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OGV Energy's Middle East Energy Review – September 2022

OGV Energy's Middle East Energy Review – September 2022

 

The OPEC+ group’s decision to slightly raise production targets in September, the record-smashing profit of the world’s largest oil company, Saudi Aramco, and business deals involving the biggest energy firms in the Middle East were the highlights in the region’s oil and gas industry this past month.

OPEC+ Approves Symbolic Increase in Production Target

At a regular monthly meeting on 3 August, the OPEC+ group approved a decision to raise their collective oil production target for September by 100,000 barrels per day (bpd). The August meeting was the first meeting since the alliance decided earlier this year to roll back by the end of August all the cuts from May 2020, when the current agreement started.

“The Meeting noted that the severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions,” OPEC said in a statement after the OPEC+ meeting.

According to a production schedule shared by OPEC, Saudi Arabia, the world’s top crude oil exporter and largest OPEC producer, has a target of pumping just over 11 million bpd—11.03 million bpd, in September. The same target applies to Russia, but Moscow has struggled to keep up with its quota since March, when the invasion of Ukraine and the Western sanctions and embargoes on Russian oil stymied production growth. Reports and estimates put current Russian production at the levels from February 2022, meaning that output has rebounded from the lows in March and April but hasn’t increased in lockstep with the Russian target in the OPEC+ deal.

Alongside low Russian production, a lack of investment and capacity at many other OPEC+ members suggests that the group will not come anywhere close to pumping to target. Some of the latest estimates put the OPEC+ total crude oil production in July at 2.9 million bpd below the collective quota. The gap between overall quota and actual oil production from the OPEC+ members has been growing for more than a year and is set to further grow in August and September as the target is being raised while many producers struggle to keep up with their respective quotas.

OPEC Cuts Oil Demand Estimate for 2022

In its Monthly Oil Market Report (MOMR) in August, OPEC revised down its global oil demand growth estimate for this year by 260,000 bpd, due to ongoing geopolitical tensions and possible new COVID-related restrictions in the second half of 2022.

OPEC expects global oil demand to grow by 3.1 million bpd this year, down by 260,000 bpd from the July assessment of 3.36 million bpd growth.

Demand is still expected to show “healthy growth of 3.1 mb/d, including the recently observed trend of burning more crude in power generation,” OPEC said in its report.  

The organisation left its 2023 demand growth estimate unchanged from the July report at 2.7 million bpd. Total world oil demand is expected to reach 102.72 million bpd next year.

“In 2023, expectations for healthy global economic growth, combined with expected improvements in the containment of COVID-19 in China, are expected to boost consumption of oil,” OPEC said.   

Saudi Aramco Books Record Profit As Oil Rallies

Saudi Aramco, the largest oil company in the world in terms of both production and market capitalisation, reported in mid-August record profits for the second quarter of 2022, driven by high oil and gas prices and increased production.

The Saudi state oil giant booked a net income of $48.4 billion for Q2, up by 90% compared to the same period of 2021. The increase was primarily driven by higher crude oil prices and volumes sold, as well as strong refining margins during the second quarter and higher downstream margins in the first half of 2022, Aramco said.

Higher cash from operating activities pushed free cash flow up by 53% to $34.6 billion in the second quarter compared to Q2 2021. 

Aramco declared a dividend of $18.8 billion for the second quarter, to be paid in Q3 2022, the firm said, noting that it “aims to maintain a sustainable and progressive dividend in line with future prospects and underlying financial results.”

Capital expenditure at the Saudi oil giant rose by 25% to $9.4 billion in the second quarter and by 8% to $16.9 billion for the first half of 2022, compared to the same periods in 2021.

“Aramco continues to invest to capture growth opportunities, progressing the strategic integration of its upstream and downstream segments, expanding its chemicals business, and developing prospects in low-carbon businesses,” the company said.

Commenting on the results, Aramco President and CEO Amin Nasser said:

“While global market volatility and economic uncertainty remain, events during the first half of this year support our view that ongoing investment in our industry is essential — both to help ensure markets remain well supplied and to facilitate an orderly energy transition.”

