A large growth potential exists for the Middle East E&P, where oil production is forecasted to increase from 2016 to 2020, with Iran and Iraq contributing most to the growth. This article assesses the Middle East E&P status and outlook, illustrated by the three key drivers: production, exploration success and spending.
Figure 1 depicts the oil production additions (including crude and condensate) for the Middle East region from 2010 to 2025, split by countries. Total Middle Eastern oil production is also shown. Production in the region has increased from 23 million bbl/d in 2010, to around 28 million bbl/d in 2016. This year, production is expected to remain flat, reflecting the OPEC deal to cut production. As of February 2017, all OPEC member countries in the Middle East seem to be on track with meeting their production targets. Saudi Arabia even showed willingness to cut output more than necessary and reduced supply down to 10 million bbl/d. Iraq has agreed to cut production by 210 kbbl/d, while Iran is increasing output to reach the allowed target of 3.797 million bbl/d.
Since the OPEC agreement is only valid until the end of May 2017, our forecast incorporates a ramp up in production in the region from the second half of 2017 and going forward. Oil production is projected to increase to over 30 million bbl/d from around 2020. While Saudi Arabia accounts for around 40% of the region’s oil production, Iraq and Iran are the countries where oil production is expected to see the highest growth over the next decade. Iraq’s production growth is underpinned by the launch of the second development phase of the Lukoil-operated Qurna West-2 field, as well as increasing volumes from the Nahr bin Umar field, the second phase of the Majnoon and the third phase of the Halfayah developments. The first phase of the South Azadegan project is expected to contribute to Iran’s oil production growth over the next five years, reaching a plateau of 255 thousand bbl/d of oil from 2021.
Figure 2 shows the discovered oil volumes for the Middle East from 2000 to 2016. Historically, more than one billion barrels of oil has been discovered in the region on average. Some years have been exceptionally successful, with discoveries reaching almost two billion barrels and above, while in other years barely 250 million barrels of oil were discovered. The best years so far have been 2000-2002, when the Yadavaran field in Iran, contributing almost 3 billion barrels alone, was discovered. In general, Iran notably dominates the exploration success achieved over the last decade, as around 45% of total discovered resources are of Iranian origin. However, in the last five years the trend has changed and the largest volumes were discovered in Iraq, led by projects like Amara South, Mirawa, and Faihaa. Similar success has only been achieved back in 2009, marked with discovery of the Shaikan field.
Overall, nearly 65% of total discovered oil resources since 2000 in the Middle East have not been put into development yet. This means that almost 13 billion barrels of resources are waiting to start to deliver volumes in the future. In fact, the majority of these discoveries have a breakeven price below 40 $/bbl, which suggests that we are likely to see these fields being put on stream even if low oil prices prevail for a longer time.
Figure 3 shows the total spending on oil fields in the Middle East from 2010 to 2020. Spending levels have been increasing steadily until 2014, when the peak of $112 billion was reached. Following the oil price collapse, spending has declined 9% in 2015 and stayed rather flat in 2016. The decrease in investment levels has particularly been led by spending cuts in Iraq. After the collapse in oil prices in 2014, the Iraqi government was struggling to reimburse operators for the investments. Hence, they asked the E&P operators in the country to cut back spending. At the same time, the other key Middle Eastern countries have not really experienced significant declines in expenditure, but rather had a stable spending profile over the last two years.
Exhibiting an annual growth rate of 6% for the period 2016-2020, total oil field expenditure in the region is estimated to hit 2014 levels again already in 2018 and reach nearly $135 billion by 2020. Saudi Arabia, the UAE and Iran were the top three countries by investments in 2016 and together contributed to nearly 70% of total spending. Iraq and Iran are also among the countries that are leading in terms of the capital investment increase in the years to come. A large part of the growth in these countries comes from already producing projects, as well as projects currently in the discovery life cycle. In Iran, the trend is in line with rapidly increasing production at old fields after the sanctions have been lifted. For example, projects like Marun and Ahwas Asmari will see investment growth in the next couple of years, followed by key discoveries (e.g. Azadegan South and North Phase 2, Nowruz, Susangerd etc.) that will dominate spending by 2020. Notable investment growth is anticipated on new fields in Iraq, on Majnoon redevelopment and Halfayah Phase 3 in particular.
The Middle East is the largest oil producing region in the world holding a 35% market share in 2016. Led by Iran and Iraq, It is also one of the top regions that is expected to increase its oil production by 2020. Significant oil discoveries made over the last decade ensure a stable oil production potential in the future. Coupled with low breakeven oil prices, current discoveries will make it possible for the region to keep oil supply high even in prolonged low oil price environment.