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The Development Status and Prospects of Arab Oil and Gas Industry

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The Development Status and Prospects

of Arab Oil and Gas Industry

QIAN Xuewen① （Middle East Studies Institute, Shanghai International Studies

University）

Abstract: This article provides a comprehensive overview of the development status of Arab oil and gas industry as well as a comparative analysis of the position and influence of Arab oil and gas reserves and production in the world energy market. After tracking the 2012 oil and gas developments in the Arab countries and outlining the comprehensive production capacity and world rankings of the top ten Arabian Oil, the article analyzes and explores the development prospects for Arab oil and gas industry. The author considers that since traditional oil would be dominant in the world’s energy supply over the next few decades, the Arab oil-producing countries would keep their important roles and prominence in the world oil market. With the gradually improving economic situation in the Arab countries, the oil and gas industry of the Arab countries is poised for another surge of development, and the Chinese oil and gas sector may actively seize the opportunity to participate. Key Words: Oil and Gas; Shale Gas; OAPEC; Arab; Middle East

① QIAN Xuewen, Professor of Middle East Studies Institute, Shanghai International Studies University. This research is the product of Chinese Educational Ministry program “China’s National Interest in the Middle East (West Asia and North Africa)” (2009JJD810010), Chinese Educational Ministry program “Islamic Middle East Region and the Transition of International System” (08JZD0039), and it is also supported by the Shanghai International Studies University “211” program and Key Discipline of Shanghai (B702).

Journal of Middle Eastern and Islamic Studies (in Asia) Vol. 7, No. 3, 2013

66

Traditional oil and gas industry occupies an important position in the Arab economy, and it is also the pillar industry dominant in Arab national economic lifelines. In the Arab oil-producing countries, some countries are both OPEC members and member States of the Organization of Arab Petroleum Exporting Countries (hereinafter OAPEC), which constitute the main force of the Arab oil-producing countries, while other oil and gas producing countries are relatively weaker.

I. Oil and Gas Reserves and Production (A) Oil According to the statistical data of the OAPEC Secretariat, the

Arab countries currently own about 57.5% of the world's oil reserves and 28% of global natural gas reserves. About 98% of these reserves belong to the OAPEC member states.

In 2011, the average daily oil production of OAPEC member states accounted for about 29% of the global daily output. In 2010, the daily production of condensate of Arab countries was 3 million barrels, about 37.5% of the global average daily production (approximately 8 million).

In 2011, the emerging political crisis in Arab countries had a negative impact on energy production in Yemen and Libya. In 2011, Yemen’s oil production dropped from 275,000 barrels/day, down to 190,000 barrels/day; Libya’s production declined sharply to 410,000 barrels/day. In April 2012, OPEC announced that Libyan production rose to 1,420,000 barrels/day, which is close to its production level in 2010, approximately 1,480,000 barrels/day. From 2007 to 2011, the global reserve-replacement ratio was approximately 118%, while the ratio of OAPEC member states oil reserves was 111%. Among the new discoveries in OAPEC member states, there are 242 oil blocks and 169 gas blocks (OAPEC Ministry of Economic Affairs, 2013: January).

OAPEC Economy Ministry’s monthly report stated that currently the undiscovered oil reserves in Arab countries are about 158 billion


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barrels, and undiscovered natural gas reserves 28 trillion cubic meters, and condensate about 670 million barrels. This means that in the future no matter the means or the new technology, the Arab countries have space for improvement of their production capacity. However, to increase productivity, both a stable economic and political environment and a safe and reliable market are required in order to attract large investments (Qraiche, S. & Hamesh, T., 196).

OAPEC member countries are also rich in heavy oil geological reserves, estimated at about 900 billion barrels (Majid, A., 198). The problem is that compared to light crude oil production, heavy oil production is much more difficult because of difficult mining and high investment costs. Although currently the OAPEC member countries have considered investing in heavy oil resources, but implementation will still take time. In this regard, the US has a leading position.

According to the statistics published in the Oil and Gas Journal, as of the end of 2012, the Middle East and North Africa (MENA) region’s proven oil reserves were about 119,481,200,000 tons, the year-on-year growth being 0.4%, accounting for about 53.25% of the total 224,363,700,000 tons. In the above reserves, the proven oil reserves of Iran and Israel, two non-Arab countries, were 21,175,300,000 tons and 1.575 million tons, respectively, accounting for about 17.72%. In the same year, the Arab crude oil production amounted to 1,235,595,000 tons, accounting for 32.64% of the world’s total 3,785,830,000 tons. The tables below provide data on the proven reserves:

2012 MENA proven oil reserves and production①

Country/region

proved

reserves

(ten

thousand

tons)

Year-on-year

growth

（%）②

Estimated

Production

(ten

thousand

tons)

Year-on-year

growth（%）

World Total 22436369.7 7.7 378583.0 2.9

MENA Total 11948119.9 0.4 138827.5 3.7

Saudi Arabia*③ 3635753.4 0.3 49800.0 6.6


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Iran 2117534.2 2.3 15265.0 –14.7

Iraq* 1936301.4 -1.2 14400.0 8.4

Kuwait* 1390411.0 0.0 13765.0 10.1

UAE* 1339726.0 0.0 13249.5 5.8

Libya* 657671.2 1.9 6875.0 196.5

Qatar* 347671.2 0.0 3747.5 –8.4

Algeria* 167123.3 0.0 6005.5 –5.9

Oman 75342.5 0.0 4540.5 2.5

Neutral Zone④ 68493.2 0.0 3078.5 –1.5

Sudan 68493.2 0.0 2350.0 —

Egypt* 60274.0 0.0 3365.0 0.8

Yemen 41095.9 0.0 862.5 –11.2

Syria* 34246.6 0.0 850.0 –46.6

Tunis* 5821.9 0.0 335.5 –1.6

Bahrain* 1706.3 0.0 205.0 9.3

Mauritania 274.0 0.0 130.0 —

Israel 157.5 -2.5 3.0 4.3

Jordan 13.7 0.0 — —

Morocco 9.4 0.0 — —

Description: ① Estimated proven remaining oil reserves statistics according

to the December 2012 data released by the Oil and Gas Journal on January 1, 2013.

