With proven reserves of 795 billion barrels of oil and 526 billion cubic metres of natural gas, according to UK oil major BP, the Middle East has access to more hydrocarbons wealth than any other region of the world.
High oil prices of more than $100 a barrel throughout 2011 and 2012 have meant high returns on exports. Across the region, governments plan to raise production in order to capitalise on this. They also plan to expand and diversify their downstream facilities to become less dependent on exporting oil and gas, and to generate jobs for young and growing local populations.
With an expected capital expenditure of between $15-20bn a year to 2015, Saudi Arabia will continue to deliver a steady flow of project awards over the coming years across the oil and gas sector. The kingdom plans to increase gas production capacity to 15.5 billion cubic feet a day (cf/d) in 2015, from 10.2 billion cf/d in 2010. It also plans to lift its refining capacity to 4 million barrels a day (b/d) from 2.1 million b/d currently.
Downstream, state oil firm Saudi Aramco is expected to issue tenders for the engineering, procurement and construction (EPC) contracts at its Ras Tanura refinery clean fuels and aromatics project in the Eastern Province in March 2013. The tender was expected in 2012, but due to an extended front-end engineering and design (feed) phase, it was postponed, initially until the second quarter of 2013. Now contractors are confident that the tender will be released towards the end of the first quarter, probably in March.
The Ras Tanura refinery is fully owned by Aramco and is the largest oil facility in Saudi Arabia, with a capacity of 550,000 b/d. The oil company is currently upgrading its domestic refining capacity both to lower the sulphur content of its downstream output and to diversify the amount of refined products it produces.
Kuwait is another country that has long had plans to overhaul its downstream refining sector.
State refiner Kuwait National Petroleum Company is currently prequalifying EPC contractors for two major projects worth more than $30bn combined as part of its plans to increase refining capacity to 1.4 million b/d from the current 810,000 b/d. The first is for the construction of a 615,000 b/d refinery at Al-Zour, which will process heavy oil and is intended to secure the supply of low-sulphur fuel oil for electrical power plants.
Oman’s oil and gas sector is expected to benefit from more than $50bn of investment over the next 10 years
The second project will be one of the largest brownfield projects in the region, worth $16bn. Known as the Clean Fuels Project (CFP), it involves the upgrade and expansion of the Mina al-Ahmadi and Mina Abdullah refineries and retirement of the aging Shuaiba refinery. The expansion will increase total capacity at the refineries to 1.4 million b/d. It will also increase the quality of products from the refineries, giving Kuwait access to the more lucrative international high-performance fuels markets.
Despite the lure of such high-value schemes, international contractors have been downbeat about their prospects. The initial tender in 2006 for CRP’s new refinery project (NRP) was cancelled after bids for the four packages exceeded the budget at $16.5bn. It was relaunched in 2008 with five packages, and about $10.3bn-worth of contracts were awarded but later cancelled under political pressure in 2009 before construction had begun.
Kuwait has been planning to increase its downstream capacity and raise the standards of its export products for more than a decade. The CFP was first announced in 2007, and technology licences awarded in 2008. The project stalled, however, as the NRP came under parliamentary scrutiny.
Potentially, Kuwait could be the most active projects market in the GCC in 2013, with significant investment planned in oil and gas production and refining schemes. However, bureaucratic and political issues will need to be overcome and much will depend on the attitude of the new parliament.
While 2012, with several major awards, was seen by many in Iraq as a breakout year for upstream engineering contracts, 2013 looks set to be the year for the midstream and downstream sectors.
The Oil Ministry is expected to hold a road show and auction in the new year for a major pipeline construction deal, which could open up a new export route for Iraq’s crude, flowing south through Jordan to the Red Sea.
Faced with the pressing lack of refining capacity, Baghdad is also aiming to increase refining capabilities by more than 700,000 b/d by the end of 2015. The bulk of investment will be in greenfield projects, with at least $50bn being spent over the next 10 years on the construction of five new refineries, at Karbala, Kirkuk, Missan, Mosul and Nasiriyah.
The Oil Ministry finally launched the Nasiriya Integrated Project, inviting international oil firms to prequalify for the development of the 4-billion-barrel oil field and refinery in the south of the country by 13 December. The scheme covers the integrated development of the Nasiriya oil field in the Thi-Qar province of southern Iraq, along with the construction and operation of a new 300,000 b/d refinery.
