Meog 2010 Annual Review

For analysis and commentary on these and other stories, plus the latest oil and gas developments, see inside…

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reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents

January 2011

� News � Analysis

� Intelligence Published by

� NewsBase

JANUARY 2

� Qatar’s good times roll on 2 FEBRUARY 4

� No going back 4 MARCH 5

� Iraq seeking 2010 production hike 5 APRIL 7

� Yemen clings on to oil hopes 7 MAY 10

� Iran sanctions drive undermined by

China’s growing energy links 10 JUNE 11

� Israel’s gas export hopes grow 11 JULY 13

� Iraq targets natural gas, downstream

investment 13 AUGUST 14

� Lebanon oil law paves the way for

offshore block awards 14 SEPTEMBER 16

� Saudi Arabia targets unconventional gas

potential 16 OCTOBER 17

� Lebanon and Iran commit to joint energy

future 17 NOVEMBER 19

� Saudi Aramco maintains oil production

potential 19 DECEMBER 20

� KRG demands Iraq government pass oil

law, recognise contracts 20

NEWS THIS WEEK…

Iraq production hopes One of the most watched developments in 2010 was the rehabilitation of Iraq’s oil infrastructure.

� Baghdad has set hugely ambitious output goals, but only time will tell if 12 million bpd is realis tic. (Page 5)

� Finding a resolution to the Kurdistan oil blockade will be high on the agenda this year. (Page 20)

OPEC stalwarts Saudi Arabia and other major producers will be ready to respond if global demand quickens.

� Gulf states have invested heavily to secure oil and gas production capacity for the world market. (Page 2, 4, 19)

Emerging Middle East Another area to watch will be the emergence of smaller producers in and around the Levant region.

� Lebanon and Syria are hoping to follow Israel’s lead in the offshore gas hunt. (Page 14, 11)

Iran test The isolation of Iran will further test the region’s political and diplomatic skills.

� Despite sanctions, Tehran is still forging energy ties with international and regional allies. (Page 10, 17)

MEOG

2010 Annual Review

MEOG 2010 Annual Review page 2




Ongoing additions to liquefied natural gas (LNG) production and other energy-related infrastructure in Qatar are underpinning the Gulf emirate’s maintenance of its phenomenal economic growth, which has made it the world’s richest nation measured by per capita income.

This year will mark an especially important milestone for Qatar’s gas-driven economy, as all its LNG production trains will be completed and ready for operation, after over a decade of planning and execution by the state-controlled Qatar Petroleum (QP) that has positioned Qatar to capitalise on world demand for gas that is expected to double over the coming decades.

After a massive 16.4% GDP expansion in 2008, the world’s largest natural gas exporter officially grew by a further 11% in 2009, when the production and sale of LNG accounted for 30% of the country’s GDP.

Four new LNG trains came onstream, doubling production capacity to some 54 million tonnes a year. With three more huge trains due to be commissioned in 2010, GDP growth this year is expected to rise a further 12.5% in real terms, according to a recent Reuters poll. Oil Minister Abdullah Attiyah confirmed this week all of these new LNG units would be onstream by September.

Currently, 11 of Qatar’s 14 LNG trains are in operation, including three of the six planned mega-LNG trains with a capacity of 7.8 million tonnes a year, which are the world’s largest.

LNG milestone When the remaining three trains come online later this year, Qatar’s LNG exports will peak at 77 million tonnes of the fuel annually, outstripping other LNG producing countries by a country mile.

And there is no shortage of buyers either, as the US and in particular Asia’s emerging economies are lining up for the Qatari gas, which has enabled the tiny country to outperform Saudi Arabia and other key players in the world’s top oil-producing region.

The QP-run Qatargas, which now pumps 25.6 million tonnes of LNG annually, started up its Trains 4 and 5, which together are called Qatargas2, in 2009.

These are already producing at 100% capacity, have shipped about 64 cargoes since starting and are both being operated in partnership with ExxonMobil.

Qatargas has its Trains 6 and 7 primed for start-up in June and September 2010, the company’s chief executive Faisal Suwaidi told reporters at a news conference on January 12. Train 6, also known as Qatargas3, is a venture with ConocoPhillips, while Train 7, or Qatargas4, is a collaboration with Shell.

