OGV Energy's Middle East Energy Review – November 2020

OPEC warned of a fragile economic growth recovery in the near term and pledged to be proactive in ensuring oil market stability, while countries and companies in the Middle East announced new contracts, project start-ups, and investments in oil and gas—these were the highlights of Middle East’s oil and gas scene over the past few weeks.    

Global Recovery from COVID-19 is Fragile 

OPEC warned in its Monthly Oil Market Report for October that economic recovery around the world would likely stall in the latter part of 2020 and early next year. The organisation cut its annual demand growth forecast for 2021 by 80,000 bpd to 6.5 million bpd.  

“While the 3Q20 recovery in some economies was impressive, the near-term trend remains fragile, amid a variety of ongoing uncertainties, especially the near-term trajectory of COVID-19. As this uncertainty looms large, amid a globally strong rise in infections, it is not expected that the considerable recovery in 3Q20 will continue into 4Q20 and in 2021,” OPEC said in its closely-watched report.

The cartel, however, will look to ensure that oil prices will not tank again as they did earlier this year, OPEC Secretary General Mohammad Barkindo said in the middle of October, just before the organisation was preparing to discuss the situation on the global oil market at its regular monthly meetings.

Opening the technical panel of the OPEC+ group, Barkindo said:

“The dark clouds of this pandemic continue to hang over us. In some countries, a second wave is already here, compounding both the human tragedy and economic uncertainty.” 

The worst of the crisis is behind us, but dialogue and cooperation are needed to ensure a stable and more resilient market, OPEC’s head noted.

OPEC+ Demands Full Compliance with Quotas

At the meeting of the Joint Ministerial Monitoring Committee (JMMC) on 19 October, the panel stressed the importance of all members of the OPEC+ pact complying with their oil production quotas.

“The Committee reaffirmed the commitments of all participating countries to achieve full conformity and make up for any shortfalls under compensation plans presented to the Committee for an extended period through December 2020. In this manner, all participating countries were encouraged to increase their efforts to compensate for overproduced volumes in order to achieve the objective of market rebalancing and avoid undue delay in the process,” OPEC said.

The JMMC panel also admitted that it sees slowed economic recovery due to the resurgence of COVID-19 cases in major economies, particularly in the Americas, Asia, and Europe.

“The Committee reminded all participating countries of the necessity to be vigilant and proactive given the precarious market conditions and prospects,” OPEC noted.

The co-chair of the committee, Russia’s Energy Minister Alexander Novak, said that OPEC+ pact members had focused on results and shown commitment to the common cause. Still, the market continues to face many uncertainties, Novak said, adding that the coronavirus has hit all sectors of the economy, including the oil and gas industry, where investments this year are expected to drop by 18-20%.
In a sign of continued communication between the heads of the two leaders of the OPEC+ pact, Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed bin Salman held telephone conversations in October to discuss the progress of the agreement and the situation on the oil market.

“Both sides stressed again their readiness to continue close coordination in this area in the interests of maintaining stability in the global fuel market,” the Kremlin said in a statement.

Saudi Arabia is preparing for oil prices at around $50 a barrel for the next three years, according to estimates from Goldman Sachs, which has analysed the preliminary Saudi budget and fiscal plans for the period 2020-2023.  

Oil & Gas Deals and Investments in the Middle East

Despite the global demand shock in natural gas consumption, committed gas investments in the Middle East and North Africa (MENA) region have held steady compared to last year, the Arab Petroleum Investments Corporation (APICORP), said in a report in October. Planned investments rose by 29% to reach US$126 billion, mainly due to the strong ongoing regional gas drive for cleaner power generation and improved monetisation as a feedstock for the industrial and petrochemicals sectors.  

The share of government investments in committed and planned gas projects stands at 92%, and is higher than the 72% share in the petrochemicals sector.

“The decrease in gas demand has put fiscal pressures on government and private sectors alike, and we expect a few committed projects to continue facing strong headwinds in terms of payments, supply chain issues and potential project delays. Overcoming these challenges will undoubtedly require strong policy support from governments, as well as enhanced collaboration between the private and public sector,” said APICORP’s chief executive officer Ahmed Ali Attiga. 

In the United Arab Emirates (UAE), the Abu Dhabi National Oil Company (ADNOC) said its trading unit, ADNOC Trading, had started derivatives trading as a direct market participant in a major milestone for the company aiming to become a global trader.

ADNOC also announced in early October the launch of AIQ, its Artificial Intelligence (AI) joint venture company with Abu Dhabi-based AI and cloud computing company Group 42. The joint venture company will focus on developing and commercialising AI products and applications for the oil and gas industry.  
“This partnership model allows ADNOC to develop AI solutions and applications in a cost-efficient way and strengthens Abu Dhabi’s and our nation’s position as a global hub for AI and technology driven industrial growth,” said Sultan Al Jaber, Minister of Industry and Advanced Technology and ADNOC Group CEO.

A week later, Al Jaber reiterated ADNOC’s focus on cost optimisation, expansion in the downstream, and strategic partnerships.

“Going forward, we will continue to focus on developing our upstream resources and expanding our downstream footprint here in the UAE, while maximising value through creative partnerships. In addition, we are further strengthening our marketing and trading capabilities.

Last month we completed our first derivatives trade, marking the beginning of a new era for ADNOC as an active trader,” Al Jaber said at the Energy Intelligence leadership dialogue.

Oman signed in early October a new Exploration and Production Sharing Agreement (EPSA) with Sweden’s Maha Energy to explore and develop the concession Block 70. Under the agreement, the company will obtain geological and geophysical studies, reprocess 3D seismic, and drill appraisal and pilot wells to evaluate and produce heavy oil in the Mafraq field in the Block. 

“To be allowed an opportunity to explore and develop the Mafraq oil field is an exceptional opportunity to add value to Maha and the people of Oman.  The Mafraq oil field contains significant amounts of oil and previous and extensive pump tests have proven the productivity of the field,” Jonas Lindvall, President and CEO of Maha, said.

bp has started gas production at the Ghazeer field in the Omani desert ahead of schedule, the UK-based supermajor said on 12 October. With an estimated 10.5 trillion cubic feet of recoverable gas resources, the block has the capacity to deliver around 35% of Oman’s total gas demand, according to bp.

“When we introduced our plans to reinvent bp, we were clear that to deliver them, we have to perform as we transform. There are few better examples of how we are doing just that than Ghazeer. This project has been delivered with capital discipline four months early, wells are being drilled in record times and, importantly, safety performance has been excellent,” bp chief executive Bernard Looney said. 

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