Following the dramatic decline of oil prices, oil and gas producers in the Middle East have readjusted their strategies and priorities to adapt to the new price levels, especially since oil revenue remains the main source of income for countries in the region. The Middle East controls more than 51% of the global proven crude reserves and 42.2% of the world’s proven gas reserves. These reserves are, for the most part, located in super-giant or giant oil fields. Among the 20 giant oil fields in the world, 13 are located in the region, mainly in Saudi Arabia, which has five super-giant fields that include Ghawar and Safaniya. Additionally, there is Rumaila in Iraq, Zakum in the United Arab Emirates (UAE) and Burgan in Kuwait. Qatar and Iran share the world’s largest gas deposit, the North Field in Qatar and the South Pars in Iran.
The region is also the world’s leading oil producer. Five countries produce more than 2 MMbbl/d, and the cost of oil exploration from the region is considered the lowest in the world, at an average of $3/bbl, compared to other regions, where the cost is about $20/bbl.
“Amid the current oil prices, the prospects for increased oil production vary significantly from country to country as ongoing investment focuses not only on the development of new capacity but also on compensating for the natural decline in current deposits despite OPEC’s decision to slash output to support prices,” said Mohammed Maameri, head of research at Saudi Arabia-based Argaam Business Info.
The majority of the announced development projects are offshore fields located in the Arabian Gulf, one the world’s shallowest seas with depths rarely exceeding 100 m (328 ft), compared to the Red Sea, which remains underexplored.
Saudi Arabia: Offshore Focus
For instance, Saudi Arabia, the world’s swing producer, decided to fl oat a 5% stake of Saudi Aramco in a move that aims to diversify the kingdom’s economy. Saudi Aramco, which operates 130 fields, according the its 2016 annual review, unveiled a plan to invest more than $300 billion over the next 10 years in oil and gas as it looks to counter the effects of investment decline and a potential energy shortage.
“We plan to invest more than $300 billion over the coming decade to reinforce our preeminent position in oil, maintain our spare oil production capacity and pursue a large exploration and production program centering on conventional and unconventional gas resources,” said Saudi Aramco’s CEO Amin Nasser during his keynote speech at the World Petroleum Congress in Istanbul, Turkey.
Saudi Aramco also reported that recoverable crude oil and condensate reserves totaled 260.8 Bbbl at yearend 2016, little changed from 261.1 Bbbl in 2015. Gas reserves grew to 8.5 Bcm (298.7 Tcf). The majority of the kingdom’s oil production comes from onshore sites such as the giant Ghawar Field, which accounts for 7% of total global oil supply. Meanwhile, the company’s offshore production contributes to almost 20% of the country’s production, namely Safaniya, Marjan, Zuluf, Berri, Manifa and Abu Safah, a field it shares with Bahrain.
In 2016 Saudi Aramco said it made progress with the Shaybah and Khurais oil fields, which are set to rebalance its crude quality and help compensate for other mature fields, thus keeping Aramco’s oil production capacity unchanged at 12 MMbbl/d. The company said it started production at 250,000 bbl/d at the Shaybah Field, raising its overall production capacity to 1 MMbbl/d of Arabian extra light crude oil, doubling the facility’s original capacity. Meanwhile, Saudi Aramco expects to start production from Khurais Field by mid-2018, which will raise capacity from 1.2 MMbbl/d to 1.5 MMbbl/d.
The company also has recently launched studies to expand its offshore oil fields Berri and Marjan, as it aims to increase production by 250,000 bbl/d of crude oil from Berri, possibly by building drilling islands offshore in the Gulf, while also processing higher pressure associated gas for sweetening in Khursaniyah. In July Aramco awarded the project management and FEED services to Australian engineering firm WorleyParsons.
The company also is considering building new facilities to add production of Arabian heavy crude from the Zuluf offshore oil field. Zuluf’s production capacity is between 550,000 bbl/d and 600,000 bbl/d.
UAE: Tapping Sour Gas
In the UAE the Supreme Petroleum Council, Abu Dhabi’s top oil industry decision-making body, approved Abu Dhabi National Oil Co.’s (ADNOC) five-year business plan and budget, which includes a commitment to boost oil production by 400,000 bbl/d by 2018 to 3.5 MMbbl/d. Abu Dhabi controls more than 85% of the UAE’s oil output capacity and more than 90% of its reserves, while Dubai and the northern emirates have a minor share.
ADNOC is adapting to the evolving market environment by maximizing operational efficiencies, increasing crude oil production capacity targets and reducing costs.