“Hopefully, we’ll start commissioning Train 6 in June and, hopefully, we’ll start commissioning Train 7 by September,” Suwaidi said, adding: “probably we won’t have any shutdowns this year.” Qatar’s other LNG producer, the Ras Laffan Liquefied Natural Gas Company, better known as RasGas, produces 28.5 million tonnes per year of the fuel. It said in December that it was also due to start

up the seventh and final train in its capacity expansion plan in 2010. In October 2009, Qatar inaugurated the RasGas Train 6, another mega-train, coinciding with the tenth anniversary of the company’s LNG production commencing.

Export markets Although between 25% and 30% of Qatargas’ LNG output is earmarked for shipment to the US, Suwaidi said: “China and India are the main markets for the next few years,” adding: “they have huge needs.”

Qatargas opened an office in China in November after starting exports in October, and already has contracts to supply 5 million tonnes a year to the country, according to recent remarks by Energy Minister and Deputy Prime Minister Abdullah bin Hamad al-Attiyah.

Qatar is negotiating to supply an additional 7 million tonnes a year to China, and has started talks on shipments to India – where RasGas already supplies 7.5 million tonnes annually – under a new long-term contract, al-Attiyah noted. Pakistan is also seeking LNG supply from Qatargas 4, al-Attiyah said.

Qatar has also cemented LNG-based co-operation with other countries through the building of a gas carrier fleet, and constructing the infrastructure for LNG gas receiving terminals. In 2009, two major overseas projects received first Qatari gas – South Hook LNG regasification terminal in the UK and Adriatic LNG terminal in Italy.�

JANUARY

Qatar’s good times roll on It is shaping up to be a big year for Qatar, with the final completion of its massive LNG expansion project By Kevin Godier � Annual LNG production capacity is expected to reach 77 million tonnes by September � The rise in production is being targeted at high-gr owth markets such as China and India � ExxonMobil and Qatar Petroleum have unveiled plans for US$6 billion petrochemicals scheme



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A joint venture amongst QP, ExxonMobil and Total, the South Hook LNG terminal has a regasification capacity of 15.6 million tonnes a year, and will receive gas straight from the Qatargas 2 project.

The Adriatic LNG Terminal is the first offshore gravity-based structure in the world for unloading, storage and regasification of LNG, and once at full operational capacity can deliver 6 million tonnes of LNG a year to meet about 10% of Italy’s current natural gas requirements. Non-LNG sectors Outside its LNG sector, Qatar’s goal is to maintain its recently attained capacity of 1 million bpd of oil production in the medium term.

Although production has grown steadily since 2002, Qatar’s fields are maturing, and enhanced oil recovery (EOR) techniques are being considered to offset anticipated declines for several fields.

Through a production-sharing agreement with Maersk Oil, QP aims to increase the capacity of its largest al-Shaheen offshore oilfield, located in Block 5, to more than 500,000 bpd from 340,000 bpd currently.

The expansion at the Qatargas and RasGas LNG facilities will also help Qatar become a major producer and exporter of liquefied petroleum gas (LPG).

Qatar’s annual LPG production is expected to reach 12 million tonnes within two years from the current 8 million tonnes, Mohammed al-Sada, the

country’s Minister of State for Energy, said in November.

To mirror rising natural gas and LPG output, Qatar is also investing billions of dollars in new petrochemical ventures through QP, Qapco and their joint ventures.

By 2012, Qatar will produce some 16 different types of petrochemical products such as polyethylene, polypropylene, styrene, polystyrene, aromatics and vinyl products. By that time Qatar’s total annual petrochemical production will exceed 28 million tonnes. ExxonMobil again A highlight in this respect is a huge project recently agreed by ExxonMobil and QP, which will produce chemicals for export to Asia.

The plant is scheduled be completed in 2015, the companies said on January 13, and will have a 1.6 million tonne per year

steam cracker, two 650,000 tonne polyethylene plants and a 700,000 tonne ethylene glycol plant.

“This is a world-scale project with a cost, we assume, of almost US$6 billion,” al-Attiyah said.

The proposed plant represents the biggest single energy investment in Qatar since Shell announced plans to build its Pearl gas-to-liquids (GTL) plant in July 2006, a project expected to cost US$19 billion when finished at the end of 2010.

The GTL scheme at Ras Laffan will produce about 140,000 bpd of GTL products as well as 120,000 bpd of condensate, LPG and ethane from two trains.