② The conversion factor of oil reserves is 1 barrel = 0.137 tons. The conversion

factor of oil production is 1 barrel/day = 50 tons/year. ③ Countries marked with

* belong to OAPEC. ④ Kuwait and Saudi Arabia each takes half of the Neutral

Zone production. ⑤ Order sorted by reserves.

In 2012, among the Arab oil and gas production countries, Saudi Arabia’s oil production was still thriving, ranking second in the world, increasing 6.6%, following the increase of 11.9% in 2011, reaching 498 million tons. In addition, Iraq, Kuwait, the United Arab Emirates were also among the top 10 in terms of world oil production, the increase rate of Iraq 8.4%, reaching 144 million tons; Kuwait 10.1%, approximately 138 million tons; UAE 5.8%, reaching 132 million tons.


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However, the increase in oil production by the four countries was partially offset by the cuts in Iran, Syria, Qatar and Yemen. Although it is not an Arab country, Iran is one of the most important oil-producing countries in this region, and has a special relationship with the Arab countries. Following the 3% cut in 2011, due to harsher sanctions, Iran suffered once again a cut by 14.7%, to 153 million tons Iran, therefore, fell out of the top five positions of the world’s oil production.

(B) Natural Gas In 2011, total proven reserves of natural gas in the Middle East

and North Africa region reached 87.620451 trillion cubic meters (see table below), about 45.86% of the world's total proven natural gas reserves, 191.047748 trillion cubic meters. The output of natural gas was 554.38 billion cubic meters, accounting for 18.66% of the world’s output, 2, 970.632 billion cubic meters. At current yields, regardless of the reserves growth factors that may arise, MENA’s natural gas resources can last for approximately 158 years, while the rest of the world’s natural gas resources can only be mined for 43 years or so. We can see that the reserve-production ratio of MENA is far higher than the rest of the world.

2010-2011 MENA proven natural gas reserves and production ①

remaining proved reserves (hundred

million cubic meters)②

estimated production (hundred

million cubic meters) Country/region

2010 2011 Year-on-year

growth（%） 2010 2011

Year-on-year

growth（%）

World Total 1882327.55 1910477.48 1.50 31809.72 29706.32 -3.52

MENA Total 844569.53 876204.51 3.75 5729.51 5543.8 -3.24

Iran④ 296102.37 330742.56 11.70 1370.54 1568.76 14.46

Qatar* 253663.69 252021.30 -0.65 1098.70 1068.97 -2.71

Saudi Arabia* 77928.38 80137.11 2.83 710.76 700.85 -1.39

UAE*③ 64534.44 60891.46 -5.65 465.81 454.49 -2.43

Algeria* 45024.03 45024.03 0.00 843.85 707.93 -16.11

Iraq* 31698.05 31579.12 -0.38 79.29 64.85 -18.21


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Egypt* 21860.72 21860.72 0.00 397.57 345.47 -13.11

Kuwait* 17839.71 17839.71 0.00 118.37 109.59 -7.42

Libya* 15483.74 14949.96 -3.45 156.31 41.06 -73.73

Oman 8495.10 8495.10 0.00 277.79 267.60 -3.67

Yemen 4785.57 4785.57 0.00 - - -

Syria* 2406.95 2406.95 0.00 59.47 49.98 -15.95

Other countries 2042.51 2767.14 35.48 34.15 41.49 21.52

Bahrain* 920.30 920.30 0.00 84.46 94.64 12.05

Sudan 849.51 849.51 0.00 - - -

Tunis* 651.29 651.29 0.00 32.44 28.14 -13.27

Neutral Zone⑤ 283.17 283.17 0.00 - - -

Description: ① According to Oil and Gas Journal 2012-3-5 published data. ②

Conversion factor of natural gas reserves 1 cubic foot = 0.028317 cubic meters; ③

Countries marked with * belong to OAPEC. ④ Iran is non-Arab country. Taking

into account its special status in the oil and gas sector, sometimes it is necessary to

include it. ④ Kuwait and Saudi Arabia each takes half of the Neutral Zone

production. ⑤ Order sorted by reserves.

According to the table, there is regional ranking on the above-mentioned country’s natural gas reserves and production.

2011 MENA countries proven natural gas reserves and production ranking

Units: one hundred million cubic meters

World

ranking

Regional

Ranking Country Reserves

Regional

Ranking Production

2 1 Iran 330742.56 1 1568.76

3 2 Qatar 252021.30 2 1068.97

4 3 Saudi Arabia 80137.11 4 700.85

7 4 UAE 60891.46 5 454.49

10 5 Algeria 45024.03 3 707.93

12 6 Iraq 31579.12 10 64.85

16 7 Egypt 21860.72 6 345.47

19 9 Kuwait 17839.71 8 109.59


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21 8 Libya 14949.96 12 41.06

26 10 Oman 8495.10 7 267.60

31 11 Yemen 4785.57 - -

44 12 Syria 2406.95 11 49.98

- 13 Bahrain 920.30 9 94.64

- 14 Sudan 849.51 - -

- 15 Tunis 651.29 13 28.14

- -

Other

countries

Total

2767.14

-

41.49

- - Neutral Zone 283.17 - -

From the table one can see that, in addition to Iran, there are eight

Arab countries that have more than one trillion cubic meters of natural gas reserves, of which a number of countries among the top 10 world rankings. The table also shows that the natural gas proven reserves in Bahrain, Sudan and Tunisia are less than one hundred billion cubic meters. Recent geological research results show that the Arab countries have great potential in finding new reserves of natural gas. This is because in the past they mainly focused on oil drilling, while did less evaluation on exploration for natural gas reserves, and thus left huge amount of natural gas yet to be discovered. It is expected that as Saudi Arabia, Algeria and other countries improve their gas exploration and development efforts and increase the level of external foreign capital attraction, the natural gas reserves and production of Arab countries will continue to grow. From the comparison of the ratio between oil reserves and natural gas reserves, if the average world’s oil and gas reserves ratio is also suitable for the Arab region, then it will not be surprising if large natural gas reserves are discovered in the Arab region. Proven and undiscovered natural gas reserves in the MENA must be much greater than found and declared reserves. Currently, exploration and development of new oil and gas resources, such as shale oil and gas and non-associated gas, have been


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showing booming trend and good prospect.

