OGV Energy's Middle East Energy Review

The surprise outcome of the OPEC+ meeting in December and many major deals involving the largest oil and gas companies in the Middle East were the highlights of the region’s energy landscape in the last month of the year.

OPEC+ keeps oil production plans unchanged

At their regular monthly meeting on 2 December, the ministers of the OPEC+ alliance decided to continue easing the collective oil production cuts by 400,000 barrels per day (bpd) in January, despite expectations from the market and some analysts that the group would opt for pausing the increase in their production at least for January, in view of the oil price slide at the end of November and the high uncertainty about how the Omicron COVID variant could impact global oil demand in coming weeks and months.

The ministers, however, opted for keeping the meeting “open,” allowing themselves flexibility to immediately change course if demand starts being severely hit by the new travel restrictions in some countries.

The ministers “Agree that the meeting shall remain in session pending further developments of the pandemic and continue to monitor the market closely and make immediate adjustments if required,” OPEC said after the meeting, noting that it “remains in session.”

In addition, the OPEC+ group decided to extend the compensation period until the end of June 2022 for the producers that had produced above their quotas over the past year and a half.  

Oil prices fell immediately after the meeting on December 2, but hours later they had already erased losses and rebounded, as the market was calmed by the flexible approach that OPEC+ could change course if demand stumbles and by the group’s attempt to preserve stability in its monthly decisions.

Despite the fact that all forecasts point to a surplus on the oil market coming as soon as the first quarter of 2022, investors and speculators viewed the OPEC+ decision as the right one at this point and were reassured by the fact that the alliance did not jump the gun to respond to the still highly uncertain outlook with the Omicron variant in the picture.

Oil prices also recovered after some analysts and investment banks said that the initial reaction to Omicron was excessive and the market had initially priced in a massive slump in global oil demand, which has not materialised yet.

Saudi Arabia raises January oil prices for Asia   

Days after the OPEC+ meeting, the de facto leader of OPEC and the largest oil exporter in the world, Saudi Arabia, raised its official selling prices (OSPs) for January loadings for Asia and the United States, suggesting that the Kingdom continues to believe demand would hold, despite the lingering fears of the Omicron variant.

Saudi Arabia’s flagship Arab Light crude grade will be sold in January to Asia at a $3.30 a barrel premium over the Oman/Dubai benchmark. This is an increase of $0.60 per barrel in the premium compared to December and the highest premium of Arab Light for Asia in almost two years.

Saudi Arabia’s move “suggests that the Saudis have confidence in the demand outlook, and the market appears to be taking comfort in that,” ING strategists Warren Patterson and Wenyu Yao said on 6 December, commenting on the announcement of the January prices.

OPEC says Omicron will have mild and short-lived impact

In its closely-watched Monthly Oil Market Report (MOMR) for December, OPEC shrugged off fears that Omicron could significantly dent global oil demand.  

“The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges. This is in addition to a steady economic outlook in both the advanced and emerging economies,” OPEC said in its report.

OPEC kept its 2021 and 2022 demand growth forecasts unchanged and noted that “The underlying assumptions for the rest of the year and 2022 have not changed.”

“In 2022, world oil demand is forecast to increase by 4.2 mb/d, y-o-y, given improved COVID-19 management and rising vaccination rates, enabling economic activity and mobility to return to prepandemic levels, supporting transportation fuels in particular,” the organisation said.  

Middle East’s latest major deals & contracts   

The biggest oil and gas companies in the Middle East signed in December several major agreements and service contracts for pipeline assets, development of oil and gas fields, strategic alliances and collaborations, and increased investment in hydrogen and chemicals.

Saudi Aramco said in early December it had signed a US$15.5 billion lease and leaseback deal involving its gas pipeline network with a consortium led by BlackRock Real Assets and Hassana Investment Company, the investment management arm of the General Organisation for Social Insurance (GOSI) in Saudi Arabia, in one of the world’s largest energy infrastructure deals.  
 
Aramco will keep a 51-% majority stake in a newly created firm, Aramco Gas Pipeline Company, and sell a 49-% stake to investors led by BlackRock and Hassana. Under the deal, Aramco Gas Pipeline will lease usage rights in Aramco’s gas pipelines network and lease them back to Aramco for a 20-year period. In return, Aramco Gas Pipelines Company will receive a tariff payable by Aramco for the gas products that will flow through the network, backed by minimum commitments on throughput.

The world’s largest oil company has also recently awarded contracts worth US$10 billion for the development of the Jafurah unconventional gas field, the largest non-associated gas field in Saudi Arabia. Aramco awarded subsurface and Engineering, Procurement and Construction (EPC) contracts worth US$10 billion, with capital expenditure at Jafurah expected to reach US$68 billion over the first 10 years of development.

Wood plc has secured a multi-million dollar contract with Aramco to deliver engineering and project management services for the Safaniyah and Manifa oilfields in Saudi Arabia. The two-year contract includes the delivery of conceptual studies, front-end engineering design (FEED), and project management services for Saudi Aramco’s oil and gas, pipelines and infrastructure facilities, and will maximise production capacity, Wood said on 6 December.
 
McDermott also won new contracts with Aramco, securing three offshore contracts for engineering, procurement, construction and installation (EPCI) projects. In total, McDermott will provide EPCI of four drilling jackets and seven oil production deck modules (PDMs) in Saudi Arabia’s Zuluf, Ribyan, Abu Sa'fah, and Safaniya fields located offshore in the Arabian Gulf.

Separately, Aramco announced on 4 December collaboration agreements with French companies to explore partnerships in hydrogen, AI-enabled geospatial imagery, and manufacturing and maintenance services of furnaces and fired heaters.
 
In the United Arab Emirates (UAE), the Abu Dhabi National Oil Company (ADNOC) said in its newly-approved capital programme it would invest a total of US$127 billion in its upstream, downstream, and low-carbon fuel businesses between 2022 and 2026.

ADNOC also announced a rise in its national reserves of oil and natural gas.

“These additional reserves increase the UAE’s hydrocarbon reserves base to 111 billion STB of oil and 289 TSCF of natural gas, reinforcing the country’s position in global rankings as the holder of the sixth-largest oil reserves and the seventh-largest gas reserves,” ADNOC said.

Abu Dhabi Chemicals Derivatives Company RSC Ltd (TA’ZIZ) and Reliance Industries Limited (RIL) have agreed to launch TA’ZIZ EDC & PVC, a world-scale chemical production partnership at the TA’ZIZ Industrial Chemicals Zone in Ruwais, ADNOC said on 7 December.

The Abu Dhabi state oil and gas firm also entered into a joint cooperation agreement with GE Gas Power to develop a decarbonisation roadmap that includes reducing carbon emissions from gas turbines used to power ADNOC’s downstream and industry operations, including at the Ruwais Industrial Complex in Abu Dhabi.

TechnipFMC, through Gulf Automation Services and Oilfield Supplies LLC, has been awarded a 10-year framework agreement for wellheads, trees and associated services by ADNOC, the technology provider said, noting that it considers the contract as “major”, meaning it is worth over $1 billion.  

Finally, energy group ENGIE and Masdar have signed a strategic alliance agreement to explore the co-development of a UAE-based green hydrogen hub. The companies will be looking to develop projects with a capacity of at least 2 gigawatts (GW) by 2030, with a total investment in the region of US$5 billion.

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