MEED: How has the region’s hydrocarbons sector changed over the past decade?

Jonathan Robinson: The upstream sector has seen, and continues to see, major investments designed to either ramp up production to meet rapidly growing demand or to ensure that current levels are maintained through enhanced oil recovery strategies.

“Iran coming back into the international market is a potential game-changer for the industry”

Jonathan Robinson, HSBC

Similarly, the downstream sector has seen steadily increasing investment over the past decade or so as the region pushes to extract ever-greater value from its natural resources further down the hydrocarbon value chain. Saudi Arabia, Kuwait, Qatar, Abu Dhabi and Oman have been at the forefront of this focus on refining and petrochemicals. They have been actively encouraging wider industrialisation domestically and, henceforth, meeting the broader public/economic policy objectives.

Anecdotally, this has translated into exponential growth in total investment as the number of projects has increased significantly alongside far greater capital cost for complex projects.

What are the key issues facing the industry in the region?

The main issue going forward will be to ensure that supply meets demand, especially in Asia and the emerging markets. With non-Opec crude production capacity expected to remain flat, the onus will be on Opec to fill any gaps in the market. Saudi Arabia has about 2 million
barrels of spare capacity as the world’s swing producer, but this is unlikely to be enough to meet the expected rise in global demand of 1 million barrels a day (b/d).

There were hopes that Iraq would ramp up output to as much as 10 million b/d, but despite making some headway it is unrealistic to expect this kind of production level in the near future. Libya was also tipped to increase its crude output; however, ongoing unrest in the country has significantly hampered these efforts.

Iran coming back into the international market is a potential game-changer for the industry. If sanctions are lifted and Tehran can find the capital required to rebuild its hydrocarbons industry, then this could go some way towards propping up global hydrocarbon inventories. 

Gas is now a vital resource for many of the region’s economies. Why?

Gas plays a number of vital roles in the Middle East and is now recognised as a key economic driver for several reasons.

The first is its export value. Qatar is the world’s largest exporter of liquefied natural gas (LNG) and has built an impressive global infrastructure that ensures gas can be delivered virtually anywhere with a (relatively inexpensive) regasification terminal.

For other countries, gas is being used to power the nation and drive industrial diversification programmes that aim to create both wealth and jobs. Using natural gas for power production is also more efficient than burning oil and, of course, frees up more potentially higher-value crude for export. This, however, remains a healthy debate with the downstream petrochemicals industry and a source of discussion on the intricate balance between domestic policy and international market dynamics.

What will be the future trends for the industry?

We are noticing several key trends that could change the face of the oil industry in the future. The first is the lengthening of the domestic value chain across the region to create jobs. Using hydrocarbons as the foundation to industrialise and build strong manufacturing sectors is the number one priority for most governments.

You may also see LNG being traded in the not too distant future as the industry grows. There will be greater arbitrage and pressure to break down the oil-linked pricing you currently see in Asia. 

The second is from a global trade perspective. With the US becoming more energy self-sufficient in the future, there could be a seismic shift to the East. This could even mean that the dollar ceases to be the de-facto global currency for oil trading and is supplemented by new alternatives, potentially including the renminbi. Beijing knows that the global hydrocarbons industry is becoming more focused on Asia and is keen to take advantage of this transference of power.