II. Top Ten Arabian Oil Companies

The top ten Arab oil companies are: Saudi Aramco, Kuwait Petroleum Company, Sonatrach (Algeria), Qatar Petroleum Corporation, Abu Dhabi National Oil Company, Iraq National Oil Company, Egyptian General Petroleum Corporation, National Oil Corporation, Petroleum Development Oman, and Syrian Petroleum Company. The proportion of state-owned assets in all these companies is 100%. In 2012, in the new round of ranking of the world’s 50 largest oil companies, Syrian Petroleum Company rose by 7, Qatar Petroleum Corporation and Iraq National Oil Company rose by 3 and 2, respectively, Kuwait National Petroleum rose by 1. The one suffering great decline was the Libyan National Oil Corporation. Because of the impact of the domestic situation, it dropped by 5. In addition, Petroleum Development Oman and Abu Dhabi National Oil Company decreased by 2 and 1, respectively. In the Middle East, non-Arab Iran’s national oil company is worth mentioning. In this ranking, it has been following the national oil company of Saudi Arabia and firmly occupying the second position. For the Composite Index of these ten Arab NOCs, see the following table:

Ranking of the top ten Arab oil companies in the world’s 50 largest oil companies in 2012 (Zhang, W., & Yan, F., & Cai, X., 2013: 175-176):

World

ranking Company

State-owned

proportion%

Crude oil

production

(Ten

thousand

tons /

year)

natural gas

production

(hundred

million

cubic

meters /

year)

refining

capacity

(Ten

thousand

tons /

year)

oil sales

(Ten

thousand

tons /

year)

1 Saudi

Aramco 100 51665 1023 11070 17015


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13

Kuwait

Petroleum

Company

100 14505 130 5680 5700

14 Sonatrach 100 7515 752 2280 4110

17

Qatar

Petroleum

Corporation,

100 7245 964 1370 3170

18

Abu Dhabi

National Oil

Company

100 9700 292 2510 2110

23 Iraq National

Oil Company 100 13065 18 3265 3110

24

Egyptian

General

Petroleum

Corporation

100 2315 337 3630 3850

32 National Oil

Corporation 100 1935 40 1890 1260

37

Petroleum

Development

Oman

100 2120 224 — —

43

Syrian

Petroleum

Company

100 925 42 1200 1500

III. Oil and Gas Developments

(A) Saudi Arabia 1. On February 7, 2012, Saudi Aramco and Korea National Oil

Corp signed a 20-year long-term supply agreement. Within the entire term of the agreement, Saudi Aramco Company will supply 66.9 million barrels crude oil/day to Korea National Oil Corp, in order to meet all the needs of the Korean company (OAPEC Secretariat, 2012


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(3):17 ). Since 1991, when Saudi Aramco decided to invest in South Korean refinery through a joint venture, Saudi Aramco has maintained this investment relationship with Korea.

2. On February 18, Saudi Aramco signed a memorandum of mutual understanding with Indonesia’s national oil company, PERTAMINA. The two companies agreed to conduct a feasibility study on building a refinery with a production capacity of 300,000 barrels a day in Tuban, East Java. The plan, once implemented, will double Saudi Aramco’s refining capacity. In the next 10 years, it will have the market share of 8 million barrels/day. Both at home and abroad, Saudi Aramco is expanding rapidly in the refining area, including building a number of large-scale petrochemical enterprises in the Asia Pacific region. According to Saudi Aramco’s report, Tuban Petrochemical Plant will use parts of Saudi crude oil to meet rising demand in Indonesia and elsewhere in Southeast Asia (OAPEC Secretariat, 2012 (4):17 ).

3. In March and April, an international oil company in the United States (Mikdarmt) and South Korea’s Daewoo Engineering Construction Corporation won a number of work contracts consecutively in offshore oil fields in Saudi Alhote and onshore areas. These oil fields were formerly undertaken and operated by Saudi Arabia and Kuwait Gulf Oil production. The US company was responsible for the design, procurement, construction, installation and other projects, such as offshore installation of a 600-ton heavy, 31-meter deep platform architecture, and commissioning of other offshore platforms and other equipment. Daewoo was mainly responsible for building special facilities for processing oil and gas on land, such as assembly stations, natural gas liquids sharing stations and other auxiliary facilities.

4. On May 3, Advanced Petrochemical Company (“Advanced”), a leading Saudi Arabia based producer of petrochemical products, and BAYEGAN Group, a unique Turkish international trading company, announced the signing of a Memorandum of Understanding for the development of a joint US$ 1 billion Propane Dehydrogenation (PDH)


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and Polypropylene (PP) plant to be located in Adana – Iskenderun region in Southern Turkey.

The infrastructure of the project, in which Advanced will hold a 70% equity stake and BAYEGAN Group 30%, was to begin being built from Q2 2012 while operation will begin in 2015. Once fully operational, the plant is expected to produce approximately 500,000 tons of polypropylene annually.

5. The UK’s Petrofac specializing in oil services has won a $500 million EPC contract to expand Saudi Arabia’s Rabigh II petrochemicals expansion project. The US$10 billion Petro Rabigh plant has an annual output of 2.4 million tons of fertilizer project, 18 million tons of refined oil. When Rabigh II is completed, 17 kinds of petrochemical products will be added, yield 2.6 million tons/year. The Rabigh II expansion project will be completed by Q4 2015 and put into use at the beginning of 2016.

6. Saudi Kayan (Saudi Basic Industries Corporation's subsidiary), Sadara Chemical Co. (joint venture project between Saudi Aramco and Dow), and Saudi Acrylic Company agreed to jointly build a SR 1.9 billion butanol plant at Jubail Industrial City. Kayan Petrochemical plant is the largest of its kind; it has a capacity of production of 330,000 metric tons per annum of n-butanol and 11,000 metric tons per annum of iso-butanol. The project is equally owned and is expected to start the commercial operations in Q1, 2015.

