Middle East Energy Outlook

SP Jain Dubai, May 2013

1

Outline
1. 2. 3. Global and Middle East oil & gas export patterns The regions internal demand Fiscal challenges

Key messages
Each MENA country faces different, though related, challenges MENA will remain the key oil & gas exporting region, but, with sub-Saharan Africa, oriented ever more towards Asia Asia a secondary but growing investor in MENA and a massive player in subSaharan Africa, mostly by China Oil & gas will continue to be the bedrock of the MENA economy, but cannot drive growth as it did over the last decade Sub-Saharan Africa is different oil/gas export-led growth remains vital For the first time, MENAs internal demand is increasingly important and challenging Political unrest means investment risks but also new pressures for reform & economic growth The confluence of these factors means new fiscal challenges

Middle East energy sector : Oil R/P ratio

Source: BP Statistical Review 2012

World proved oil reserves reached 1652.6 billion barrels at the end of 2011, sufficient to meet 54.2 years of global production. The Middle East region holds 48.1% of global proved reserves but the large increase in its production reduced the regions R/P ratio despite an increase in reserves. 4

Middle East energy sector : Gas R/P ratio

Source: BP Statistical Review 2012

World proved natural gas reserves at end-2011 were sufficient to meet 63.6 years of production. The Middle East still holds the largest reserves (38.4% of the world total, compared with 37.8% for Europe & Eurasia) with an R/P ratio of over 150 years.

Middle East to play a key role in future oil demand

2030 ENERGY OUTLOOK

Source: APICORP as of Jan. 2012 Dated Jan. 2012

Source: BP Energy Outlook 2030 Dated Jan. 2012

Middle East/Africa oil exports orient towards Asia

25.0

15.0 Oil exports (million bbl/day)

5.0 1990 -5.0 2000 2010 2020

-15.0

-25.0

-35.0 North America S & C America

Europe & Eurasia

Africa

Middle East
Asia Pacific

In aggregate, Russia/Central Asia supplies Europe, Middle East/Africa supplies Asia, Americas self-sufficient But Middle Eastern oil exports rise little OPEC restraint domestic consumption OPEC itself forecasts slowly-falling market 2030 share from 34% today to 32% by 2015-35 5.7 Mbpd increment from 2010 to 2035, compared to: Iraq +6.5 Mbpd by 2020? Kuwait +1 Mbpd by 2020 UAE +0.7 Mbpd by 2017 Libya +0.5 Mbpd by 2017 Revival in Iran? Venezuela? Africa exports fairly flat but subSaharan Africa grows largely at expense of North Africa (Algeria, Egypt decline)

US oil imports declining; Gulf not yet hit

500000 450000 400000 350000 US imports (kbbk/month) Total imports Gulf

OPEC
Africa

300000 250000 200000

150000 100000 50000 0 Jan-2006

US oil imports have fallen steadily since their August-2006 peak The burden has been taken up by OPEC and Africa US imports from the Gulf have not yet fallen much, if at all Shale oil replacing African light, sweet crudes Saudi objective to maintain US market share

May-2007

Oct-2008

Feb-2010

Jul-2011

Nov-2012

Shale gas can reshape gas trade flows

Less LNG demand in Europe? Lower Chinese (and Indian?) LNG imports

North American shale-to-LNG

North African shale gas to Europe

More intraMENA gas trade? Australian shale-toLNG

Significant shale gas potential

New conventional gas

White: satellite imagery of lights = energy demand Purple Red: global gas basins, in increasing size of resources (USGS) Yellow: main current and future export routes for Middle East gas

Only modest growth in gas exports

15.0

5.0 Gas exports (Bcf/day)

1990 -5.0

1995

2000

2005

2010

2015

2020

2025

2030

-15.0

Middle East and Africa are the two major exporting regions Asia is the major importing region Russia supplies Europe Big change is the emergence of North American gas exports after 2015 However, total Middle East gas exports do not grow much

-25.0

-35.0 North America Europe & Eurasia Africa S & C America Middle East Asia Pacific

Africa a tale of three regions

North similar challenges to Middle East

West some new producers. Nigeria & Angola heavyweights; some growth potential. Growing Chinese involvement.

