Middle East seen as haven for big energy projects as N. America, Arctic reel from oil price crash

Middle East USA World

The Middle East is pushing ahead with most of its top oil and gas projects planned as higher cost regions including the US, Canada and the Arctic suffer the brunt of cancellations due to the latest crash in oil prices.

Analysts told S&P Global Platts that the Middle East, blessed with vast reserves of oil that are relatively easy to drill, benefits from far lower break even costs for developments than other regions, such as North America, where shale and oil sands projects are comparatively capital intensive.

That makes the Middle East ‘a safe haven for investment,’ Audun Martinsen, head of Oslo-based consultancy Rystad Energy’s oil field service research, said.

According to Martinsen’s estimates, projects in the Middle East can break even at Brent prices of $20-$30/b, while North American projects require an average of $50/b. Russia is around $40/b and Africa and Asia are about $55/b. They all assume a 10% return on capital.

Not immune
However, the Middle East is not completely immune to the recent market plunge, which has prompted many oil companies to slash budgets and defer investments.

Oil prices have crashed to almost 20-year lows after Saudi Arabia and Russia couldn’t agree earlier this month on extending output cuts beyond March, while a double whammy to crude demand came in the form of the coronavirus pandemic.

Rystad projects that three of the top 10 most expensive oil and gas projects planned for the next two years in the region are at risk of being halted — Abu Dhabi National Oil Co, or ADNOC’s Hail & Ghasha ultra-sour gas project, valued at $12.6 billion, Qatar’s $2.5 billion sustainability of its natural gas giant North Field, and ADNOC’s new shallow gas deposit on the Abu Dhabi-Dubai border with development estimated at $2 billion.

Italy’s Eni is meanwhile reviewing its projects in the Middle East, including its 25% interest in Ghasha, Fuad Krekshi, the company’s executive vice president for Middle East, said on Tuesday.

“The oil and gas sector is now expecting lower oil prices for longer and full development cost breakevens will need to continue to come down resulting in more expensive and hard to handle projects, such as Abu Dhabi’s ultra sour gas project, to be reconsidered,” said Chris Midgley, head of S&P Global Platts Analytics.

ADNOC’s position
Saudi Aramco has been the most vocal in the Middle East about cutting capital expenditures, while still maintaining projections for increased supplies.

Aramco lowered its capex budget for 2020 to $25 billion-$30 billion, from a previous guidance of $35 billion-$40 billion.

In Europe, rivals BP and Total have both said they could reduce capital spending by 20% this year without identifying specific project cuts.

ADNOC, however, has shown no signs of pulling back.

“Our focus on driving performance, profitability and efficiency has made us more resilient, agile and responsive to market dynamics,” ADNOC CEO, Sultan Ahmed al-Jaber said in a recent statement. “These guiding principles remain unchanged as we move forward with projects across our value chain.”

Qatar’s stare-run company Qatargas declined to comment on prospects for its North Field sustainability project

The North Field sustainability project is a crucial part of Qatar’s strategy to sustain gas production, Martinsen said. The job includes two new nine-slot wellhead platforms, including topsides, jackets and piles. Qatargas requires one jacket for another nine-slot platform, he said.

Rystad expects ADNOC to proceed with its $8.6 billion Upper Zakum expansion, and for Qatargas to go ahead with its $54 billion North Field expansion.

The top 10 projects in the Middle East that Rystad has identified represent

$100 billion in total greenfield investments.

“The risk is higher for upstream projects than for midstream and downstream projects as Saudi Aramco, in this price war, short term, will prioritize processing and production of oil products versus increasing production capacity, which takes some years to develop,” said Martinsen.

Meanwhile Platts’ Midgley noted that the Middle East’s energy supplies will be needed for many years to come, despite global energy policies giving more attention to renewables and carbon capture.

“Many of the region’s low cost gas and oil projects will be needed to meet the growing energy demand of the future in order to offset declines,” he said.
Source: Platts

Please follow and like us: