Middle East Oil & Gas Review

By Tsvetana Paraskova  OPEC expects China’s economic rebound to lead global oil demand growth this year.  Saudi Aramco reported lower first-quarter profits as oil prices declined, and demand for onshore drilling rigs in the Gulf is expected to jump over the next five years—these were the highlights in the oil and gas sector in the Middle East over the past month.

OPEC Leaves Oil Demand Forecast Unchanged OPEC, the Organization of the Petroleum Exporting Countries dominated by the biggest producers in the Middle East, left its global oil demand forecast for 2023 broadly unchanged in its monthly report for May. OPEC sees the world’s oil demand growing by 2.3 million barrels per day (bpd) this year, with the OECD projected to grow by nearly 100,000 bpd and the non-OECD expected to grow by about 2.3 million bpd.

Minor upward adjustments were made due to the better-than-expected performance in China’s economy, while other regions are expected to see slight declines, due to economic challenges that are likely to weigh on oil demand, according to OPEC.

For 2023, the forecast for non-OPEC liquids production growth also remained unchanged from the previous month’s assessment, at 1.4 million bpd year over year. The main drivers of liquids supply growth are expected to be the US, Brazil, Norway, Canada, Kazakhstan, and Guyana, while declines are expected primarily in Russia, OPEC said.

“Uncertainties remain, primarily related to the potential of US shale oil output and unplanned field maintenance in 2023,” the organization noted. Specifically for the US, crude oil and condensate production is forecast to grow by 700,000 bpd in 2023 compared to 2022, according to OPEC’s estimates.

The cartel, however, cautioned that there are a lot of uncertainties on the oil market, which could affect supply and demand going forward. “Uncertainties to the forecast remain large, especially given ongoing geopolitical developments in Eastern Europe. Moreover, high inflation levels, coupled with supply chain issues and monetary tightening by major central banks may also impact the cost of oil production and upstream sector investment levels,” OPEC said.

The Chinese economy is rebounding after the re-opening, although recent macroeconomic data suggest a more nuanced picture. Still, OPEC expects China’s higher economic growth this year compared to the low growth pace in 2022 to support oil demand.

“Fuelled by the growth dynamic that was unleashed by reopening effects, China’s economy is forecast to considerably rebound from last year’s COVID-19-impacted low growth of only 3% y-o-y,” OPEC said in its report. China’s oil demand growth surged by 1.4 million bpd year-over-year in March, up from the annual growth of 900,000 bpd in February. The strong rebound in economic and social activity amid feedstock requirements for the petrochemical sector supported oil product demand, OPEC noted.

For the second quarter of 2023, Chinese oil demand is set for 1 million bpd growth, thanks to rising international airline activity and improving petrol demand amid a strong rebound in mobility. Diesel consumption is also expected to recover due to infrastructure expansion and fiscal stimulus.

Third-quarter demand is also expected to rise, by 800,000 bpd year over year, due to jet fuel demand growth, an increase in light distillates demand, and continued expansion of the petrochemical industries. Increased mobility and rising construction activity will boost demand for petrol and diesel, OPEC said.

Gulf Onshore Drilling Rig Demand Set for 25% Growth by 2027 The Middle East GCC region is expected to see 25-percent demand growth for land rigs in the over the 2023-2027 period, as Saudi Arabia and the United Arab Emirates (UAE) pump billions of US dollars into reaching their higher production capacity targets, Westwood Global Energy Group said in a new report, MENA Onshore Drilling Rig Market Forecast.

The Middle East and North Africa (MENA) region currently hosts a fleet of 1,159 identified land drilling rigs. The Gulf Cooperation Council (GCC) leads supply with 526 units, or 45 percent of the MENA fleet. North Africa and Other Middle East contain 27 percent and 28 percent, respectively. The largest fleets are hosted by Saudi Arabia, Algeria, and Kuwait, while Iraq and Iran also host fleets of over 100 units, Westwood says.