Qatar already operates Oryx GTL at Ras Laffan, producing 34,000 bpd of specialty products, including clean transportation fuels.�

JANUARY





After recent disappointments, Kuwait is moving to boost its flagging oil and gas industry.

The National Assembly (Parliament) recently approved a US$107 billion four-year economic development strategy to spearhead the rejuvenation of the sector.

Also under consideration is an investment plan drawn up by upstream operator Kuwait Oil Company (KOC) to spend US$87 billion over the medium term, up from an earlier planned outlay of US$55 billion.

At the executive level, after several months of delay, the Emir Sheikh Sabah al-Ahmed al-Jaber al-Sabah has announced the constitution of a new Supreme Petroleum Council (SPC), the highest decision-making body in Kuwait’s energy sector.

It appears that change could be in the air and, and in late January, while addressing a Houston industry conference, the local head of the Kuwait Petroleum Corporation’s (KPC’s) US office, Abdulaziz al-Attar, said his country was at a crossroads.

“We are not looking back any more,” he said on the sidelines of the conference. “We admit there were certain issues to be dealt with, but our aim now is to continue to be a reliable source of energy and respond more proactively to oil market dynamics, opportunities and challenges.” Doubts persist Given the past history of the National Assembly and its constant bickering with the Oil Ministry, credibility has probably been at stake in Kuwait.

“Politicisation of the energy sector by MPs [members of Parliament] has negatively impacted the Oil Ministry for several years and they have not spared any efforts to grill the [Oil] Minister even on issues of little significance,” said Shailesh Dash, a Kuwait City-based independent financial analyst.

“This resulted in the cancellation and delays of a number of strategic projects and did not do any good. In the past two years, we have seen KPC being entangled in semi-legal matters with international contractors and oil companies.”

His allusion was to the cancellation of the 615,000 barrel per day (bpd) al-Zour refinery project and a mega petrochemicals joint venture planned to be set up in partnership with Dow Chemical of the US. The end result was Kuwait awarding compensation money to some disappointed – and slightly miffed – contractors, mainly from Japan. The Dow saga still trundles on.

Alas, the story does not end there. Last July, Chevron wound up its

Kuwait office after failing to reach a deal with KPC on an enhanced technical services agreement (ETSA) – an upstream initiative to assist KOC with new technology and field development methods.

Chevron was the third international oil

company (IOC) to have failed to sign an ETSA. The two others were the UK’s BP and Total of France. Moving forward But that is all in the past, Kuwaiti officials state publicly.

“We are keen on moving ahead and need the necessary manpower and technical expertise to put certain projects back on track,” al-Attar said.

He added: “Our plans are ambitious and include reaching a production capacity of 4 million bpd by 2020, expanding our refining and petrochemical capacity, upgrading the oil export facilities and modernising the fleet of tankers.”

He said that in line with tighter product specifications being imposed by the US and Europe, KPC will invest US$15 billion by 2013 to improve and upgrade its refineries.

“We will be producing better quality diesel and petrol. Also, we will produce 225,000 bpd of fuel oil with less than 1% sulphur for supplying to power stations. This will considerably reduce harmful emissions.”

Upstream growth He added that along with the refineries, work was also progressing on the upstream oil sector to add 200,000 bpd of new capacity at the giant Burgan field by mid-2010. “Our target is to reach a capacity of 1.7 million bpd from Burgan. Next, through a series of gas-lift programmes, KOC will hike output from Rawdhatain and Sabriyah by 100,000 bpd over the next two years,” al-Attar said.�

FEBRUARY

No going back Kuwait wants to make up for lost time, a senior Kuwait Petroleum Corporation official has told MEOG, but potential investors may still take some convincing By Ashok Dutta � Kuwait Oil Company is lining up an US$87 billion up stream investment plan � Kuwait is still on course to raise oil production c apacity to 4 million bpd by 2020 � Shell has agreed a five-year technical service cont ract to exploit pure gas reservoirs

KOC’s highest increase in production will come from

the heavy oil sector






However, KOC’s highest increase in production will come from the heavy oil sector, where it plans to produce 900,000 bpd by 2020 compared to 75,000 bpd at present.

Nearly 90% of that will be sourced from the Lower Fares structure, where in October 2007 KOC signed an agreement with the US’ ExxonMobil. The acreage is located close to the border with Iraq.