East exciting new exploration frontier (mostly gas). Exports oriented to Asia

Abu Dhabi Energy Issues

UAE: Oil & Gas Infrastructure

OIL INFRASTRUCTURE MAP

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UAE Energy - Overview

OIL PRODUCTION TARGET MBPD
2.5

3.5

Worlds 9th largest crude producer and 5th largest net exporter Abu Dhabi accounts for over 90% of UAEs upstream sector

Major capacity expansion program underway from 2.5m bpd (2011) to 3.5m bpd (2017); 40% increase
Over US$50 billion of investments required in upstream in the UAE alone during this 5-year plan APICORP (January 2012) ranks UAE as second highest investor in the MENA region with US$ 76 billion of energy investments expected in 2012-2016 across the full value chain

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UAE Historical & Projected Capex in Upstream (2009-2015)

______________________________________________________________________________________
Abu Dhabi Vision 2030 - Upstream Objective: Oil production capacity ramp up from 2.5 Mbpd in 2011 to 3.5 Mbpd by 2017

ADCO

ZADCO
HISTORICAL

Upper Zakum

ADMA

Shah Gas

Other Fields

PROJECTED
2014: Expiration of ADCO current Concession Expected Additional Capex notably in EOR

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10.5

Capital Expenditure (US$ Billion)

10 8
5.9 7.8

9.7

9.1 7.3 6

6 4 2 0

2009
Source: WoodMackenzie, MEED

2010

2011

2012

2013

2014

2015
15

Fiscal Challenges

GCC Economic growth generally strong

ECONOMIC GROWTH

7 Economic Growth Rate ( % ) 6 5 4 3 2 1 0 2012

UAE Saudi Arabia Qatar Oman Kuwait Bahrain

2013

2014

2015

2016

Fiscal challenges varies across OPEC least in the GCC

18 Source: APICORP Research

MENA (esp GCC) highly energy-intensive

Primary energy consumption (toe/capita) 20.0 15.0 10.0 5.0 0.0

GCC energy intensity is high in general Qatar, Bahrain and UAE are particularly high High income levels Air-conditioning and desalination Energy-intensive industry (aluminium, petrochemicals, LNG, etc) Subsidised prices, hence waste and inefficiency Focus turns to serving domestic market rather than export, especially in gas But GCC, Iraq, Libya remain major oil exporters
07/06/2013 19

Attention turning to unconventional gas

Gulf unconventional plays varied, potentially large Sour and contaminated gas (CO2, H2S, nitrogen) Tight gas (sands & carbonates) Shale gas, condensate and oil Deep and ultra-deep Mixed resources (e.g. deep, tight and sour)

Source: PacWest; Manaar research

Alternative energy becoming competitive

ELECTRICITY GENERATION COST ($C/KWH) 0 Gas, $1 Gas, $8 Gas, $15 2 4 6 8 10 12 14 16 18 20

Oil, $20
Nuclear Coal CCS Solar PV ($2.50/W) Solar PV ($2/W)

Alternative generation (solar, nuclear, coal CCS) is cheaper than LNG or oil However, high-cost domestic gas (e.g. unconventional) at ~$8/MMBtu is still competitive against alternatives
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Source: Manaar research

Responses to these new challenges

Future energy sector themes 1. Mature field management (enhanced oil recovery)

2.
3.

Domestic gas including unconventionals

Alternative energy mostly nuclear and solar, plus efficiency

Economic responses 1. 2. 3. Restructuring the NOCs & SOEs for greater efficiency Greater international & private-sector E&P investment (as in late 1990s) Privatisation (at least of non-core assets)?

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Contact Details
Robin Mills, Head of Consulting, Manaar Energy Consulting, Dubai, UAE robin.mills@manaarco.com +971 4 326 6300 +971 50 293 4668 www.manaarco.com