The OPEC-Middle East Investment Cycle. Bassam Fattouh. Oxford Institute for Energy Studies

Transcription

1 The OPEC-Middle East Investment Cycle Bassam Fattouh Oxford Institute for Energy Studies OIES OIL DAY, ST CATHERINE'S, OXFORD, NOVEMBER

2 OPEC Output At Record Levels Saudi Arabian oil output, mb/d Iraqi oil output, mb/d Saudi Arabia has been producing consistently above 10 million b/d in part to meet the increase in domestic demand and maintaining market share in key markets Despite deteriorating security situation and deteriorating finances, Iraq has surprised on the upside with Iraqi output above the 4 million b/d mark in an attempt to maximize revenues

3 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Iraq s Growth To Slow Down Iraq Rig Count Iraqi rig count has halved with government facing serious fiscal pressures Under fiscal pressures, Iraqi government has been forced to revise downwards it production target negotiating with oil companies new plateaus

4 Decline Rates Accelerating in Some Mature Areas Algerian oil production, mb/d Qatari oil production, mb/d Algeria s oil production falling fast and investment prospects remain limited to reverse declines Qatari oil production falling fast with NGLs exceeding crude output Source: Energy Aspects, MEES

5 Long Term Implications on the Investment Environment Unrest colors perception of regional risk as a whole as risk of contagion continues raising cost of finance Libya output vs IEA 2005 forecast, mb/d Political instability and policy uncertainty Weighs on investment decisions Delays in bid rounds; Delays in passing new regulations Inability to implement large infrastructure projects in some countries Weak institutions and bureaucratic delays Customs procedures, clearance, visa processing, port regulation, etc How to distribute revenues internally become a key issue encouraging separatist tendencies Iraq: Central government-kurdish region; Oil provinces trying to gain greater control

6 This is Not Only Confined To Affected Directly by Conflict Kuwait oil production, mb/d Neutral Zone Oil Fields, mb/d Kuwait has ambitious plans to increase capacity to 4 million b/d by 2020 but production is most likely to decline Weak business environment, volatile politics, mature fields, unattractive terms, and (now) border disputes

7 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13 1/14 5/14 9/14 1/15 5/15 UAE Contribution Marginal UAE Oil Output, mb/d UAE Rig Count, mb/d oil gas In 2015, UAE managed to increase its output by around 0.1 mb/d UAE moving with its expansion plans but target of 3.5 mb/d production likely to be pushed from 2017 to 2020

8 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13 1/14 5/14 9/14 1/15 5/15 Saudi Arabia Production to Remain Elevated Saudi Arabia Rig Count Saudi Arabia Refinery Runs Oil Gas Internal and external factors shaping Saudi Arabia production, which will remain elevated in the mb/d range Saudi Arabia production will continue to rise to meet increased demand from domestic refineries, as domestic consumption rises, and stocks rise

9 Optimum Strategy in Face of Uncertainty

10 Potential Impact of Iran s Return on Oil Market Multiple sanctions (combination of US, EU, and UN sanctions) and mismanagement hampering Iran s oil sector development and its output potential Potential impact on oil markets through variety of channels Change in market expectations about a major source of supply growth with a big reserve base Change in market expectations regarding dynamics within OPEC (Saudi Arabia vs Iran) Short-term impact on market: Available liquids in floating storage Restoring main fields to pre-disruption level New projects recently completed or about to come on stream in Longer term: Development of new projects with help of IOCs expertise (Iran unveiled a list of 49 projects) Implementing enhanced recovery methods on mature fields Developing and expanding on new projects (priority given to shared fields) Iran oil Exports by Destination, kb/d Source: OPEC

11 Restoring Production from Existing Fields Most of the cut has been shouldered by the large onshore fields (Ahwaz, Marun, Gachsaran) Other fields have been on a decline path; Estimates of 8% annual decline rates In 1979, fields were not shut in properly leading to loss of reservoir pressure and Iran never recovered to the pre-revolution level Iranian government claims that some of bigger fields have benefited form being shut and field pressure has been enhanced But restoration to the pre-disruption level can t be taken for granted Concept that shutting fields enhance pressure may be wishful thinking and needs to be tested Government likely to be able to increase thousand b/d by end of 2016 by applying EOR in mature fields Iranian Onshore Oil Production, mb/d Source: Energy Aspects

