Dr. Roger Knight, George Venturas - Infield Systems
Infield Systems takes a look at where the current bonanza of petrodollars will be spent to ensure the continued dominance of this crucial region.
To start, any commentary on the Middle East must have a mention of OPEC and its oil-related policies. Although the administrative base of OPEC is located in Vienna, its heart and soul is without a doubt in the Middle East. Of the 13 official OPEC members, six border the Arabian Gulf. They are Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. With Indonesia’s membership under review because it is now a net importer of crude oil, the Middle Eastern influence has increased to exactly half the members in the oil cartel. Out of the top five spenders in the region, only Azerbaijan is not a member of the organization.
The effects of the rising oil price on the economies of the Middle East oil producing countries have been dramatic. OPEC revenue from oil sales reached $650 billion in 2006, compared with $110 billion in 1998. This represents an increase of nearly 600%. This momentous increase does need to be quantified; however, the purchasing power of the US dollar over the same time has declined significantly. With the dollar losing so much value over recent years, Infield Systems has constructed a graphical depiction of Dubai Spot prices in terms of Euro’s (€) and US dollars ($). The charts show that today’s Euro spot price is only approaching the highs in December 2005, whereas the US dollar price has moved well beyond its then $68 peak. In this, the oil producers have not benefited as much as the headline US dollar price suggests. If this continues, OPEC could effectively review the use of the US dollar as its trading currency.
This article focuses on offshore oil and gas exploration and production. Capital expenditure is calculated by formulating capital expenditure on platforms, pipelines, subsea completions, control lines, and single point moorings going forward. All forecasts utilize Infields proprietary OFFPEX solution.
Regionally in terms of offshore, Iran and Qatar lead the way in total expenditure. Over the next five years Infield expects these two to represent over 50% of regional spending. What is noticeable is the degree to which Iranian expenditure as a percentage increases post 2007 and Qatari expenditure post 2009 declines as a total percentage. It is thought that strategically Qatar’s national oil company, Qatar Petroleum, is embarking on a strategy to consolidate its massive existing investments and production before making future investment assessments.
Spend on Qatar’s North field expansion and Al Shaheen field extension is seen in the Qatar totals especially from 2004 to 2007. The North field was discovered in 1971, but took some 20 years to come onstream, awaiting a suitable LNG market. The field development plan has 30 total phases. In terms of area, the North field is nearly as big as the whole Qatari peninsula.
The Dolphin Project linking Qatar’s North field with the United Arab Emirates is the first major cross-border gas project in the region. The pipelines associated with this project total over 700 km (435 mi) in length and have been exceedingly expensive. In terms of associated fields to come onstream in Qatar, the major activity will be with Shell’s Pearl GTL project and the Qatar Gas IV project, which should be onstream some time in 2009 with further North field expansion work in 2012.
The onshore terminals to process this gas also are going to represent major investments. These are Ras Laffan (Train 6 and 7) due to be completed in 2008/2009 and the Pearl GTL Terminal some time later. The (NIOC) National Iranian Oil Co.’s ambitions are the core drivers for Iranian spend.
South Pars neighbors the Qatari North field and is the same geologically. In contrast to North, South Pars did not come onstream until 2002, after years of delays. This field should represent the bulk of Iranian spend through to 2012. In terms of fields scheduled to come on stream in Iran, phases 6 to 10 of South Pars should be onstream by year-end. The medium sized fields of Henjam/West Bukha and Esfandiar should come onstream next year. Looking forward to 2011, phases 11 and12 of South Pars ought to be producing while phases 15 and 16, and 17 and 18 should be operating finally in 2012.
Complications have emerged over the economic terms of these deals and also due to the French government requesting Total to limit its investments in a country which has been under US sanctions following the siege and takeover of the US embassy in Teheran in November 1979. With the French election of Nicolas Sarkozy earlier this year, there has been a distinct shift in French foreign policy toward Washington, D.C., leading to a harder stance toward Iran than that of previous French administrations.
Following Iran, Kazakhstan should be the second highest spender in the region by 2012 with nearly 20% of regional spend (an increase from only 10% in 2007). Spending in Kazakhstan is dominated by the Kashagan complex that was discovered in early 2000 and is expected to come onstream by 2010 – 2011, later than originally planned. Kashagan was billed as one of the biggest oil finds in decades with over 14,000 MMbbl of recoverable oil. However, following the trend of national interests disagreeing with foreign oil companies, the relationship between the main operator of the project, Eni, and the Kazakh government has been deteriorating. Eni recently came under fire from the Kazakh government, naming cost overruns and delays as the issues. To add to difficult relations, the Kazakhstan government recently passed a law enabling amendment of production-sharing agreements if it deems existing agreements to be a threat to national security. Eni, on the other hand, has claimed that because of the complexity in developing a sour oilfield of this scale in extreme temperatures and pressures the potential for delay always existed.
The 10-year capital expenditure profile of Azerbaijan is shaped by two big projects, Azeri and Shah Deniz, which came onstream in 2006. It represented a major capital expenditure program which caused the peaks in 2002 to 2005. Apart from these, the only current project of significance is the Guneshli Deep (ACG) development scheduled onstream in 2008. Subsequent expenditure as a percentage of regional spending is expected to reduce year-on-year once this project is onstream. This fact is shown by both the number of fields and projects that will come onstream in Azerbaijan over the next five years.
In the UAE, part of the oil price spike has been due to maintenance work in the giant Umm Shaif, and Lower and Upper Zakum fields in Abu Dhabi reducing production by 630,000 b/d of oil and to falling production offshore Duabi.
To address these problems, a scheme to further develop the Upper Zakum field with more injection facilities will boost production to 750,000 b/d by 2011. At the same time, a complex CO2 injection scheme has been proposed to increase recovery rates from Dubai’s four offshore fields.
In Saudi Arabia, a steady flow of platform and pipeline projects exist with at least 16 in the next four years. These are expected to supplement production in each of the main offshore fields such Safaniya and Zuluf. Meanwhile, a $10-billion project is going ahead at the Manifa field where artificial drilling islands in very shallow waters are linked by causeways, with platforms in deeper waters are being constructed to produce upwards of 900,000 b/d of oil by 2011. Coincidentally, the deep Gulf Karan gas field is expected to come onstream in 2011, pumping 1 bcf/d of gas 100 km (62 mi) back to shore via a 40-in (101.5-cm) pipe.
Nowhere in the Gulf lacks major projects. The current flood of petrodollars is being invested in infrastructure to continue to supply the world with the oil and gas that it so desperately wants.