7. On November 12, 2012, Saudi Aramco has formed Aramco Asia, and opened a new head office in Beijing, a strategically important step, because the region is considered to be the world's fastest growing in the world. The new company has inherited all resources regarding trade and cultural interaction between China and Saudi. In addition to the regional headquarters, Aramco Asia owned two branch offices in Shanghai and Xiamen. The new company will provide services of crude oil and chemicals marketing, joint venture coordination, procurement, inspection, research and development, project management, human resources development and communications in the region. Before that, Aramco has invested in two joint-venture


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projects in Fujian Province, China. (B) Kuwait 1. On November 8, 2011, Kuwait Petroleum and Sinopec signed a

memorandum of mutual understanding, to supply 30 million barrels/day of crude oil to China until 2021. Originally, the Kuwaiti company’s oil export to China was 225,000 barrels/day. Once its joint venture with China (in China) completed, it hopes to increase the number to 50 million barrels/day. China Petroleum & Chemical Corp (Sinopec) and Kuwait Petroleum Corp on the same day started building their $9.3 billion joint refining and petrochemical complex in Zhanjiang city, the southern Chinese province of Guangdong. The project, including a 300,000-barrel-per-day refinery and a 1-million-tonne-per-year ethylene cracker, was equally owned by the two companies (OAPEC Secretariat, 2012 (1): 18).

2. In early 2012, Kuwait National Petroleum Company launched two new projects, namely the construction of the fourth refinery, the second is the expansion of two refineries at Abdullah Port and Al-Ahmadi Port. The two new projects cost a total investment of $30 billion. The fourth refinery is located in the Zor region, southern Kuwait. Its projected daily processing capacity is 61.5 million barrels of crude oil, of which 22.5 million barrels a day for power generation, in addition to producing a 1% sulfur fuel oil. The vast majority of plant products are for export. The Abdullah Port and Mina Al-Ahmadi refinery expansion project is for the production of clean fuels and a yield of 800,000 barrels/day.

3. Kuwait National Petroleum Company’s foreign investment agency - Kuwait Foreign Petroleum Exploration Company (KUFPEC) and a British oil exploration and production company (ANICOIST) reached an agreement to invest 500 million US dollars in the development of the two oil fields Alma and Galia in North Sea. Since March 2012 when the British government amended the oilfield investment law to encourage foreign investment, Kuwait won 35% of the shares of the two oil fields and was involved in business for 30 years. As planned, the Alma oil field will begin production in the third


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quarter. According to the present ten-year yield of 20.7 million - 32.5 million barrels, its first annual production is estimated to be about 4.5 million - 7.8 million barrels.

4. In October, Kuwait Petroleum International (KPI) and South Korea's SK Energy signed a memorandum of projects, planning to build an oil refinery in Indonesia. Under the agreement, the partners also include Indonesia’s national oil company (PERTAMINA). The capacity of the oil refinery was 200,000 -300,000 barrels/day, limited to the processing of crude oil from Kuwait. The project is located in the western region of Indonesia’s Java Island, 180 km from the capital Jakarta.

5. On December 19, British oil giant BP Plc (BP) inked a sale agreement for $308 million cash with Kuwait Foreign Petroleum Exploration Company (KUFPEC) relating to its 34.3% stake in the Yacheng gas field in the South China Sea. KUFPEC is a subsidiary of Kuwait National Petroleum Company. Once the acquisition is completed, CNOOC will remain the majority partner post sale with a 51% stake. KUFPEC will hold the remaining 49% stake. Yacheng’s commercial production began in 1996. BP had led the development of the company until early 2004 before handing it over to the Chinese side. According to reports, at present, a 780-kilometre pipeline is to be built by the Castle Peak Company Limited in Hong Kong. The consumers on Hainan Island receive the remaining natural gas, condensate and LPG.

(C) Algeria 1. In 2010, Algeria made 10 gas discoveries and 3 oil discoveries.

These findings were mostly in the southern regions. The exploration was mainly completed by SONATRACH. In 2010, proven natural gas reserves of Algeria were 45040 trillion cubic meters. In the same year the output was 55.79 billion cubic meters of natural gas. Proven crude oil reserves amounted to 12.2 billion barrels (about 1.671 billion tons), daily yield 402.95 barrels of oil equivalent.

2. In 2011, two new oilfields were discovered in Northern Algeria, one in Tabasa province, another at the junction of El Bayadh and


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Bechar provinces. In addition, two gas fields were discovered in Talmoszea area. In December, Ministry of Petroleum announced that shale gas resources were in very good condition in shallow water areas, and Algeria will effectively improve the investment conditions to attract foreign investment. Algeria’s oil production is 1.2 million barrels/day, and 20, 000 barrels/day backup capacity. Algeria hopes that the oil production in 2015 will increase to 1.5 million barrels/day. To this end, Algerian National Oil Company planned to invest $64.2 billion dollars in oil and gas development projects over the period from 2011 to 2015 (OAPEC Secretariat, 2012 (1): 18). A few months later, the Ministry of Petroleum stressed again, that Algeria considered modifying the investment law to attract foreign investment.

3. In March 2012, Sonatrach and Russia’s Gazprom signed a temporary swap market share agreement to expand the Asian market supply. The agreement was settled in the International Gas Conference in Kuala Lumpur, Malaysia. Sonatrach is to supply of the diversified East Asian markets, considering that Asia is the world’s largest gas consumer market; but, it also hopes that the cost of transportation will not increase. So, the company has formed a gas trading partnership with Russia’s Gazprom. The European share of Russia was consigned to Algeria, and the Asian share was consigned to Russia (OAPEC Secretariat, 2012 (7): 18). Russia’s Gazprom owns 50% of the Sakhalin-2 project, and exports 10 million tons of liquefied natural gas to Japan annually.

4. In June and July, 2012, Sonatrach and Shell signed a letter of mutual understanding and intent to conduct a feasibility study on shale gas in the Mudire central basin. In addition, Sonatrach and Talisman also signed letters of mutual understanding and intent. The Talisman deal covers shale oil and shale gas potential in the prolific Berkine/Illizi basins area, which is a famous gas-rich area in the country.