“In fact, we expect oil demand to continue to grow for the rest of the decade, despite downward economic pressures on short-term global forecasts,” the top executive added, reiterating a long-held view in Saudi Arabia that oil will continue to play an important role in global energy supply for decades to come.

Deals & Contracts

Apart from reporting record earnings, Aramco also announced several deals in August.
The Saudi company signed an equity purchase agreement to acquire Valvoline’s global products business for $2.65 billion. Aramco expects to benefit from Valvoline Global Products’ robust manufacturing and distribution network, significant R&D capabilities, strong partnerships with major OEMs, and a 150-year legacy of global brand recognition as it pursues opportunities to extend the brand globally. The deal is subject to customary closing conditions, including the receipt of regulatory approvals.

Saudi Aramco also signed a Memorandum of Understanding (MoU) with China Petroleum & Chemical Corporation (Sinopec) covering multiple areas of potential collaboration in Saudi Arabia. The scope of the potential collaboration includes assessing refining and petrochemical integration opportunities; engineering, procurement and construction; oilfield services, upstream and downstream technologies, as well as collaboration across carbon capture and hydrogen processes.

Aramco and SABIC Agri-Nutrients Company have obtained the world’s first independent certifications recognizing “blue” hydrogen and ammonia production, the Saudi company said in early August. The certifications were granted by Germany-based independent testing, inspection, and certification agency TÜV Rheinland to SABIC Agri-Nutrients Company in Jubail, for 37,800 tonnes of “blue” ammonia and to Aramco’s wholly-owned refinery (SASREF), also in Jubail, for 8,075 tonnes of “blue” hydrogen. To certify ammonia and hydrogen as “blue”, a significant part of the CO2 associated with the manufacturing process needs to be captured and utilized in downstream applications. 

In the United Arab Emirates (UAE), Abu Dhabi National Oil Company (ADNOC) announced several contracts, orders, and a discovery between the end of July and the end of August.

ADNOC awarded two substantial contracts totalling $2 billion (AED 7.49 billion) to ADNOC Drilling for the Hail and Ghasha Development Project. The contracts comprise $1.3 billion for integrated drilling services and fluids, and $711 million for the provision of four Island Drilling Units. A third contract, valued at $681 million, was also awarded to ADNOC Logistics & Services for the provision of offshore logistics and marine support services.

The Hail and Ghasha Development Project is part of the Ghasha Concession – the world’s largest offshore sour gas development and a key part of ADNOC’s integrated gas plan and the UAE’s efforts to become self-sufficient in gas.

ADNOC Logistics & Services, ADNOC’s shipping and maritime logistics arm, announced the 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. Upon completion of the transaction, which is subject to customary regulatory approvals, ADNOC L&S will add 24 jack-up barges and 38 offshore support vessels from ZMI, growing its total fleet size to over 300 units.

ADNOC also awarded two contracts totalling more than $3.4 billion to ADNOC Drilling to hire 8 jack-up offshore rigs, which will support the expansion of ADNOC’s crude oil production capacity to 5 million bpd by 2030 and enable gas self-sufficiency for the UAE.

Furthermore, ADNOC announced a $1.17-billion contract for the hire of 13 self-propelled jack-up barges to support its plans to grow production capacity.

Finally, ADNOC announced a second natural gas discovery in the first exploration well in Abu Dhabi’s Offshore Block 2 Exploration Concession, operated by Italy’s Eni. The discovery from a new deeper reservoir indicates between 1 – 1.5 trillion standard cubic feet (TSCF) of raw gas in place.

In Qatar, McDermott International has been awarded a Front-End Engineering Design (FEED) contract by QatarEnergy for the North Field South (NFS) Offshore Pipelines and Power/FO cables Project.   

The NFS infrastructure is part of the North Field Expansion Project (NFXP) development and is designed to supply feed gas for two additional LNG trains that would help increase total LNG production in Qatar from the current 77 million tons per annum (MTPA) to 126 MTPA.  

Read the latest issue of the OGV Energy magazine HERE

Published: 28-09-2022

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