“We have certain outstanding issues in that deal [with ExxonMobil] and they are being worked out,” al-Attar added. Gas strategy Work is also underway in the natural gas sector, where KOC’s performance has been dismal. In fact, last year Kuwait temporarily halted fertiliser production to cope with power generation demand, all because of a lack of local gas supply.

With a current gas output of 28 million cubic metres per day (cmpd) – most of which is associated gas from crude oil production – it only meets 40% of the Gulf state’s total demand.

“By 2020 demand will reach 142

million cmpd. We aim to produce an additional 28 million cmpd of non-associated gas from the northern fields, but there will still be a huge deficit,” al-Attar said. Shell deal There are plans to step up gas exploration and production (E&P) activity. As part of that initiative, in mid-February, Shell put pen to paper with KPC on an ETSA to develop the Jurassic gas fields in the north.

“This project is both complicated and challenging, owing to unconventional geological formations, difficult reservoir conditions and complex gas compositions,” said Malcolm Brinded, Shell’s executive director of upstream international.

“The development of non-associated gas is a key strategic project on which KOC depends to meet a significant part of Kuwait’s need for clean energy. We will bring to bear our experience which we have gained developing the most challenging gas resources around the

globe, including sour and tight gas.” Doubts remain With proven natural gas reserves of about 2 trillion cubic metres, Kuwait seems to have taken a step in the right direction.

But analysts remain wary. “Some signs of a change are probably in the offing,” said Kuwait-based analyst Dash.

“The Shell agreement has opened the doors for others to follow. But, KOC has to sign ETSAs for its oil sector. New gas supplies will cater to growing domestic industrial and consumer demand. However, the big story in Kuwait is oil.”

At present, as the world’s fourth largest crude oil producer, Kuwait has a production capacity of just over 3 million bpd and its year-on-year earnings at end-March are estimated to be US$58 billion.

Keeping the oil flowing, and even growing capacity, remains the primary challenge for Kuwait, though at the same time it must keep a close on eye on its gas supply.�

Iraq is set to take a small but crucial step this year on its so-far faltering path to exponentially increased oil production.

As oil deals recently signed with international oil companies (IOCS) to develop giant Iraqi oilfields become effective throughout 2010, the country’s crude output could rise by more than

250,000 bpd by year-end, according to the head of the South Oil Company (SOC), Iraq’s largest oil firm.

Although it sits on the world’s third largest proven reserves of crude oil, Iraq only produces about 2.5 million bpd, of which some 1.9 million bpd are exported. Untold years of neglect of its key

oilfields have been compounded by the effects of the widespread violence and sabotage to hydrocarbons infrastructure in the wake of the 2003 US-led invasion, which has seen Iraq unable to reach even its pre-war output levels.�

FEBRUARY

MARCH

Iraq seeking 2010 production hike Iraq hopes to see production rise by 250,000 bpd this year, as investors get their teeth into some of the country’s big field redevelopment projects By Kevin Godier � Most of the contracts arising out of the first and second licensing rounds have now been finalised � Rumaila will drive 2010 growth, with more oil also expected from West Qurna Phase 1, Zubair and Majnoo n � Iraq will develop the Nassiriyah field on its own a fter talks with a group of Japanese investors faile d






Oil deals However, the government has over the past nine months struck a series of 10 or so deals with foreign oil companies to develop its vast oilfields in a bid to boost production capacity to a massive 12 million bpd within six to seven years, rivalling top producer Saudi Arabia.

Potential barriers still threaten these deals, including a looming March 7 parliamentary election that could usher in a new government inclined to try to renegotiate some of the contracts.

But, politics notwithstanding, the signs are that five fields will push ahead this year, the biggest being the super-giant Rumaila oilfield, where BP and China National Petroleum Corporation (CNPC) intend to increase production in 2010 by between 10% and 15% from the current 1.06 million barrels a day, SOC’s Dhaa Jaafar told Dow Jones Newswires on February 25.

The Rumaila deal, which emerged from Iraq’s June 2009 licensing round, became effective in December.

Jaafar added that the contracts for three other fields run by SOC within the Basra governorate that were also signed recently with IOCs – West Qurna Phase 1, Zubair and Majnoon – could add a further 100,000 bpd of production at the end of the year. All became effective this month. Moreover, SOC plans to go it alone and drill 10 new oil wells at the Nassiriya oilfield this year, Jaafar said.

