Upstream market growth is expected to remain strong in the Middle East, despite falling oil prices and the potential impact this might have on offshore activity globally, predict analysts and oilfield services firms.
Speaking ahead of this week's ADIPEC conference in Abu Dhabi, Prajeev Rasiah, Regional Manager, Middle East & India, DNV GL - Oil & Gas (pictured right), says: “The recent drop in oil prices is mainly driven by the surge in supply from US shale oil and recovering markets such as Libya in addition to the slowdown in oil demand caused by a stagnant economy in Europe and slower growth in China.
“If this trend continues and demand does not increase then there will be reductions and negative impact on offshore activity globally. However, the Middle East will remain to be a more economically viable basin when compared to other more challenging and costly basins. The Middle East offshore upstream market will maintain its healthy position on the mid-long term despite the increasing pressure on the global oil and gas industry.”
Hugh Fraser, Managing Partner, Dubai, Andrews Kurth (pictured left), agrees. He says: “There may be some slowing up because of the lower oil price but in reality the costs of production in the region are some of the lowest in the world and it will be shale gas, heavy oil and deepwater projects in other parts of the world which will suffer more from the lower oil price.”
Rather than reducing its production, to stem the glut of oil on the market, key producer Saudi Arabia dropped its prices, in a move analysts say is designed to make sure it maintains its market share and to test US producers. Saudi Arabia has strong cash reserves, so it can afford to to make this move. Other key producers - the United Arab Emirates, Kuwait and Qatar should also be able to weather the lower prices, says Bloomberg, although Iran and Iraq are less well positioned, says Bloomberg.
“The market in the Middle East has shown itself to be very resilient over the last few years and at the moment is very buoyant in the upstream sector, with an increase in demand within the exploration and production environment,” says Dr Derek McNaughtan, General Manager, Production & Integrity Assurance, Middle East, Intertek.
“We see the main driver of this as the long-term vision shared by the Gulf Cooperation Council countries to be market leaders within the industry, utilizing best practice and technology driven solutions to maximize oil and gas recovery. This in turn has resulted in an increase in demand for service providers to work in partnership with the oil companies to realize this goal. There has been a step-change in how service is provided within the Middle East, with a greater element now being required to be conducted locally to meet client expectations which has helped focus the industries attention on the Middle East.
“The current investment programs and new fields being developed throughout the region are only going to increase the requirements for quality driven service providers. The expected increase in productions rates from existing conventional reservoirs - along with an aging infrastructure and associated flow assurance issues, coupled with the technology challenges unconventional reservoirs bring - is only going to increase demand.”
Aging assets and a push to develop more offshore assets is helping to make the Middle East a growth area and push research into CO2 injection for enhanced oil recovery, Rasiah adds.
The region has been predominantly by national oil companies. However, international firms are operating in the Middle East and have been for some time, such as Maersk Oil, which operates the giant Al Shaheen field. Smaller independents also see opportunities in the region. New oil and gas exploration firm T5, founded by former Tullow Oil board members, has set its sights on Middle Eastern and African promise. Read more: T5 execs see Middle Eastern promise
So what are the opportunities for service firms? “The main gap in both technology and services is related to the ease of access and ability to respond to clients’ needs quickly,” says McNaughtan. “Historically, technology and services have been brought into the region on an ad hoc basis for particular problems or for a particular project. The challenge now is to be able to offer these services in country to respond to a client’s needs more efficiently and effectively. Having state of the art technology and centers of excellence in the correct geographic locations with the right level of expertise is the most pressing need. This brings considerable cost benefits to both service providers and clients and reduces the turnaround time for key data and information which can be critical in making production decisions."
LUX Assure has appointed three Middle Eastern agents in recent months in a bid to extend its reach in the United Arab Emirates. The firm is also in the process of registering with Abu Dhabi National Oil Company (ADNOC), the state-owned oil company of the United Arab Emirates.
“Each country has different technology challenges requiring an individual approach to manage the issues. The production issues on an offshore platform can be quite different to those in a remote part of the desert," adds McNaughtan. "Interest in technology-driven solutions that can be delivered locally in country is becoming a key criteria for clients across the Middle East.”
Read more:
Aging assets add to Middle East growth
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