Abu Dhabi’s decision to award its first offshore oil concession to a consortium of three Indian oil companies earlier this year highlights the increasing shift in focus in the Middle East. Its traditional reliance on western oil majors is now being matched by the need to secure outlets in Asia, the world’s key demand growth centre.

Another deal was signed with China National Petroleum Corporation. China, as Asia’s biggest economy and one of its fastest-growing energy consumers, has turned increasingly to crude imports to supplement its domestic oil production. About 48 per cent of those imports were supplied from the Gulf region in 2016, even as US and European demand for Middle Eastern crude declined. That has led to intense competition between the major Middle East oil producers to supply the Chinese market.

India demand

India is the world’s third-largest importer: the International Energy Agency forecasts that India’s demand will grow more than any other country, doubling to 10 million barrels a day (b/d) by 2040.

Abu Dhabi National Oil Company’s (Adnoc) three new Indian partners – ONGC Videsh, Indian Oil Corporation and Bharat PetroResources – operate more than 2.65 million b/d of refining capacity. Securing some of that will be a huge win for Abu Dhabi.

The UAE is not the only country eyeing India as a source of captive demand. Saudi Aramco also hopes to build a new 1.2 million b/d grassroots refinery at Maharashtra on India’s western coast by 2021.

It would be Aramco’s first foray into India’s refining sector. It already has joint ventures in the US, South Korea, Japan, China and Indonesia. The oil giant also has plans for further projects in China and Malaysia, and wants to eventually raise its total downstream capacity to 8-10 million b/d, from the 5.4 million b/d it currently produces.

The recent rise of US crude and condensate exports to Asia has also forced Middle East producers to focus on their key customers. Kuwait has led the way among Middle Eastern producers, investing in foreign refinery projects back in 2008, well before anyone thought of the US as a potential exporter. That decision now looks far-sighted.

Kuwait Petroleum International, the country’s overseas investment arm, continues to look for new investment opportunities in India, Indonesia and China.

Along with the equity stakes, the rise of state-backed Indian and Chinese oil companies will also help their engineering, procurement and construction (EPC) companies to piggy-back on the new investments to help win projects in the Middle East.

This article is extracted from a report produced by MEED and Mashreq entitled The Future of Middle East Energy. Click here to download the report