End of Easy Mideast Oil Means Work for Exxon, BP: Energy Markets
Employees are seen on an oil drilling rig in Bahrain on Wednesday, Jan. 5, 2011. Photographer: Phil Weymouth/Bloomberg
United Arab Emirates Oil Minister Mohamed Al-Hamli
Jonathan Drake/Bloomberg
Technology is the “key to prolonging the life span of the reservoirs, and we’ve been doing this with our partners for a long time,” Mohamed Al-Hamli, oil minister of the United Arab Emirates, said yesterday at the World Petroleum Congress in Doha, Qatar.
Technology is the “key to prolonging the life span of the reservoirs, and we’ve been doing this with our partners for a long time,” Mohamed Al-Hamli, oil minister of the United Arab Emirates, said yesterday at the World Petroleum Congress in Doha, Qatar. Photographer: Jonathan Drake/Bloomberg
The Middle East will need more help from international investors to keep the title of world’s biggest oil and gas producer because its remaining deposits are harder to get at.
Technology is the “key to prolonging the life span of the reservoirs, and we’ve been doing this with our partners for a long time,” Mohamed Al-Hamli, oil minister of the United Arab Emirates, said yesterday at the World Petroleum Congress in Doha, Qatar. “We are forced to go down the road of enhanced oil recovery and using more advanced technology.”
Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA) and other international oil producers will combine with state-owned companies to spend $40 billion in 2013 on developing resources in the Middle East, up 18 percent on last year’s tally, according to Wood Mackenzie Ltd. Fields that require technology, such as steaming to extract heavy oil in Kuwait or stripping sulfur out of Abu Dhabi’s natural gas, will attract much of that spending.
Demand for energy will grow faster in the Middle East over the next two decades than any region other than Asia, according to the International Energy Agency. Rising consumption of crude oil and natural gas at home will put pressure on Saudi Arabia, the U.A.E. and other governments to keep production high enough to maintain export revenue that finances government spending.
‘Easier Oil’
Middle East countries “have definitely produced most of their cheaper and easier oil,” Iain Brown, the head of regional research at Wood Mackenzie, said in a telephone interview. “These are projects where national oil companies have greater need for support from international oil companies, because the international oil companies have had more experience of these challenging conditions.”
The increasing expense of drilling oil has helped Brent crude futures, the benchmark price for about two-thirds of the world’s oil, rise fivefold over the last decade. Brent oil for January traded as high as $109.94 a barrel today on the ICE Futures Europe exchange in London.
Executives from international and national oil companies are meeting with state officials during the four-day World Petroleum Congress this week in Qatar. The chief executive officers of BP Plc (BP/), Shell, Exxon and ConocoPhillips spoke today. BP’s Robert Dudley said the energy industry needs to add the equivalent of a large, Saudi Arabia-size producer each year to offset the decline in output capacity at existing oil fields.
Technology Transfers
“A large driver in access to new reserves throughout the region will be Middle East states’ need for technology transfers,” said Samuel Ciszuk, a consultant for KBC Asset Management U.K. “Private investment at a time when several of the countries experience sharply rising demand from their own populations for higher social spending is also an important factor.”
So-called enhanced-oil-recovery techniques to get oil from geologically challenging reservoirs and maintain production at mature fields will be a focus of international oil company investment.
Chevron Corp. (CVX) plans to use steam underground to heat heavy crude in the area straddling Kuwait and Saudi Arabia’s border and make it liquid enough to pump. The project would be the largest so-called steam-flood development in the world when it is fully deployed in 2017, according to the U.S. company.
Mature Fields
Exxon and Total SA (FP) are also vying to access heavy crude deposits in mature oil fields in Kuwait, where lighter oil has already been pumped. Occidental Petroleum Corp. (OXY) is producing heavy oil using enhanced recovery methods in Bahrain.
“The days of easy oil are over,” the U.A.E’s al-Hamli told reporters yesterday. “In order to maximize the potential, we have to have enhanced oil recovery.”
Another focus for investment will be natural gas, which is gaining prominence in the region as a fuel for export and domestic power generation. The IEA’s World Energy Outlook projects that gas output from the region will grow by an average 2.5 percent a year until 2035, faster than crude oil production growth of 1.7 percent a year.
Occidental together with state-run Abu Dhabi National Oil Co. is investing $10 billion to bring on stream the Shah gas field by neutralizing deadly hydrogen sulfide, which is also known as sour gas.
The Shah geology is similar to that of Kidan, a deposit Shell is exploring together with Saudi Arabian Oil Co., also known as Saudi Aramco, in the kingdom’s desert area known as the Empty Quarter. In Iraq, Shell and partners agreed last month to invest $17 billion to capture natural gas from its oil fields and reduce burn-off.
Gas-To-Liquids
Qatar became the world’s largest liquefied natural gas producer with a series of joint ventures with Exxon and other international oil companies. Shell’s $18.5 billion Pearl gas-to- liquids plant, which will use gas to produce 140,000 barrels a day of liquid fuel, will be fully operational next year.
Companies will also focus on tapping unconventional gas fields. In Oman, BP expects to spend at least $15 billion to develop so-called tight gas, locked in a hard-to-break rock that restricts the fuel’s flow.
Saudi Aramco, the world’s largest crude exporter, is looking for a foreign partner to develop shale. Unconventional gas resources will help Saudi Arabia meet rising domestic energy demand, Khalid Al-Falih, the company’s chief executive officer, said today in Doha.
“Unconventional gas will help these countries get the gas they need badly, reduce the use of oil in the power sector, and reduce the threat of reducing oil exports in the future,” to meet energy needs, said Anas Alhajji, chief economist for Irving, Texas-based NGP Energy Capital Management LLC, which manages $10 billion in assets.
To contact the reporters on this story: Anthony DiPaola in Doha at adipaola@bloomberg.net; Eduard Gismatullin in Doha at egismatullin@bloomberg.net; Wael Mahdi in Doha at wmahdi@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Stephen Voss at sev@bloomberg.net
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