Currently, ADNOC is developing Upper Zakum Field, the world’s second largest offshore field, with 50 Bbbl of reserves. The field’s production capacity will increase from the current 640,000 bbl/d to 750,000 bbl/d in two phases and is set to be completed this year. There are also proposals to raise production there to 1 MMbbl/d by 2024. In addition, work on the second phase of development of Umm Lulu, due for completion in 2018, should lift oil production above 100,000 bbl/d.
Meanwhile, increasing gas production remains ADNOC’s top priority given the shortage the country faces. ADNOC’s investment committee is considering proposals for a $20 billion development of the Hail and Ghasha, Delma, Nasr and Shuwaihat “ultra-sour” gas fields. The sour gas prospect is estimated by analysts to contain about 141.5 Bcm (5 Tcf) of gas and forecast to produce 28 MMcm/d (1 Bcf/d), which would equate to about 18% of the UAE’s current demand.
“Tapping into undeveloped gas reservoirs is part of ADNOC’s focused strategy to drive a more sustainable and economic gas supply,” the director of upstream activities at ADNOC, Abdul Munim al-Kindy told local media.
Production costs of deep and mildly sour gas projects in the Gulf are between $5 per MMBtu and $6 per MMBtu, but domestic sales prices range from 75 cents to $2, with negligible prices for household, according to local analysts.
Al Hosn Gas, which is owned by ADNOC (60%) and Occidental Petroleum (40%), respectively, last year delivered the $10 billion Shah project on time and on budget. Shah produces 28 MMcm/d and has recently unveiled plans to boost production by 14 MMcm/d (500 MMcf/d). The company awarded a FEED services contract to U.K.-based Amec Foster Wheeler.
Qatar: Lifting Moratorium On Development
Meanwhile, Qatar lifted a self-imposed ban on development of the North Field, the world’s largest natural gas field, and announced a new project to develop its southern section to raise Qatar’s LNG production from 77 million to 100 million tons per year.
“Last April we announced our intention to develop a new gas project in the southern sector of the North Field that can be targeted for export,” said Saad Sherida Al-Kaabi, president and CEO of Qatar Petroleum (QP). “With the conclusion of further technical studies, we have decided that the best option would be to double the size of the project to 4 billion cubic feet of gas per day, which constitutes a 20% increase from the current North Field production rate, or about 1 million barrels of oil equivalent per day.”
In addition, QP and Total announced in early July that they will invest $3.5 billion over five years in Qatar’s offshore Al Shaheen oil field and expects to keep production running at 300,000 bbl/d in the future. The field will be developed by North Oil Co., a joint venture between QP (70%) and Total (30%), which replaced the field’s former operator, Maersk Oil.
Kuwait: Eyeing 4 MMbbl/d
Kuwait has continued to expand its capex on oil and gas activities. Kuwait Petroleum Corp. (KPC) through its upstream subsidiary Kuwait Oil Co. plans to increase production to 4 MMbbl/d by 2020 from its current production of about 3.15 MMbbl/d. Kuwait’s production capacity includes 700,000 bbl/d from the north fields, 500,000 bbl/d from the west fields and 1.7 MMbbl/d from the Greater Burgan, in addition to production coming from joint fields.
A key component of Kuwait’s plans to increase its oil production will come from heavy oil resources. This includes the first phase of the Lower Fars Heavy Oil Development Program in Ratqa Field in North Kuwait, which is being developed by a consortium led by Petrofac and set to produce about 60,000 bbl/d by 2018.
Iraq: Opening Border Fields
Iraq also is boosting its E&P activity, as it managed to maintain its production output at about 4.58 MMbbl/ d. A recent report by Wood Mackenzie said Iraq’s southern technical service contracts have added 2.3 MMbbld/ of oil production since 2009. Of this, 700,000 bbl/d, or 30%, is offsetting baseline decline while 1.6 MMbbl/d, or 70%, is growth. In the report, Wood Mackenzie explained that Iraqi oil fields will require large-scale water injection to achieve the expected recovery rates. The Rumaila Field is injecting close to 1 MMbbl/d of water sourced from the Shatt alArab river. This will support a 60% recovery factor in the Main Pay (Zubair Formation).
Iraq’s Oil Ministry has named nine oil and gas projects— both discovered fields and exploration blocks— along the borders with Iran and Kuwait available for foreign oil company investment by the end of the year.
Iran: Fresh Start
Iran also has unveiled an ambitious plan to invest in its upstream sector, where it would need $200 billion worth of investments in oil and gas projects in coming years to meet production targets. Most of the investment is marked to come from international companies. National Iranian Oil Co. (NIOC) signed the country’s first energy contract in early July with a Western oil major since the lifting of sanctions. Total and China’s CNPC agreed with NIOC to develop South Pars Phase 11 under Iran’s new contract model, Iran Petroleum Contracts.