5. November 8, 2012, a consortium formed by Sonatrach and Spain’s Repsol discovered new gas resources in Illizi basin in southeastern Algeria. The first well hit 3.7 million cubic meters at a


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depth of 1,070m in the Ordovician shale reservoir. The joint venture will drill four more wells as part of its exploratory program in the area. Repsol is the operator of the consortium, with a 25.725% stake, partnered by Enel SpA (13.475%) and GDF Suez (9.8%). The remaining 51% is held by Sonatrach. Illizi basin is a major oil-producing center, the TFT Oilfield of which is run by French Total. Spain's Repsol as cooperating company accounted for 30% of the shares.

6. In November, Sonatrach completed exploration work in two new oilfields in the Plzen Basin (area of 5,378 square kilometers). The consortium established for this is formed by PTTEP 24.5%, CNPC 24.5%, and Sonatrach 51%. After this, the consortium will evaluate the feasibility of new oil fields in order to determine its future development.

(D) Qatar 1. In December 4-8, 2011, Qatar Petroleum and CBC reached an

annual supply of 1.5 million tons of liquefied natural gas deal. In 2013 the delivery began and will last for a 20-year period. Qatar boasts an annual output of 77 million tons of liquefied natural gas, ranking in the third place in reserves globally, and is the world’s largest exporter of liquefied natural gas (OAPEC Secretariat, 2012 (1): 19).

2. On March 13, 2012, RasGas Company Limited (RasGas) announced that Ras Laffan Liquefied Natural Gas Co., Ltd. (Ras Laffan- 3) had successfully delivered the first new shipment of LNG to the South Korean Gas Corporation (KOGAS) according to a long-term sale and purchase accord. According to the terms of the agreement, Ras Laffan 3 is to provide KOGAS two million tons of LNG annually for 20 years.

3. In May 2012, Qatar resumed the plan to build an oil refinery at La Skhira in southern Tunisia. The plant capacity was 120,000 barrels / day. The raw materials are crude oil from Libya and Algeria. After the feasibility study for the project benefits, Qatar planned to invest $ 1.9 billion (3 billion Tunisian dinars). This plan was suggested by Qatar Petroleum in 2007, but was not implemented. On May 15, the two companies, through consultative meetings, decided to revive the


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plan. For the project, the Libyan energy sector said Libya was willing to contribute to this project. Since there was a new growth point in consumption of petroleum products in Tunisia, the launching of this project still was not enough to ensure that Tunisia has the ability to enhance oil exports.

4. On December 12, Qatargas has signed a long-term LNG Sales and Purchase Agreement (SPA) between Qatar Liquefied Gas Company Limited 3 (Qatargas 3) and PTT Public Company Ltd. of Thailand. Under the terms of the agreement, Qatargas 3 will deliver two million tons per annum (MTA) of LNG for a period of 20 years beginning from 2015. The agreement marks PTT’s first long-term LNG SPA. The Qatari side considered this a momentous opportunity. They wanted to be able to build a strong and sustained partnership with Thai companies. The bilateral LNG trade began in 2011. In that year, Qatar sent to Thailand’s first and only LNG terminal the first batch of pilot gas tanks. Qatar now considers Thailand as a promising emerging market able to absorb a large amount of gas in Southeast Asia.

5. On November 14, 2012, Qatar Petroleum signed mutual understanding memorandum of 25 years to develop the gulf oilfield with France’s Total. Gulf Oil Field, first discovered in 1991 by the Yilaifu Oil (which later became part of the Total Group), is located 130 km from the east coast of Qatar. According to the 1989 co-signed exploration and development agreement, the oil field was put into production in 1997, and the agreement was to be terminated in early 2014. Total shares accounted for 100% originally. According to the new agreement, Qatar shares account for 60% and Total shares were reduced to 40%. After the agreement, Total was to continue to bear oilfield operations. In 2011, the field’s output reached 9.8 million barrels, while Total’s production from the start to the end of 2011 reached 16,660 barrels.

(E) United Arab Emirates 1. On March 5, 2012, Abu Dhabi and South Korea co-founded

Alliance Group to invest $ 2 billion in three lease areas. KNOC will


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own 34 per cent of the venture, GS Energy 6 per cent and Adnoc the remaining 60 per cent. The total area covers 11,560 square kilometers of land and sea; according to the preliminary estimates of KNOC, the area to be explored contains an estimated 570 million barrels of oil and is expected to be put into production in 2014. Its daily output will be 35,000 barrels, of which 17,000 barrels exported to South Korea. Under the contract, South Korea enjoys priority purchase of 300,000 barrels of oil per day.

2. In April, the United Arab Emirates Port of Fujairah, whose gas storage capacity was 11,400 cubic meters, was built.. According to the design plan, after the 20 tanks and infrastructure built, the total storage capacity will reach up to 614,000 cubic meters. In addition, the port can handle fuel oil, gasoline, naphtha, distillate oil, mixed oil and other cargo. The Port of Fujairah-1 was constructed by the Alliance Group consisting of SOCAR Trading Company, Swiss trading company and Fujairah Government. The total investment was $ 110 million. SOCAR Trading Company is a subsidiary of state oil company of Azerbaijan. The first shipment it got from the United Arab Emirates was sent from the Port of Fujairah.

3. On July 16, UAE Habshan - Fujairah pipeline, a CPECC general contracting project, the oil transmission capacity of which reached 75 million tons Central Petroleum, was put into use. The pipeline was 424 km long, of which approximately 410 kilometers were on land and another 13.6 kilometers in subsea pipelines. The pipeline was the UAE’s national strategic project. Its biggest feature is to enable 70% of the UAE crude oil to bypass the Strait of Hormuz, directly to the port of Fujairah, and then exporting from the Gulf of Oman (Xinhua News Agency, 2012: July 16).

(F) Iraq 1. On November 27, 2011, the Iraqi Oil Ministry, Shell and

Mitsubishi formed an Alliance Group, which signed a 25-year contract worth $17 billion. This is one of the largest contracts signed by international oil companies in Iraq. Under the contract, the Alliance Group is responsible for processing associated gas from Rumaila,


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Zubair and West Qurna-1 fields. The initial production was 700 million cubic feet/day, and the ultimate goal was 2 billion cubic feet/day. The gathered gas was for power generation. The contract included the formation of Basra Gas Company. State-owned South Gas Company will own a majority 51% stake in new joint ventures. Shell will own 44% stake while Mitsubishi will own the remaining 5% stake in it. Iraq’s oil production is expected to drive the production of associated gas, which will go beyond the natural gas consumption level of Iraq. Currently, the infrastructure for 1 billion cubic feet/day natural gas is ready, while another one billion gas production will be achieved primarily through production in the above-mentioned fields. In addition, the contract also includes liquefied natural gas facilities of a daily output of 600 million cubic feet. After meeting the domestic needs, Iraqi gas exports are possible, and there is priority (OAPEC Secretariat, 2012 (1): 18).