12 Offshore Fields Suffering from High Decline Rates Offshore fields suffering from even higher decline rates 12% on average Iranian Offshore Oil Production, kb/d Increase in condensate production from South Pars helped offset some of the decline from offshore fields, but this has increased the ratio of condensates to crude Most offshore fields declined in recent years with only Foroozan and Salman receiving small boosts from gas injection Source: MEES, Energy Aspects

13 Increase in Condensates will Offset the Declines In the next 18 months, the main increase in offshore production will come from South Pars But this means more condensates and it may not be enough to offset the declines in crude from other offshore fields South Pars Condensates, kb/d Project Developer Current Target Remarks South Pars 12 POGC Completed and Inaugurated in 2015 South Pars POGC Early 2016 South Pars POGC Source: MEES, Energy Aspects

14 New Upstream Projects Facing Serious Delays Focus has been mainly on West Karun fields North Azdagan, South Azdagan, North Yaran, South Yaran, Darquain, Jofier Iran was forced to rely on Chinese companies (CNPC, Sinopec) But not successful and many of the projects have been facing delays and as a result some contracts have been cancelled Most of these projects are producing well below their production targets Government s plan to bring three projects online quickly adding 240,000 b/d by 2016, but unlikely to be successful with all Especially with limited investment; Iranian oil minister: Because the drop in the oil price, almost nothing has been set aside for investment in the oil industry this year Project Developer Current Production Target Plateau Year Start-up in 2014; Three phases scaled back to one phase with production 0.1 Yadavaran Phase Sinopec mb/d Azar Phase 1 NIOC ; Shared Reservoir with Badra Field North Yaran PEDEC ~ South Yaran NIOC North Azdagan Phase 1 CNPC ; Facing delays; Shared with Majnoon North Azdagan Phase 2 CNPC South Azdagan Phase 1 No ~ CNPC contract cancelled South Azdagan Phase 2 No NA Foroozan NIOC South Pars Oil Layer Phase 1 PEDEC Source: EIA, Energy Aspects

15 The Challenge of Increasing Long-Term Productive Capacity The contractual terms The Iran Petroleum Contract Dealing with a new business elite During the Ahmadinejad time a new business elite emerged led by Iran s Islamic Revolutionary Guard Core (IRGC) Increase influence in the economic sphere particularly in construction and oil services but even at the ministry and the NIOC (currently around 250,000 employees) Not clear how this business elite will respond to opening of sector They have the power to slowdown things Bureaucratic procedures, red tape, unfriendly business environment, weak institutions Implementation of large infrastructure problems (mainly the gas injection projects needed to increase production) US secondary sanctions (IRGC still deemed a terrorist organization) Companies have to take into account the risk of snap sanctions The Foreign Corrupt Practices Act (FCPA) Source: Global Competitiveness Report

16 The Middle East-OPEC Investment Cycle Country Oil capacity (mb/d) Oil growth potential Saudi Arabia 12.5 High Iraq 4 High Kuwait 2.8 Medium Iran 3.6 Medium Libya 1.6 Low Qatar 2.8 Low Algeria 1.2 Low UAE 2.7 Low Comments Investment may be delayed by uncertainty over long-term demand for oil exports. Potential to more than double production, but security, bureaucratic and political hurdles will moderate growth. Political uncertainty and restrictions on investment likely to contribute to missing target of 4 mb/d by Nuclear deal and the lifting of sanctions needed to unlock growth. Technical issues may slow any increases. Significant reserves, but exploration and production will struggle until political stability amd security returns. Oil output growth prospects limited. Moratorium on gas projects, but debottlenecking may raise LNG exports. Substantial decline rates in oil and gas fields; investment prospects remain limited; political stability fragile. Target of 3.5 mb/d production likely to be pushed from 2017 to 2020, limited supply growth prospects.