“We are capable of boosting production from Nassiriya from 10,000 bpd to 50,000 bpd by the end of 2010,” he told Reuters in a February 28 interview.

If these targets are all met, Iraqi oil output should hit the 2.75 million bpd milestone by the end of this year.

Jaafar stressed that every incentive was there for the IOCs, which would start to recover costs and get paid for their services once they were able to raise production from these fields by 10% above the initially agreed baseline production rate.

Rumaila targets The BP/CNPC/SOC alliance was selected in November 2009 to rehabilitate the Rumaila field under a US$15 billion, 20-year development contract that marked the first major post-US invasion oil deal.

It has committed to almost triple output to 2.85 million bpd in six to seven years, taking a fee of US$2 a barrel for each extra barrel produced.

BP has a 38% stake, CNPC has 37% while SOC holds 25%.

In the second half of February, 10 oil service companies were invited to take part in a tender to drill 56 new wells at the giant field, which has an estimated 17 billion barrels of crude reserves.

The tender is expected to be awarded in March, paving the way for the new drilling.

On March 1, a separate tender to drill 45 wells was awarded to TPIC, the foreign exploration unit of state-run Turkish Petroleum, an Iraqi official told Reuters, in a deal worth US$318 million.

West Qurna Phase One has reserves of 8.7 billion barrels but found no bidders in the first auction.

However, a subsequent competition behind closed doors led to a deal with ExxonMobil and Shell, which signed the final contract on January 25. The development contract became effective on February 12, under which the consortium aims to boost output to 2.3 million bpd from 244,000 bpd, and has accepted a fee of US$1.90 per barrel.

ExxonMobil has a 60% interest in the consortium, with Iraq holding 25% and Shell the remainder.

At the huge 12.6 billion barrel Majnoon oilfield, which is currently producing around 45,000 bpd, Shell (45%) in partnership with Malaysia’s Petronas (30%) has pledged to raise output to 1.8 million bpd for a payment of US$1.39 for extra barrels produced.

The contract will be effective on March 1, Jaafar said, and the firms can start recovering costs once output hits 175,000 bpd.�

MARCH






Initial baseline output at the 4 billion barrel Zubair field has been set at 182,000 bpd, under the final contract signed on January 22.

Eni (32.81%), leading a consortium comprising Occidental Petroleum (23.4%) Korea Gas Corporation (18.75%) and Iraq’s Missan Oil Company (25%), plans to invest over US$20 billion, and has pledged to boost production from the field to 1.2 million bpd for payment of US$2 a barrel. Nassiriya field Meanwhile, Iraq plans to develop the largely undeveloped Nassiriya oilfield on its own after months of talks with a Japanese group led by Nippon Oil Corporation reached a dead end, Jaafar said.

Nippon had projected it could pump up to 200,000 bpd within two years, according to Iraqi officials, but “talks with the Nippon group have reached a dead end, and we will start developing the field through national efforts,” Jaafar said.

The Nassiriya field is listed as having oil reserves of under 5 billion barrels.

If confirmed, it would mark a real disappointment for Japanese upstream

hopes in Iraq. Tokyo wants a presence in Iraq to underpin future oil supplies from the Middle East, its primary supplier. Other fields The other standout Iraqi oil development is undoubtedly the 20-year contract signed by Russian energy giant Lukoil and Norwegian Statoil to develop the supergiant West Qurna Phase Two oilfield, which became effective on February 18.

The partners have agreed a remuneration fee of US$1.15 per barrel once output reaches 120,000 bpd, and have pledged to take production at the 12.9 billion barrel field to a plateau of 1.8 million bpd.

Lukoil has put the total investment requirement at more than US$30 billion.

Other major Iraqi fields where contracts have been concluded as a result of the country’s two oil auctions include Halfaya, al-Ahdab, Gharaf, Badrah and Qayara & Najmah, while the Kirkuk and Maysan fields remain under negotiation.

All have equally ambitious production targets that should bolster oil exports, which are still responsible for virtually all of Iraq’s state income.

As the above details show, Baghdad is

counting on untold billions of dollars worth of new oil infrastructure and operations enhancements from foreign majors, in order to boost the output of a resource crucial to Iraq’s postwar reconstruction efforts. Southern fields To date analysts have focused predominantly on the security problems that will be faced by foreign companies, but the reality is that the additional production envisaged this year will come from fields in the relatively calm and stable southern Shiite heartland.