2. On February 12, 2012, a new oil output floating dock (sea berths) was inaugurated. The new terminal is located 60 kilometers from the coast of the Arabian Gulf. The pier was built so that Iraqi oil transmission capacity through the southern window Iraqi increased by 200,000-300,000 barrels/day. According to the design requirements, total capacity of the new terminal will gradually reach 900,000 barrels/day. It is the first one of the five SPMs being built in Iraq. After completion of all, the maximum transport capacity will be up to 5 million barrels/day. Another four offshore berths are expected to be completed by the end of 2013. The total investment is $1.5 billion. The new terminal in use is an important step to ease the bottleneck of the Iraqi maritime output, but also an important part to expand production and export capacity in Iraq (OAPEC Secretariat, 2012 (3): 17).

3. On May 30 and 31, the results of exploration round-4 bidding organized by the Iraqi Ministry of Oil were announced. 12 blocks were for the world’s major oil companies to bid and three awarded. Block 8, area of 6000 square kilometers across Diyala and Wasit provinces, was awarded to Pakistan Petroleum at a remuneration fee of $5.38/B.


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Consortium by the Kuwait National Petroleum Company (accounting for 40% of shares), Turkish Petroleum (30%) and the UAE Dragon Oil (30%) won the bid for Block 9 at a remuneration fee of $6.24/B. The land area was about 900 square kilometers in the province of Basra in southern Iraq, along the Iran-Iraq border. Block 10 was awarded to the Russian LuKoil (60%), Nippon Oil (40%), at a remuneration fee of $5.99/B. The block is located 120 kilometers west of Basra, an area of 5500 square kilometers, across the Muthanna and Dhi Qar provinces.

4. On October 9, 2012, the Iraqi government signed an agreement with the Russian-Japanese Alliance Group authorizing the exploration and development of Lot No.10 bid by the end of May. Under the agreement, geological exploration should be no less than $100 million, and may be increased to $300 million if optimistic circumstances occurred in the reservoir resource.

5. On January 9, 2013, the Iraqi government approved Qatar-UAE Alliance Group to conduct oil and gas exploration in Block 9 awarded by the end of May. Under the agreement, Qatar-UAE Alliance Group received a five-year exploration right. During this period, if the Group acquires oil and gas exploration and exploitation of commercial value, it can submit a request to the Iraqi government to further develop the land for 20 years. The contract is the third that Kuwait energy companies received in Iraq, and also the one of the four exploration contracts the Iraqi Oil Ministry gave to international oil companies in May 2012.

(G) Egypt 1. On December 21, 2011, Egypt and Jordan reached a new

agreement on gas prices and revised an old agreement signed in 2001 by the two sides. Because of the changes in the World market, the new agreement increased the price of natural gas from $2 to $5.2 per million British thermal unit. Egypt was to supply natural gas 250 million cubic feet/day at this price to Jordan, in order to meet 80 percent of the needs of in Jordan.

2 US Apache Corporation has seven leased areas in Egypt’s western desert region–Faghur Basin. On March 26, 2012, its oil


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production increased by 5200 barrels/day, so that the crude oil production in its leased area in Egypt increased by 3% to 203,000 barrels/day and natural gas 800 million cubic feet/day. In the previous six months, Apache Corporation conducted a comprehensive geological 3D scanning of the leased area, constructed eight wells, and made five oil and gas discoveries (OAPEC Secretariat, 2012 (5): 18).

3. On July 23, according to BP’s arrangement, the Egyptian Seth field was put into use 4 months ahead of schedule. The average daily production was 106 million cubic feet of natural gas. Seth field is located 60 km offshore in the concession in the East Nile Delta Mediterranean, close to existing producing Ha’py and Denise fields. In the consortium, BP and the Italian company Eni Group subsidiary AEOC equally share the holdings. The consortium has spent $334 million on the development of gas fields and offshore platforms. In late August, the first two wells accessing the western part of the Seth reservoir are expected to reach 170 mmcf per day and develop about 240 bcf of gas.

(H) Libya 1. On February 25, 2012, the Arab Geophysical Exploration

Services Company started to conduct seismic survey in Block 3 in NC-4 in Ghadames Basin. According to plan, the company will also conduct the second seismic survey by the end of March 2012 in Leased Area 44, 47, 51, 80. The whole leased area belongs to Arabian Gulf Oil Company. At this point, Libya’s oil production has increased to 1.4 million barrels/day and natural gas production up to 2.3 billion cubic feet/day.

2. On November 9, 2010, North African Eni Exploration Company (subsidiary to Italian ENI Group Company) began drilling A1-108/4 Exploration Well in the contracted area in Sirte Basin area, target depth of 14,500 feet. Eni lifted the economic sanctions against Libya back in December 2011 and was the first to resume work in Libya’s oil and gas exploration through cooperation with the Libyan oil and gas companies. A1-108/4 Exploration Well will be the first of an onshore drilling program. In addition to exploration, Eni and the Libyan


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national oil company also formed a coalition group, recovering the oil production in Abu Al-tiflh field (OAPEC Secretariat, 2012 (10): 18).

(I) Oman October 2009, Petroleum Development Oman and an Abu Dhabi

foreign oil investment company jointly invested $6 billion to build a petrochemical plant in Dakamu Area, in the Gulf of Oman, daily processing 23 million barrels of crude oil. The two companies each accounts for 50% of the shares (OAPEC Secretariat, 2012 (4): 18). The project was originally scheduled to be completed in 2012, but has been delayed due to the impact of the world financial crisis. In June 2012, the two companies communicated again to actively promote the project.

