Middle East Energy Review November 2022

By Tsvetana Paraskova

The decision of the OPEC+ group to reduce its crude oil production target and the US reaction to the move have been the leading stories in the Middle East’s oil and gas sector over the past month.

Meanwhile, the biggest oil and gas producers in the Gulf moved to secure more contracts to expand drilling activity and increase production capacity.

OPEC+ Makes Largest Cut to Production Target Since 2020

The OPEC+ alliance announced in early October at its first in-person meeting since the pandemic started that it would reduce, starting November 2022, its overall crude oil production target by 2 million barrels per day (bpd) compared to the August 2022 required production levels.

The OPEC+ meeting also granted the Joint Ministerial Monitoring Committee (JMMC) “the authority to hold additional meetings, or to request an OPEC and non-OPEC Ministerial Meeting at any time to address market developments if necessary.”

The decision to reduce production was taken “In light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive, which has been consistently adopted by OPEC and non-OPEC Participating Countries in the Declaration of Cooperation,” OPEC said at the end of the meeting.

The next OPEC+ ministerial meeting is scheduled to be held on 4 December 2022.

While the headline reduction is a massive 2 million bpd, the actual cuts would be around 1 million bpd-1.1 million bpd, industry analysts say. The effective OPEC+ cut as of November will be mostly shouldered by OPEC’s top producer Saudi Arabia, which has been trying to produce to its quota so far. Saudi Arabia is set to reduce 526,000 bpd of crude oil output and will have a target of 10.478 million bpd. Russia has the same target, but it is already well below it, to the tune of around 500,000 bpd.

US Unhappy with OPEC+ Cuts

The White House criticised the announced cuts, saying President Joe Biden “is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.”

“In light of today’s action, the Biden Administration will also consult with Congress on additional tools and authorities to reduce OPEC’s control over energy prices,” US National Security Advisor Jake Sullivan and National Economic Council (NEC) Director Brian Deese said in a joint statement.

“What we think is that this decision by OPEC+ is one purported self-interest — is a mistake and it’s misguided,” White House Press Secretary Karine Jean-Pierre said.

A week later, President Biden told CNN in an exclusive interview that there would be some consequences for Saudi Arabia for its decision together with Russia to steer OPEC+ into a large oil production cut.

“I am in the process, when the House and Senate gets back, they’re going to have to – there’s going to be some consequences for what they’ve done with Russia,” President Biden told CNN’s Jake Tapper.

Some senior US lawmakers called for halting all cooperation with Saudi Arabia. US Democratic Senator Bob Menendez, who is chairman of the US Senate Foreign Relations Committee, called for an “immediate” freezing of US cooperation with Saudi Arabia, including arms sales.

“I pledge to use all means at my disposal to accelerate support for the people of Ukraine and to starve Russia’s war machine. That is why I also must speak out against the government of Saudi Arabia’s recent decision to help underwrite Putin’s war through the OPEC+ cartel,” Menendez said.

Saudi Arabia, for its part, came out with a statement expressing “its total rejection of the statements issued towards it following the issuance of OPEC+ decision, and affirms that the outcomes of OPEC+ meetings are adopted through consensus among member states.”

“The Kingdom stresses that while it strives to preserve the strength of its relations with all friendly countries, it affirms its rejection of any dictates, actions, or efforts to distort its noble objectives to protect the global economy from oil market volatility,” the statement from Saudi Arabia’s Foreign Ministry said.

Other producers of the OPEC+ coalition also issued statements defending the group’s decision to reduce oil production.

The UAE’s Energy Minister Suhail al-Mazrouei wrote on Twitter, “I would like to clarify that the latest OPEC+ decision, which was unanimously approved was a pure technical decision, with NO political intentions whatsoever.”

Iraq, Kuwait, Oman, Bahrain, Algeria, and Malaysia also issued similar statements saying they support the decision which was taken unanimously and was necessary to provide stability to the market.

Oil & Gas Contracts in the Middle East

Keppel Corporation announced in mid- October that its wholly-owned subsidiary, Keppel Offshore & Marine, had completed the modification works for four KFELS B Class jackup rigs which would be deployed on bareboat charters in Saudi Arabia in October. The rigs are being chartered in pairs to Arabian Drilling Company (ADC) and ADES Saudi Limited Company (ADES), respectively. The rigs are on bareboat charter contracts for three years with options for a year’s extension and will be deployed in Saudi Arabia to work for Saudi Aramco.

“As utilisation and day rates continue to rise, we are seeing demand for modern, high specification jackup rigs grow,” said Tan Leong Peng, Managing Director (New Builds) of Keppel O&M.

Saudi Aramco has started construction of two offshore fabrication yards in collaboration with international partners. Thus, Aramco aims to deliver a more than 200% increase in Saudi Arabia’s offshore fabrication capacity. The new yards are being constructed in Ras Al Khair in collaboration with National Petroleum Construction Company (NPCC) and McDermott International. The yards are expected to fabricate and assemble offshore platforms, jackets, and structures for subsea pipelines.

In the United Arab Emirates (UAE), Abu Dhabi National Oil Company (ADNOC) announced the award of a contract worth $1.53 billion to ADNOC Drilling. The award supports the expansion of ADNOC’s offshore operations and its objective to responsibly increase production capacity and meet the growing global demand for reliable, lower-carbon intensity oil and gas. ADNOC Offshore awarded the two-year contract which covers the provision of 12 jackup rigs and two island rigs and the associated Integrated Drilling Services (IDS).

ADNOC also awarded in October a contract worth $980 million to ADNOC Drilling to hire two jack-up offshore rigs and associated manpower and equipment.

ADNOC also said that a new world record for the longest oil and gas well was set at its Upper Zakum Concession in October. ADNOC Drilling drilled the oil and gas well from Umm Al Anbar, one of ADNOC Offshore’s artificial islands. Stretching 50,000 feet, the well is around 800 feet longer than the previous world record set in 2017 and supports ADNOC’s efforts to expand production capacity, the company said.

In major LNG exporter Qatar, Saad Sherida Al- Kaabi, the Minister of State for Energy Affairs and the President and CEO of QatarEnergy, said in early October that three new partners would be entering the North Field South (NFS) project in addition to the partner recently announced.

“The partnership model we are adopting has been very successful in making us what we are today, giving us the ability to develop the best competencies, capabilities, technologies, and marketing support,” Al-Kaabi said.

On 23 October, QatarEnergy announced it had selected Shell as its second international partner in the North Field South (NFS) expansion project, which comprises 2 LNG mega trains that will have a combined capacity of 16 million tons per annum (MTPA) and which will raise Qatar’s total LNG production capacity to 126 MTPA. Shell will have an effective net participating interest of 9.375% in the NFS project, out of a 25% interest available for international partners. QatarEnergy will hold the remaining 75% interest.

Italy-based engineering group Saipem said on 19 October it had been awarded a US$-4.5 billion contract by Qatargas for the North Field Production Sustainability Offshore Compression Complexes Project – EPC 2 located offshore the northeast coast of Qatar.