Analysts at Westwood expect that the GCC will continue to grow strongly throughout the five-year forecast. Demand in 2027 is expected to be 53 percent higher than 2019, driven by production capacity increases at all major onshore producers, with many of the projects required already having passed final investment decision (FID), said Todd Jensen, Senior Analyst – Onshore Energy Services, at Westwood.

Saudi Aramco Profit Slides on Lower Oil Prices Saudi Aramco, the biggest oil company in the world in terms of both production and market capitalisation, reported in May a decline in its first-quarter net income, due to lower crude oil prices. Aramco’s net income stood at $31.9 billion, down from $39.5 billion for the same period of 2022, but still above the analyst consensus of $30.9 billion in profits. Cash flow from operating activities rose to $39.6 billion from $38.2 billion, while free cash flow inched up to $30.9 billion, from $30.6 billion for the first quarter of 2022.

In the first quarter of 2023, Saudi Aramco’s average realized crude oil price fell to $81.0 per barrel, from $97.70 for the same period last year. “We are also moving forward with our capacity expansion, and our long-term outlook remains unchanged as we believe oil and gas will remain critical components of the global energy mix for the foreseeable future,” President and CEO Amin Nasser commented, reiterating Aramco’s view that oil and gas will be in demand for decades to come.

Apart from the regular dividend of $19.5 billion for the first quarter, the world’s largest oil firm announced its intention to introduce a mechanism for performance-linked dividends in addition to the base dividend it currently distributes.

“The Company intends to target such performance-linked dividends to be in the amount of 50-70% of the Group’s annual free cash flow, net of the base dividend and other amounts including external investments, to be determined with the annual results,” Aramco said.

Projects & Other News Aramco also announced in May new leadership positions and appointments. The company has appointed Nasir K. Al-Naimi as President of its Upstream business, and Mohammed Y. Al Qahtani as President of the Downstream business, both reporting along with Aramco’s Executive Vice Presidents to the Company’s President & CEO. The newly created positions and appointments, approved by the Board of Directors, will be effective from July 1, 2023 and will replace the previous Upstream and Downstream Executive Vice President positions, respectively. These appointments will help drive Aramco’s long-term strategy across its global portfolio and value chain, the oil firm said.

“We expect this decision to help drive operational and financial performance, supporting our upstream capacity growth and our downstream expansion, together with our ambition to achieve net-zero Scope 1 and Scope 2 greenhouse gas emissions across wholly-owned operated assets by 2050,” President and CEO Amin Nasser commented.

In the UAE, ADNOC announced in early May that its low-carbon LNG growth project would move forward in the Al Ruwais Industrial City, Al Dhafrah, Abu Dhabi. The project will help ADNOC to more than double its LNG production capacity to meet increased global demand for natural gas. The plant, which is designed with electric-powered processing facilities, will run on renewable and nuclear grid power, making it one of the lowest carbon-intensity LNG facilities in the world.

As an operational hub for ADNOC and its operating companies, the selected location offers significant synergies and existing infrastructure that will be leveraged to deliver project efficiencies, unlocking additional value for ADNOC, its partners and the UAE, the Abu Dhabi company said. The proximity of Al Ruwais to ADNOC’s current operations, as well as its future growth projects, in addition to a well-established local supplier base, were important considerations in the company’s decision.

QatarEnergy awarded in the middle of May the engineering, procurement, and construction (EPC) contract for the North Field South (NFS) project, which comprises two LNG mega trains with a combined capacity of 16 million tons per annum (MTPA). The announcement was made during a ceremony held to mark the award of the EPC contract for the two LNG trains and associated facilities with a joint venture of Technip Energies and Consolidated Contractors Company (CCC).

NFS, together with the North Field East (NFE) project, will increase Qatar’s LNG production capacity from the current 77 MTPA to 126 MTPA. QatarEnergy holds a 75-percent interest in the NFS project and has already signed partnership agreements with TotalEnergies, Shell, and ConocoPhillips for the remaining 25 percent.

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