(J) Jordan 1. In 2010, the Jordanian Ministry of Energy and Mineral

Resources and Estonia - Malaysian Alliance Group signed a letter of mutual understanding and intent on exploitation of shale oil resources. Subsequently Estonia - Malaysian Alliance Group carried out detailed geological exploration work, submitted the feasibility study report, prepared a detailed plan for development and did all the preliminary technical preparation according to Jordanian requirements. On June 2, 2012, Jordan and the Alliance Group agreed in principle to jointly build a 460-MW power plant using shale oil resources of the Kingdom as raw materials. The Jordanian side was formed by Ministry of Energy and Mineral Resources and National Power Corporation, while the Alliance Group is composed of the pioneer in shale oil production, Estonia International, Malaysia’s international energy companies and Jordan International Trade and Investment Corporation. Shale oil mining area was selected in Attarat Umm Ghudran shale deposits, located 100 km southeast of the capital Amman. The power plant was planned to operate by the end of 2016.

2. On November 21, 2011, Jordan Electric Power Company and a Chinese company signed a letter of intent, planning the construction of a 900-MW thermal power plant in Lejjun located 100 kilometers south of Amman; the, raw materials used would be shale oil (OAPEC


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Secretariat, 2012 (1): 19). The main contents of the letter of intent include: the conduct of a feasibility study on the economic benefits of the project for a period six months; research to determine the construction costs, the expected price and so on under the most economical conditions. The plant was expected to cost $1.25 billion. If deemed feasible, the station would become the Kingdom’s second oil shale power plant, which is part of the special program on use of oil shale resources. Jordan ranked third in the world in this regard. By the end of the contract, Jordan hopes the shale oil production of electricity will meet 14% of the country’s needs.

3. In May 2012, Jordan’s Natural Resource Authority (NRA) signed a memorandum of understanding with Royal Dutch Shell to undertake a subsurface study of the Sirhan and Azraq Blocks in the kingdom. The total area of the blocks was over 20,000 square kilometers, of which Azraq land area of 11,250 square kilometers, located between the western highlands and eastern basalt plateau. Shirhan area was 11,600 square kilometers, located near the eastern border with Saudi Arabia (OAPEC Secretariat, 2012 (7): 19). Under the deal, Shell is to evaluate the conventional and unconventional hydrocarbon prospection of the two blocks through previous studies, data gathering and analysis. Upon the completion of the study, all data, studies, and conclusions will be shared with the NRA, after which, both parties may enter commercial negotiations for the exploration and development phase.

4. October 22, 2012, Jordan’s Natural Resource Authority and the Canadian Whitehorn Resources signed an MOU on the Wadi Abu Al- Hamam project, covering an area of 283 sq. km. in the southern region of the country. According to the agreement, Whitehorn will conduct oil shale exploration drilling and evaluation work, an initial engineering assessment, and a feasibility study. The protocol requires that the proposed project should enable Jordan to gain substantial benefits, such as direct or indirect jobs and tangible economic benefits. Further capital investment requires $1 billion or more. The project is the third in Jordan shale oil development projects. Whitehorn plans to


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implement this technology at full commercial scale of 9,500 bbl/d and expand the project, over time, to achieve a sustained rate of 50,000 bbl/d (OAPEC Secretariat, 2012 (12): 18).

(K) Sudan To compensate the loss of up to 80% of the oil and gas caused by

the independence of South Sudan, Sudan accelerated the pace of development of its oil and gas. In 2012, Sudan launched a total of six blocks (numbered 8, 10, 12B, 14, 15, 18) to seek foreign cooperation, which were located in the southern region of Darfur, northern desert areas and coastal areas along Red Sea.

Block 10 and 14 were originally obtained by a private company in Finland. Due to lack of funds it was forced to give them up. Block 18 was carved out from Block 14, which was near the Egyptian border. Block 15 was obtained by CNPC and Petronas. In 2010, the two companies drilled two wells and found nothing. So the block was abandoned. Prior to this, Petronas was also awarded Block 8 in southeastern Sudan. Block 12B is located in the Darfur region, with an area of 70,000 square kilometers. Under normal circumstances, Sudan’s national oil company would request shares accounting for 15%-20% of the above-mentioned blocks, but this time in order to promote the development of the oil industry as soon as possible, Sudan was willing to allow foreign companies to gain a greater share (OAPEC Secretariat, 2012 (5): 18).

(L) Bahrain 1. In November 2011, Bahrain Petroleum increased the

subordinate refinery production to 271,300 barrels/day. In early 2012, the company’s Board of Directors approved a further expansion plan of the refinery, attempting to increase the refinery’s production capacity to 450,000 barrels/day. To achieve this goal, the variety of oil refining equipment needs to be increased, including a variety of fuel oil, heavy oil and natural gas processing equipment, which would be a great expense. Bahrain Petroleum Company plans to invest $5-6 billion, and put into operation in 2018. After the expansion, the refinery will mainly use Saudi crude oil, followed by domestic crude


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oil (OAPEC Secretariat, 2012 (2): 17). 2. On February 12, 2011, in order to meet the growing domestic

natural gas consumption needs, Bahrain and the US Occidental Petroleum signed a seven-year deep gas exploration and production sharing contracts, in order to promote the development of the natural gas industry. Bahrain’s natural gas reserves were about 7.7 trillion cubic feet, and the consumption has grown rapidly in recent years, which will soon be increased to 2 billion cubic feet/day.

3. On March 12, 2012, Bahraini Minister of Energy Abdul Hussein pointed out in the Ministerial Meeting of the 13th World Energy Forum, that Bahrain’s natural gas consumption is mainly dependent on imports. In order to avoid possible future supply shortages, Bahrain was considering investing 300 million to $1 billion in the construction of a liquefied natural gas import terminal, and organize open tender at the appropriate time. Bahrain’s goal is to import liquefied natural gas equivalent to 500 million cubic feet per day (OAPEC Secretariat, 2012 (5): 17). (M) Mauritania

On April 5, 2012, in order to strengthen oil and gas exploration in the marine areas (especially in deep-sea areas), Mauritania signed four joint production (BCS) contracts. The US Space Energy won three of them, and the other one obtained by a British oil and gas company. Under the contract, the two international companies accounted for 90% of shares in their contracted blocks and the remaining 10% share was owned by Mauritania National Oil Company. The US firm was responsible for exploration of the north and west area of the territorial sea of Mauritania, including Block C8, C12 and C13, water depth 1600-3000 m, area of 27,200 square kilometers. The British company was responsible for the exploration of Block C19, a 14,000 square kilometers area, 5-2100 m water deep (OAPEC Secretariat, 2012 (6): 18).

