking ahead, and given the latest developments, which are still only beginning to unfold, it is clear that uncertainty will dominate in the remaining months of 2022: i.e.: uncertainty with regard to the scope and impact of the current geopolitical turmoil, restrictions and restructuring of production and trade flows, uncertainty on to what degree this will impact inflation and oil demand, and how this will serve to accelerate the drive towards energy transition, particularly in Europe,” OPEC said in its report.

“Given this unprecedented level of uncertainty, the forecast for total global oil demand growth for 2022 also remains under assessment at 4.2 mb/d, until more clarity prevails,” the organisation added.

As of the end of March, OPEC still expected world oil demand to exceed pre-pandemic levels on average this year, “However, this forecast is subject to change in the coming weeks, when there is more clarity on the far-reaching impact of the geopolitical turmoil.”  

Contracts and Partnerships   

Saudi Arabia’s state oil giant Aramco reported on 20 March a net income of $110.0 billion for 2021, up from $49.0 billion for 2020, as oil prices rebounded last year from the 2020 slump in the pandemic. Free cash flow more than doubled to $107.5 billion from $49.1 billion. The world’s largest oil company confirmed an annual dividend of $75 billion, including $18.8 billion for the fourth quarter of 2021. Capital expenditure in 2021 stood at $31.9 billion, up by 18% compared to 2020, primarily driven by increased activities in relation to crude oil increments, Tanajib Gas Plant, and development drilling programs. Aramco expects capital expenditure to be around $40-50 billion in 2022, with further growth expected until around the middle of the decade.

“We recognise that energy security is paramount for billions of people around the world, which is why we continue to make progress on increasing our crude oil production capacity, executing our gas expansion program and increasing our liquids to chemicals capacity,” said Aramco President and CEO Amin Nasser.

“We are also investing in CCS, renewables and low-carbon hydrogen production - supporting the global energy transition and advancing our net-zero ambition,” he added.

In March Saudi Aramco also awarded a major contract to Schlumberger for integrated drilling and well construction services in a gas drilling project. The integrated project scope encompasses drilling rigs and technologies and services, including drill bits, measurement while drilling (MWD) and logging while drilling (LWD), drilling fluids, cementing, and completing wells.

Aramco has also signed over the past month deals to boost its presence in China. An Aramco subsidiary signed a Memorandum of Understanding (MoU) with China Petroleum & Chemical Corporation (Sinopec) for potential downstream collaboration in China. The two companies also plan to support Fujian Refining and Petrochemical Company, Ltd in conducting a feasibility study into the optimisation and expansion of capacity.

Aramco announced in March the final investment decision to participate in the development of a major integrated refinery and petrochemical complex in Northeast China. Huajin Aramco Petrochemical Company (HAPCO), a joint venture between Aramco, North Huajin Chemical Industries Group Corporation, and Panjin Xincheng Industrial Group, will develop the liquids-to-chemicals complex. The project, which will include 300,000 bpd refinery capacity and petrochemical units, is expected to start operations in 2024.

In the UAE, Abu Dhabi National Oil Company (ADNOC) signed an agreement with methanol producer Proman to develop the UAE’s first world-scale methanol production facility at the TA’ZIZ Industrial Chemicals Zone in Ruwais. The natural gas to methanol facility will have an annual capacity of up to 1.8 million tonnes.

ADNOC also awarded framework agreements valued at $658 million for cementing services as it continues to invest in drilling growth and expanding its crude oil production capacity. The framework agreements were awarded to Haliburton, Baker Middle East, Emirates Western, NESR Energy Services, and Emjel Oil Field Services (Emjel), following a competitive tender process. The awards cover ADNOC’s onshore and offshore fields and will run for five years with an option for a further two years.

ADNOC moved to expand its strategic partnerships in hydrogen with leading German companies by signing MoU and joint study agreements with firms in Germany to accelerate and deepen collaboration in clean hydrogen.

“We remain committed to working with like-minded partners across the public and private sectors to implement tangible projects that will supply the world’s energy needs, while reducing carbon emissions and the carbon intensity of the energy that supports our everyday lives,” said Sultan Ahmed Al Jaber, UAE Minister of Industry and Advanced Technology and ADNOC Managing Director and Group CEO.  

Qatar, one of the world’s largest exporters of LNG, said at the end of March after a meeting with German officials that the German government had taken swift and concrete actions to fast-track the development of two LNG receiving terminals in Germany.

Based on the German plans to boost LNG imports, Germany and Qatar agreed that their respective commercial entities would re-engage and progress discussions on long term LNG supplies from Qatar to Germany, QatarEnergy said.  

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