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The latest developments in the MENA region

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Oilfield Technology,

MENA — The largest oil & gas holding region in the world

Energy is considered the most critical ingredient for the development of any economy. For decades, the MENA region has played a significant role in the global energy ecosystem and supported industrialisation and economic growth in several countries around the world. The Middle Eastern and North African (MENA) region holds about 57% of the world’s proven oil reserves and about 41% of the natural gas resources. The geological framework of the region favours the generation and accumulation of large oil and gas reserves.

The region is home to some of the world’s largest conventional onshore and offshore oil and gas fields. The most prominent fields in the region include Ghawar and the Safaniya oil fields in Saudi Arabia, the Burgan oil field in Kuwait, the Rumaila oil fields in Iraq, and the South Pars/North Dome gas field, co-owned by Iran and Qatar. The North African oil and gas landscape revolves primarily around three producer countries: Algeria, Libya, and Egypt.

Figure 1: Distribution of the world’s proven oil and gas reserves in 2020. Source: BP Statistical Review of World Energy, 2021.

All conventional basins across the world also contain large volumes of shale. It is estimated that the MENA region has 2547ft of shale gas reserves. Some Middle Eastern countries such as Saudi Arabia, UAE, Bahrain, and Oman are developing shale oil and gas fields in the region, such as Khazzan, South Ghawar, Jafurah, and Rub’ Al Khali.

The Oil & Gas Sector in the region is highly regulated and controlled through the national oil companies (NOCs)

The energy and resources sector is the cornerstone of economic growth and development for Middle Eastern and North African countries. Since oil- and gas-related activities are the primary source of revenue for the government, it is a strictly regulated sector. National oil companies (NOCs) are responsible for developing the oil & gas sector in their respective countries. A few of the prominent NOCs within the region are Saudi Aramco, National Iranian Oil Company, Iraq National Oil Company, Kuwait Petroleum Corp., Qatar Energy, Sonatrach Algeria, OQ Oman, National Oil Company Libya, and ADNOC.

Figure 2: Prominent NOCs in the region.

NOCs enter strategic partnerships with international oil companies (IOCs) such as BP, Chevron, Shell, Exxon Mobil, etc., to develop oil and gas fields within the region. While IOCs get access to the country’s oil and gas reserves, NOCs benefit from IOC’s technological prowess and financial capabilities.

Another important stakeholder in the value chain is the oil field service (OFS) providers. These companies provide necessary products and services to explore and develop wells and further production of oil & gas from those wells. Notable international OFS companies in the region are Schlumberger, Baker Hughes, Halliburton, Weatherford, etc. When doing business with the Middle East NOCs, suppliers and service providers need to demonstrate compliance with the in-country value addition requirements that have been introduced by Aramco (IKTVA), ADNOC (ICV), and Oman’s Ministry of Oil and Gas (ICV), with Kuwait and other producer nations likely to follow suit.

Figure 3: Revenue (US$ billion) of the MENA NOCs. Source: Annual reports of the respective companies.

The MENA region has been the backbone of the world’s energy ecosystem for decades

Oil and gas producers in the Middle East and North Africa have been the backbone of the global energy system. Historically, the region has contributed to about 37% of the world’s total oil supply and approximately 35% of the world’s total gas supply.

Current crude oil production in the MENA region stands at approximately 30.4 million bpd, amounting to about 31% of the total oil produced in the world. Natural gas production is about 925 billion m3, roughly 23% of the total gas produced globally.

Currently, the region accounts for approximately 50% of oil exports and 15% of natural gas exports worldwide. Major oil producers within the region include Saudi Arabia, Iraq, UAE, Kuwait, and Iran. The gas production in the MENA region is dominated by Iran, Qatar, Saudi Arabia, Algeria, Egypt, and UAE.

Figure 4: Oil production of key producer countries in MENA, 2021, million bpd. Source: International - US Energy Information Administration (EIA).

Figure 5: Natural gas production of key producer countries in MENA, 2021, billion ft3. Source: EIA.

Strong outlook for the upstream sector in the MENA region—NOCs are investing in production capacity expansion

MENA’s five-year (2022 – 2026) energy investment portfolio comprises a total investment of US$879 billion, which is a 9% increase over the investment projection for 2021 – 2025. Of all the projects in the pipeline for implementation, about 30% are in the execution phase, while the remaining 70% are in the planning stage. The increase in project expenditure is spearheaded by the GCC, with committed projects making up more than 45% of the Gulf States’ total energy investments.

National oil companies in the region have committed investments in the upstream sector to increase the country’s oil and natural gas production in the coming years:

The Middle East oil & gas sector landscape has always been the focal point of global energy dynamics. The sector has recently gone through significant challenges and changes, and, as a result, future investment commitments in the region have become more diverse, with a focus on LNG, more complex offshore projects, renewables, and decarbonisation. The trend aligns with the energy transition plan for most global economies.

An increasing focus on energy security and low-carbon investment may pose a threat to the growth of the region’s upstream sector

The ongoing Russia-Ukraine tension has deeply impacted the European energy supply market. The European Commission announced plans to make the continent independent of Russian fossil fuels through the widespread adoption of renewable energy and diversification of natural gas supplies. Frost & Sullivan identified five trends that will shape the global energy landscape in the coming years:

  1. Energy security will be the foremost priority for most nations.
  2. Renewables adoption will no longer be by choice but out of necessity.
  3. Fossil fuel prices are to become a key geo-political lever for the energy-supplying nations.
  4. Coal and oil will be reduced to regional fuels.
  5. Demand for natural gas, a transitioning fuel, will depend on its affordability.

Fossil fuel importers are always vulnerable to supply disruption and price volatility; therefore, tapping into a country’s indigenous resources for energy needs will gain priority in the coming decades. As countries reduce dependence on energy imports, the upstream sector, which is dominated by the MENA region, may be affected as supply may outstrip demand. Further, a demand reduction would create a stagnant low-price environment in the oil market that will impact the upstream operator and the producing nations.

Figure 6: Average annual renewable capacity additions (GW), 2021 – 2026. Source: International Energy Agency (IEA).

The global energy industry is going through a huge transformation, and the future of the MENA oil & gas sector is one to watch. It will be interesting to see how the regional NOCs navigate these interesting and challenging times and usher in a low-carbon environment.

Written by Rudranil Roy Sharma, Director, Energy & Environment Practice, Frost & Sullivan

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