IV. Development Prospects


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(A) Traditional oil and gas areas In 2010-2012, the oil and gas demand of the Arab oil-producing

countries respectively amounted to 5.8 million barrels/day, 6 million barrels/day, 6.6 million barrels/day; export volume reached 25.5 million barrels/day, 2.63 million barrels/day and 28.8 million barrels/day (OAPEC Economic Management Department, 2013). Arab countries have long been dominated by exports of crude oil. However, with the development of natural gas and petrochemical industry, this situation is now gradually changing. Currently the gas consumption in the Arab countries, power generation and water desalination consumption account for about 50% of total consumption. Industrial use of natural gas accounted for 35% of total demand, and the other 15% is used for gas injection to improve oil recovery. In these consumptions, the average annual consumption growth rate of power generation and water desalination is between 8% and 10%. With the growth in natural gas consumption, gas exports mainly in the form of LNG have seen faster growth. In 2010, LNG export of Gulf countries alone reached 85.81 million tons, accounting for 32% of the world LNG trade volume (Jia, L., 2012: 41). In addition to LNG exports, the development of the natural gas pipeline also thrived. The one that has been completed and put into use is Qatar-UAE-Oman internal pipeline. Under construction are Iran - Pakistan - India (IPI) and Qatar - Pakistan pipeline. It is predicted that by 2030 natural gas will reach 25% in the global energy. The Arab oil-producing countries will still occupy a very important position in the future global oil and gas supply.

(B) Non-conventional oil and gas resources In recent years, impacted by the US shale gas development, the

world began to pay special attention to conventional oil and gas development and utilization. The Arab oil-producing countries have also made efforts in this regard and have included it in their own specific development plans. However, an unavoidable problem is that due to the abundant shale gas, shale oil, and coal bed methane resources in some of the traditional oil and gas major consumer


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countries such as the US, EU, and other East Asian countries, Arab natural gas exports might face a major obstacle. To address this challenge, the Arab oil companies must be proactive in strengthening cooperation with the international petroleum companies. According to average world oil demand and expected future analysis between 1960 and 2035, by 2035, the world’s oil demand is expected to reach 101 million barrels/day. At this stage, due to the shortage of oil reserves in the United States and European countries, as well as the fact that the world oil companies still remember the oil nationalization movement of developing countries and are cautious in the acquisition of global oil resources, the world oil companies will be more willing to choose to collaborate with the oil-producing countries. The objective existence of differences between the two sides and complementarity, such as the resource advantage in the country and the technological advantage of the world’s oil companies, will help promote bilateral cooperation.

(C) Renewable energy In today’s turbulent world economy and international community,

the conditions of the situation facing renewable energy are: the situation in the energy market is good, which is about 16% of the world oil and gas consumer market and 20% of the world electricity consumption. The 2010 Global Renewable Energy investment amounted to $211 billion, an increase of 32%. In developing countries (such as China) project participation rate was over 50%. The challenge facing renewable energy is: with the worldwide recession, governments retracted the support on the development and utilization of solar energy support. Natural gas is a strong competitor. Natural gas production increased due to technological improvement, which resulted in lower prices. World energy demand exceeds production capacity. In recent years, the Arab countries have made some substantial progress in solar, wind, hydro and nuclear energy. The following table is the constructed, in-process and proposed nuclear power plant in the Arab countries (Balut, J., & Hayali, T., 205).

number of nuclear power stations Country

constructed Under construction proposed


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Jordan 0 1 3

Saudi Arabia 0 0 16

UAE 0 4 －

Egypt 0 1 －

Kuwait 0 1 －

Peaceful use of nuclear energy has its pros and cons, advantages being clean, safe and cheap, and disadvantages being the high cost of construction, opposition from environmental organizations and nuclear waste clean-up difficulties. Although the Arab countries have made progress in this area, from the practical stage there is still some distance to be covered.

From a macro point of view, it will take long before renewable energy replaces conventional oil and gas and meets the global demand for energy. The traditional oil and gas will still be dominant in the world's energy supply for the next few decades. The main reasons are: the high cost of renewable energy production; world’s new energy project investment plan is inadequate; abundant amount of cheap traditional energy; important progress has been made in reducing the negative factors of traditional energy resources; more controversy has been raised against the negative impact of renewable energy (for instance, rising food prices caused by ethanol fuel). The complete use of renewable energy is difficult. Some stages require the use of traditional energy sources. In light of this, the Arab oil-producing countries are expected to meet the world’s energy needs with a reasonable price and make positive contribution through internal cooperation.

Conclusion

Since traditional oil would be dominant in the world’s energy supply over the next few decades, the Arab oil-producing countries would keep their important roles and prominence in the world oil market. With the gradually improving economic situation in the Arab


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countries, the oil and gas industry of the Arab countries is poised for another surge of development, and Chinese oil and gas sector may actively seize the opportunity to participate.

References

Balut, J. & Hayali, T. The influence of renewable energy in the future energy

demand, Arabian Oil and Cooperation, No. 142.

Fraiche, S. & Hamsa, T. The Arab countries oil reserves and production, Arabian

Oil and Cooperation, No.142.

Jia, L. (2012). The situation and development prospects of the Middle East oil and

gas industry, Petroleum & Petrochemical Today, No.2.

Majid, A. Investment in heavy oil by OAPEC member countries, Arabian Oil and

Cooperation, No.142.

OAPEC Economic Management Department (2013). Petroleum Industry Monthly

Reports, No.1.

OAPEC Ministry of Economic Affairs (2013: January). Development report of oil

market in the world and member states.

OAPEC Secretariat (2012). OAPEC Monthly, No. 1.









Xinhua News Agency (2012: July 16). The UAE Habshan - Fujairah pipeline put into

operation.

Zhang, W. & Yan, F. & Cai, X. (2013). USA Petroleum Intelligence Weekly

published 2012 world’s 50 largest oil companies, International Petroleum

Economics, No.1-2.

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