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Hazloc Heaters
Copper Tip Energy Services
Copper Tip Energy
Hazloc Heaters

In OPEC Heartland, Billions Are Spent to Boost Oil Capacity

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These translations are done via Google Translate
Nov 12, 2018, by Anthony DiPaola and Mohammed Aly Sergie

OPEC members may be weighing oil production cuts again, worried that a slowing global economy will undermine prices, but in the group’s Middle East heartland producers are spending billions to add output capacity for the long term.

As the global oil industry recovers from one of the worst slumps in its history, the biggest international energy companies are keeping their checkbooks closed and tightening up on investment so as to boost returns to shareholders. National oil companies in the Middle East, home to 48 percent of the world’s reserves, are bucking the trend.

Iraq, Saudi Arabia, Kuwait and the United Arab Emirates are among Middle Eastern producers that are drilling wells to maintain or boost output, in an expansion comparable to the surge in U.S. shale oil since 2010. Abu Dhabi, home to most of the U.A.E.’s oil deposits, this month increased planned spending by 22 percent to exploit recent discoveries and raise capacity.

“Globally we’re looking at a pretty flat picture, but underneath that headline number there is growth in some areas” of upstream investment, said Richard Mallinson, an analyst with consultant Energy Aspects Ltd. in London. “We’re beginning to see a pick up in activity from some of the state-owned producers in the Middle East.”

Ministers from OPEC and allied producers met in Abu Dhabi on Sunday to discuss scenarios including the possibility of cutting output. Crude futures are wilting in the face of another historic shale boom, prompting the suppliers to discuss an about-face in production. Saudi Energy Minister Khalid Al-Falih said Monday that producers need to cut about 1 million barrels a day from October output levels.

The planned boost in capacity signals that Persian Gulf producers want to be ready to meet future demand. Almost two-thirds of the 7.8 million barrels of extra oil that OPEC expects the world to need in 2025 could come from planned capacity expansions in Iraq, Kuwait and Abu Dhabi, Bloomberg calculations show.

“There are many countries that are suffering production declines, therefore we need to continue to invest,” U.A.E. Energy Minister Suhail Al Mazrouei told reporters on Sunday in Abu Dhabi.

OPEC members have sometimes fallen short of similarly ambitious targets. In June 2014, Iraq announced that its production would more than double to 8.4 million barrels a day by 2018. That was just before crude prices collapsed and Islamic State militants seized much of the nation, stifling the planned increase. It’s now producing about 4.6 million barrels a day.


“We in Abu Dhabi have been very optimistic and, in a way, bullish about the market situation,” Abu Dhabi National Oil Co. Chief Executive Officer Sultan Ahmed Al Jaber said on Nov. 6 in Singapore. “In our view, the market is actually physically very stable. It is only the emotions that are somewhat unstable,” he said at the Bloomberg New Economy Forum.


This sentiment is evident in the reluctance of oil majors to commit to new investments and to opt instead to give out cash to shareholders.

“Investors are still cautious” about supporting listed companies’ forays into costly development projects, said Mustafa Ansari, a senior economist at the Arab Petroleum Investments Corp. in Dammam, Saudi Arabia. That “reflects the general risk associated with oil prices, and the stability of the market going forward.”

The calculus for oil-producing countries in the Gulf is different. State-owned companies in the region are shielded from the demands of stock-market investors, and they benefit from some of the world’s lowest production costs.

Government-owned Abu Dhabi National Oil wants to raise capacity to 4 million barrels a day by the end of 2020 and 5 million by 2030, aided by a recently approved five-year, $132 billion budget. Saudi Aramco plans to spend more than $300 billion over the next decade to maintain its 12 million barrel-a-day capacity and boost gas output.

Iraq targets capacity of 7.5 million barrels a day by 2025, while Kuwait has a goal of 4 million. U.S. shale output is also on a tear and will help total American production grow by at least 1.3 million barrels by 2025, according to the Energy Information Administration.

All of this may still not be enough. While global spending on new and existing oil and gas projects will rise 5 percent this year to $480 billion — nearly 40 percent less than in 2014 — investment won’t reach the $600 billion the industry needs annually through the next decade to meet future demand, according to consultant Wood Mackenzie Ltd.

“On a global basis, we aren’t seeing enough supply to keep the market adequately supplied in the mid-2020s,” Mallinson of Energy Aspects said.

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