The Oil Ministry will announce the prequalified companies by the end of January and will hold meetings with the firms in the first quarter of 2013. A contract for the development could be awarded by the end of the year. US engineering firm Foster Wheeler was awarded the feed for the estimated $8bn refinery in 2008 and has now completed the designs.
If it goes ahead, Nasiriyah will be the largest of Iraq’s planned new refineries, processing oil from the nearby Nasiriyah, Gharaf and Rafidain oil fields. The facility is designed to satisfy demand in the south of Iraq, but also to supply the Baghdad metropolitan area.
Iraq has previously sought to award an upstream development contract for the field. Japan’s Nippon Oil, Spain’s Repsol, Italy’s Eni and US firm Chevron all submitted proposals without success. The decision to link the development of the field with the construction of the new refinery is sensible, given the lack of capacity in the southern oil export system. The bottlenecks in the network, which is already backed up with crude exports from Basra’s oil fields, mean there is little room for additional exports from Nasiriyah.
While much of the focus in 2012 has been on Iraq and Saudi Arabia, 2013 will see attention turn to one of the region’s traditionally quieter markets, Oman. The sultanate’s oil and gas sector is expected to benefit from more than $50bn of investment over the next 10 years as it aims to maintain crude output levels and boost gas production. Oman has two major projects planned with a total value of about $25bn, which are expected to be launched in 2013.
The first major tender is for the development of the Khazzan tight gas project being carried out by BP on its Block 61 concession. BP is negotiating with the government over the development plan and commercial agreements worth an estimated $15-20bn, which are expected to be finalised in 2013. Production at Khazzan could start in late 2016 or early 2017.
The proposed plant is expected to produce about 1 billion cf/d of sales gas from 275-325 wells drilled in the field. The initial phase of development in Block 61 will target about 7 trillion cubic feet of recoverable resources.
Along with Khazzan, there are three major oil field developments planned by state-owned Petroleum Development Oman (PDO) and the construction of a third oil refinery. PDO plans to spend $30bn over the next 10 years to maintain its current levels of oil production of about 550,000 b/d. Investment decisions will be made over the next few years.
Oman is also planning to construct an estimated $6bn refinery at the central coastal port of Duqm. The 230,000 b/d facility, along with a petrochemicals complex, is expected to be completed by 2017. The project is a joint venture between state-owned Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company.
While Libya has managed to return its oil production to pre-war levels of about 2.6 million b/d, exploration activities have stuttered.
So far, the only foreign firm to return to Libya is Algeria’s Sonatrach International Petroleum Exploration Company (Sipex). Poland’s POGC plans to restart exploration in the Murzuq basin, with the drilling of the first of three wells slated for January. The Polish firm lifted force majeure on its Area 113 exploration acreage in November. (It had been set to begin drilling in February 2011.)
Spain’s Repsol has pushed back its plans to drill 15 exploration wells from 2012 into 2013. More companies are expected to follow in 2013 but there is little desire to rush back to Libya, a country that remains plagued by security problems and shortages of rigs for exploration.
One major EPC project that should proceed in 2013 is the expansion of production facilities at the offshore Bouri field. Libya’s Mellitah Oil & Gas Company plans to build an offshore platform and onshore gas processing facilities at the NC-41 concession, about 75 kilometres off the coast. The offshore platform will include gas separation and dehydration facilities, which will process 160 million cf/d of gas.
Once processed, the dehydrated gas and partially stabilised condensate will be exported to the onshore Mellitah complex in the northwest through two dedicated subsea pipelines for final treatment.
Iran faces another tough year. Production and exports have been hit hard by the enhanced US and EU sanctions directly targeting its oil exports. With a shrinking pool of customers, Tehran has been forced to cut back on production. Investment in the sector is also under threat.
Iran produced an average of 4.3 million b/d of crude during 2011, according to BP, making it the world’s fourth-largest producer after Saudi Arabia, Russia and the US. But by mid-July, the Islamic Republic’s crude output was thought to have dropped below 3 million b/d, marking a 20-year low.
Iraq’s production levels have now been surpassed by neighbouring Iraq, which is slowly recovering from war and decades of sanctions. A predicted further decline would see Iran’s output drop below other major Gulf exporters Kuwait and the UAE, which produced an average of 2.86 million b/d and 2.6 million b/d respectively last year.
This loss of income creates further problems for an oil and gas industry already suffering from chronic underinvestment. Masoud Mirkazemi, Iran’s former petroleum minister, estimated in May 2011 that the country required investment of $25bn a year to maintain production at what was then more than 4 million b/d.