If the lure of massive revenues is sufficient to persuade whoever forms the next Iraqi government to allow the new oil contracts to stand unchallenged, Iraq will be able to take its first significant production steps on the long haul towards fulfilling its potential as a global oil giant.

Of course, 250,000 bpd is still small fry in comparison to Iraq’s potential, but it would illustrate tangible progress and perhaps provide genuine encouragement for future and larger production increases.�

An oil discovery last week, a liquefied natural gas export (LNG) project last year, and the promise of more investment to come: it could be easy to gloss over Yemen’s many problems.

Notably, there is an awful security situation in pockets of the country that has pitched government troops, and their Saudi allies, against gun-toting separatists and Islamic extremists.

Yemen has again stepped up security at key oil sites across the land for fear of retaliation by al-Qaeda after several strikes against the jihadist network.

Saudi Arabia, meanwhile, is building a giant fence along its border to keep the trouble out.

But the country’s Minister of Oil and Minerals, Amir Salim al-Aidrous, last week played down the notion that Yemen

could be facing oil depletion within a decade.

A recent World Bank study – conducted at Yemen’s request to explore non-oil economic alternatives such as tourism, fishing and minerals – renewed its warning that this could happen within 10-12 years if no new major discoveries were made and brought online.�

MARCH

APRIL

Yemen clings on to oil hopes

The oil is out there but the outlook is not good for Yemen By Martin Clark






“I don’t believe in such rumours, which have surfaced many times but proved untrue,” al-Airdrous said, quoted in The Yemen Post.

But the fact that it has not happened before should not be taken to mean that it cannot happen at all.

Despite the launch of the Yemen LNG project in 2009 – and the start-up of a second production train this week – with a total capacity to ship 6.7 million tonnes of chilled Yemeni gas to overseas markets, oil production is on a perilous slide.

According to the US Energy Information Administration (EIA), output totalled 281,000 barrels per day (bpd) last year, compared to 300,000 bpd in 2008, and down from a peak of 457,000 in 2002. This is expected to drop to around 250,000 bpd by 2014.

It is a major problem, given that oil sales account for up to 75% of public revenue and more than 90% of export earnings.

Whether the government can arrest this fall, and to what extent the damage can be limited by the advent of LNG sales, remains to be seen, though clearly there is an issue to address.

The quest for viable economic alternatives is one way the government in Sana’a is seeking to limit the damage, a sensible policy that will at least help ease its near total dependence on hydrocarbons.

The success of any new economic policies, however, remains intricately linked with Yemen’s ongoing exposure to political upheaval and an uncertain security climate.

This is no truer than in the tourism sector where, despite the country’s immense natural charm and ancient culture, few visitors will dare tread if they fear being blown up during their two-week holiday.

More immediately, there are plans to tweak oil policy to entice greater foreign investment.

The country’s oil minister acknowledged last week that Yemen’s

upstream laws could be updated and said the government was seeking ways to improve things.

Al-Meashar find He will no doubt take heart in news last week from Australia’s Oil Search, which reported a discovery from its al-Meashar-1 well in Block 7.

Oil and mud flowed at rates of about 400 barrels per day (bpd) during a drill stem test targeting fractured basement rock identified by 3-D seismic acquired in 2008.

The seismic sweep covered 800 km in an area close to the Habban field, which is currently being developed by Austria’s OMV.

Block 7 is located in the central part of the country, fairly close to existing oil infrastructure, and to the north of the

LNG export terminal at the port of Balhaf.

Oil Search, which operates the block, and the adjacent Block 3, now plans a second follow-up test at the site, after the encouraging early results.

Its partners include ARC Energy, a subsidiary of fellow Australian group AWE, Kuwait Foreign Petroleum Exploration Company, Yemen General Corporation for Oil and Gas and Japan’s Mitsui E&P. Modest fields But, typically for Yemen, the findings are fairly small-scale, in contrast to the larger fields to be had elsewhere on the Arabian Peninsula.

Any oil is significant, of course, especially for a junior oil company making its name such as Oil Search, but the volumes up for grabs, though possibly commercial, are not transformational at a national level.

