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MIDDLE EAST
Energy Review By Tsvetana Paraskova
A dramatic OPEC+ monthly meeting has dominated the energy news flow out of the Middle East over the past weeks, while major oil and gas companies in the region announced production and supply deals and record bond issues. OPEC’s dramatic disagreement As originally scheduled, OPEC and its nonOPEC partners prepared to hold their regular monthly meeting on 1 July and were widely expected to decide to boost collective oil production in August by up to 500,000 barrels per day (bpd) in view of strengthening global oil demand and a tightening market. The meeting, however, dragged on after one of OPEC’s largest producers, the United Arab Emirates (UAE), insisted that its baseline production level for the cuts be raised to better reflect its current production capacity. The UAE made an agreement on raising oil production from August and on OPEC+ extending the pact beyond April 2022 contingent on the Emiratis getting a higher reference level, which would allow them to pump more oil under their OPEC+ quota.
www.ogv.energy I August 2021
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On 5 July, OPEC+ called off a third meeting scheduled to try to resolve the differences between the UAE and OPEC’s de facto leader and largest producer, Saudi Arabia. Consultations and mediations continued in private talks in the two weeks that followed. Meanwhile, the oil market started to fret about a potential deep discord within the OPEC+ alliance, fearing it could lead to a breakup of the production pact and a return to a ‘pumpat-will’ policy and a new price war, like the one that contributed to sinking oil prices in March and April 2020.
Two weeks later, OPEC+ finally forged a deal Two weeks after the failed attempt to reach a deal on 5 July, after consultations and a lot of ‘consensus building’ as Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, would say later, OPEC+ ministers met virtually on 18 July and adopted a plan to ease the cuts. The ministers decided that OPEC+ would raise its collective production by 400,000 barrels per day (bpd) each month beginning in August 2021, until phasing out all the 5.8 million bpd the alliance is still keeping from the market. The group will assess market developments in December 2021 and review the performance of the pact’s members, OPEC+ decided. The alliance, however, is not abandoning its monthly meetings to take stock of the oil market and will hold their next OPEC+ ministerial meeting on 1 September. The ministers also decided to extend the decisions of the pact beyond April 2022 and into December 2022. The reference production levels, the sticking point in the negotiations for the agreement, were also addressed. The UAE was given a higher baseline level effective May 2022. But so were Saudi Arabia, Russia, Iraq, and Kuwait, as OPEC+ apparently worked out a compromise to accommodate reference level grievances from other members, while securing a deal about immediate oil supply now. The UAE will see its baseline lifted to 3.5 million bpd as of next May, from 3.168 million bpd now. Saudi Arabia and Russia will each have a reference level of 11.5 million bpd from May 2022, up from 11 million bpd. Iraq’s baseline level will be increased to 4.803
million bpd from 4.653 million bpd, while Kuwait’s reference level will be raised to 2.959 million bpd from 2.809 million bpd. At the press conference following the deal, the UAE and Saudi Arabia went to reassure the markets that “OPEC+ is here to stay” and there would be no break-up in the pact. Two of OPEC’s most influential members, Saudi Arabia and the UAE, presented a new united front that the countries are committed to the deal and to continued cooperation within the OPEC+ alliance. The fact that the group reached a compromise deal, even after two weeks of intense behind-the-scenes talks, removed one uncertainty which was hanging over the market—that a major disagreement could lead to an implosion of the OPEC+ group. By working to reach an agreement, OPEC+ showed that it is still very much interested in staying in control of the spare capacity and oil supply to the market.
The Middle East advantage In upstream oil & gas The Middle East has several major advantages in terms of oil and gas resources and economics, Wood Mackenzie said in a recent report. Without a doubt, the Middle East has won the geological lottery, Alexandre Araman, Principal Analyst, Middle East Upstream at WoodMac, says. Fourteen countries in the Middle East account for only 3.6 percent of the world’s land mass, but they hold 45 percent of the global proven and probable (2P) oil reserves and 41 percent of 2P gas reserves. The Middle East has produced 30 percent of all hydrocarbons to date and holds 53 percent of total remaining 2P recoverable reserves, according to WoodMac’s estimates. Favourable surface conditions and favourable geology also make the Middle East the region with the overall lowest and most stable lifting costs. Carbon intensity is also among the lowest in the world, but due to the sheer volume of oil and gas being pumped out in the region, the Middle East has high absolute emissions from processing as well as from flaring, Wood Mackenzie reckons.
