OGV Energy's Middle East Energy Review – December 2022

OPEC published its annual report with estimates of global energy demand through 2045 and it cut again its demand growth outlook for this year and next, while the largest state oil and gas firms in the Middle East signed major contracts to expand their production and processing capabilities.  

OPEC Lowers 2022-2023 Oil Demand Growth Estimates

OPEC again revised down its global oil demand growth for this year and next in its Monthly Oil Market Report (MOMR) in November, citing significant global economic uncertainties in the coming months.

The organization led by Middle Eastern producers revised down each of its 2022 and 2023 oil demand growth forecasts by 100,000 barrels per day (bpd) from the previous month’s estimates due to China’s still-strict COVID policy and economic challenges in Europe. 

“The significant uncertainty regarding the global economy, accompanied by fears of a global recession contributes to the downside risk for lowering global oil demand growth. In addition, China’s strict adherence to the ‘zero COVID-19 policy’ adds to this uncertainty, making the country’s recovery path even more unpredictable,” OPEC said. 

This year, global oil demand growth is expected at 2.5 million bpd in 2022, OPEC said after slashing the fourth-quarter demand projections by nearly 400,000 bpd.

Total oil demand is set to average 99.6 million bpd in 2022, with developed economies in the Americas seeing the highest rise in demand, led by the US on the back of recovering gasoline and diesel demand, the cartel said. Light distillates are also projected to support demand growth this year, OPEC added.

For 2023, OPEC now expects oil demand growth at 2.2 million bpd, down by 100,000 bpd from the growth expected in the October report. World oil demand is set to average 101.8 million bpd, “supported by expected geopolitical improvements and the containment of COVID-19 in China,” according to OPEC. Next year, US demand is expected to exceed 2019 levels, thanks to a recovery in transportation fuels and light distillate demand. However, OECD Europe and the Asia Pacific are not expected to rise above 2019 consumption levels, the cartel said.

“While risks are skewed to the downside, there exists some upside potential for the global economic growth forecast. This may come from a variety of sources. Predominantly, inflation could be positively impacted by any resolution of the geopolitical situation in Eastern Europe, allowing for less hawkish monetary policies,” OPEC noted.

OPEC’s World Oil Outlook: The world needs to add on average 2.7 million boepd annually to 2045

In the World Oil Outlook (WOO) 2022 with projections through 2045, which OPEC launched at ADIPEC, the organization expects the world economy to more than double in size, and global population to rise by 1.6 billion between now and 2045. Global primary energy demand is forecast to continue growing in the medium- and long-term, jumping by 23% in the period to 2045.

Therefore, all forms of energy will be needed to address future energy needs, OPEC said, noting that the world needs to annually add on average 2.7 million barrels of oil equivalent a day to 2045.

With the exception of coal, all major types of energy will see growth through 2045, according to OPEC. Moreover, oil is expected to retain the largest share in the energy mix throughout the outlook period, accounting for almost a 29-percent share in 2045. But renewables – mainly solar, wind, and geothermal energy – are set to expand by 7.1 percent per year on average, significantly faster than any other source of energy.

The oil-exporting nations’ organization expects that globally, oil demand is projected to increase from almost 97 million bpd in 2021 to around 110 million bpd in 2045. Non-OECD countries will drive oil demand growth, expanding by nearly 24 million bpd to 2045, whereas the OECD demand would decline by over 10 million bpd between 2021 and 2045. India is set to be the largest contributor to incremental oil demand, adding around 6.3 million bpd to 2045.

To meet demand, the global oil sector will need cumulative investment of $12.1 trillion in the upstream, midstream, and downstream through to 2045, equating to over $500 billion each year, OPEC said.

Saudi Aramco Boosts Profit, Generates Record Free Cash Flow

Saudi Aramco, the Saudi state giant which is the world’s biggest oil firm in terms of production and market capitalization, reported in November a third-quarter net income that surged by 39% year over year to $42.4 billion, while free cash flow surged to a record $45.0 billion from $28.7 billion for the third quarter of 2021.

“Market conditions slightly softened in the third quarter as continued economic uncertainty driven by inflationary pressures slowed crude oil demand growth. Despite this, Aramco delivered strong earnings and record free cash flow reflecting its ability to generate significant value through its low-cost Upstream production and strategically integrated Downstream business,” Aramco said in the earnings report.

“Aramco’s long-term view is that oil demand will likely continue to grow for the rest of the decade, as will the world’s need for more affordable, reliable, and sustainable energy,” the Saudi oil giant added.

Deals and Contracts

Aramco and IBM announced preliminary plans for a strategic collaboration to establish an Innovation Hub in Riyadh, Saudi Arabia. The collaboration aims to use hybrid cloud, AI, and quantum computing to address objectives including circular economy, materials science, supply chain, sustainability, security, and digitization.

In the United Arab Emirates (UAE), Abu Dhabi National Oil Company (ADNOC) announced several deals and contracts over the past month. 

ADNOC set a new Upstream Methane Intensity target of 0.15 percent by 2025—the lowest such target in the Middle East.

ADNOC’s methane intensity target means the company will be ranked in the Gold Standard category, by the Oil and Gas Methane Partnership 2.0 (OGMP 2.0), a multi-stakeholder initiative launched by the United Nations Environment Program (UNEP) and the Climate and Clean Air Coalition, the company said.    

ADNOC and GAIL (India) Limited signed at the end of October a Memorandum of Understanding to explore collaboration opportunities in liquefied natural gas (LNG) supply and decarbonisation, including short and long term LNG sales agreements. The agreement also includes potential optimization of LNG trading activities, the review of joint equity investments in renewables, and the monitoring of greenhouse gasses for LNG cargoes, to support low carbon LNG supplies.

In early November, ADNOC awarded three framework agreements valued at $4 billion for integrated drilling fluids services (IDFS) to support the ongoing expansion of its production capacity.

In the middle of November, ADNOC Logistics & Services (ADNOC L&S), the shipping and maritime logistics arm of ADNOC, announced the successful closing of its acquisition of Zakher Marine International (ZMI), an Abu Dhabi-based owner and operator of offshore support vessels, with the world’s largest fleet of self-propelled jack-up barges. Financial details of the transaction were not disclosed.

The acquisition extends ADNOC L&S’s regional footprint, broadening its services to include critical support assets for offshore operations, including ZMI’s maiden offshore renewables project in China.

In Qatar, state firm QatarEnergy announced it had selected ConocoPhillips as its third and final international partner in the North Field South (NFS) expansion project, which comprises two LNG mega trains with a combined capacity of 16 million tons per annum (MTPA). Per the agreement, ConocoPhillips will have an effective net participating interest of 6.25% in the NFS project, out of a 25% interest available for international partners. QatarEnergy will hold the remaining 75%.

The Qatari giant also signed in November the longest gas supply agreement in the history of the LNG industry with China Petroleum & Chemical Corporation (Sinopec) for the supply of 4 million tons per annum (MTPA) of LNG to China for 27 years. The contracted LNG volumes will be supplied from QatarEnergy’s North Filed East (NFE) LNG expansion project expected to come online in 2026. The agreement with Sinopec is also the first long-term LNG offtake agreement from the NFE Expansion project, and comes on the heels of QatarEnergy’s conclusion of the formation of eight international partnership agreements for the North Field East and North Field South (NFS) projects, which are expected to come online in 2026 and 2027, respectively.

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