November 14, 2016
Authors: Olga Kerimova, Senior Analyst, and Veronika Akuliniseva, Analyst, Rystad Energy
Publisher: PESGB Newsletter, November Edition
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 (including crude and condensate) for the Middle East region from 2010 to 2025, split by countries. Production in the region has increased from 24 million bbl/d in 2010 to around 26 million bbl/d in 2015. Further growth is expected with oil production projected to peak at almost 30 million bbl/d 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 almost 300 thousand bbl/d of oil from 2020.
Figure 2 shows the discovered oil volumes for the Middle East from 2000 to September 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 exploration performance has been rather poor with barely 250 million barrels of oil discovered. The best years so far have been 2000-2002, when the Yadavaran field in Iran, contributing 1.5 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. In the last five years the trend has changed, however, 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 by the 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 has a breakeven price below 40 $/bbl, which suggests that we are likely to see these fields being put on stream even if current 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 $114 billion was reached. Following the oil price collapse, total investments have declined 6% in 2015 and are expected to stay rather flat this year. 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 investments. At the same time, the other key Middle East 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 6.7% for the period 2016-2020, total oil field investments in the region are estimated to hit 2014 levels again already in 2018 and reach more than $138 billion by 2020. Saudi Arabia, UAE, and Iran are top three countries by investments in 2016 and together contribute 70% of total spending. Saudi Arabia, Iran and Iraq are leading by 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 discovery life cycle. In Iran, the trend is in line with rapidly increasing production at old fields after the sanctions have been relieved. For example, projects like Marun and Ahwas Asmari will see investment growth in the next couple of years, followed by key discoveries (e.g. Nowruz, Susangerd, Zaqeh etc.) that will dominate spending by 2020. Notable investment growth is anticipated on new fields in Iraq, Majnoon redevelopment and Halfayah Phase 3 in particular. Saudi Arabia is also expected to increase spending along with production, particularly at its key producing projects: Ghawar, Safaniya and Khurais.
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Middle East is the largest oil producing region in the world holding a 35% market share in 2016. Led by Iran, Iraq and Saudi Arabia, 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 a prolonged low oil price environment.
Contact: Olga Kerimova, Analyst
Phone: +47 24 00 42 00
Contact: Veronika Akulinitseva, Analyst
Phone: +47 24 00 42 00
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro) as well as Singapore and Dubai.