Still, Oil Search and its international team are far from alone.

OMV is pushing on with its Habban field development, which will include a 60-km pipeline – put out to tender earlier this year – with plans to raise capacity from about 11,000 bpd to 32,000 bpd of oil by around 2012.�

APRIL

There are, however, no new investments on the scale of Yemen LNG

coming up, a project that took many painstaking years to put together






The Austria-based company bolstered its Yemeni position in 2003, following the takeover of Preussag Energie GmbH.

Another established operator is DNO International of Norway, which has an interest in seven concessions, at varying stages of exploration and production.

In its latest update, at the end of March, it said its working interest production from Yemen during February amounted to 7,371 bpd.

And, as elsewhere, there is plenty of activity in the field, despite the security backdrop.

This includes the Bayhoot-7 basement development well, brought onstream in February and now producing 160 bpd, and the current drilling of the Bayhoot-8 follow-up, both in Block 53.

In Block 43, the Nabrajah-10S/S2 production well was completed in January and brought onstream for test production, while an appraisal well, Yaalen-3, is expected on Block 47 anytime.

Canada’s Calvalley Petroleum is also making headway on Block 9 in the Masila Basin, with development activity on a number of fields ongoing and a

trickle of production flowing. It expects to be able to raise output

after receiving the green light to transit crude through the Masila pipeline system. Total role The biggest oil investor, of course, is Total of France, which masterminded the US$4.5 billion Yemen LNG project.

The largest single foreign investment project ever in Yemen, one of the government’s big hopes is that this gas export scheme will offset at least some of the decline in oil production.

Announcing the start of Train Two on April 2, Yves-Louis Darricarrere, president of Total Exploration & Production, said: “The commissioning of the second Yemen LNG train ahead of schedule represents another major step in the history of our partnership in Yemen, where we have been present for over twenty years.”

Total operates Yemen LNG in partnership with Yemen Gas Company, Hunt Oil, SK Energy, Korea Gas, Hyundai Corp. and Yemen’s General Authority for Social Security and

Pensions. The French company also operates or

participates in half a dozen upstream concessions, including Block 10, which has current production of around 62,000 bpd.

There are, however, no new investments on the scale of Yemen LNG coming up, a project that took many painstaking years to put piece together. Total remains active though, nearing completion on a new project in Block 10 to cut flaring by feeding surplus gas through to a 25-megawatt power plant owned by the Public Electricity Corporation.

The facility will provide vital electricity supply to the poor Wadi Hadramout region.

Better news for Yemen is that new investors are still willing to take a punt.

Abu Dhabi’s Mubadala Development Co, last month held talks with officials on the possibility of partnering the local Safer E&P Co. to increase production from Block 18 in Marib province, according to reports.

Block 18 – formerly owned by the US’ Hunt Oil – is Yemen LNG’s main gas supply source.

Provided the country can continue to win over potential new investors then there is always hope that Yemen can reverse the fortunes of its ailing energy sector.

But some better news on the security front would certainly not go amiss either.�

APRIL






Flagging up China’s continued independence from Western policy, the country’s biggest oil company, China National Petroleum Corporation (CNPC), has said a draft UN Security Council resolution proposed by the US against Iran will not hinder its energy projects in the Islamic Republic

CNPC plans to bring online an oilfield in Iran later this year, and is pressing ahead with two other oil and gas projects valued at billions of dollars, its top executive has emphasised.

“We will implement our projects in Iran as usual, and we don’t have plans to speed up,” Jiang Jiemin, CNPC’s president, said at an annual general meeting of PetroChina Company, CNPC’s Hong Kong- and New York-listed subsidiary. Chinese independence The statement came just two days after the US proposed a draft resolution, which targets Iran’s military, financial, and shipping activities.

It highlights Beijing’s strong economic ties to Tehran, which was China’s third biggest supplier of oil last year after Saudi Arabia and Angola.

Jiang said he expected production from the oilfield – the mature Masjed-i-Suleiman field – to hit around 20,000 bpd later this year.

“Regarding our projects that have been

started, we will continue to do so,” he said, referring to CNPC’s work in developing three other fields in Iran.

These include developing Iran’s North Azadegan field to produce 120,000 bpd at a cost of at least US$2 billion.

The depth of the involvement here was highlighted on May 10 by the US’ Government Accountability Office (GAO), which said that CNPC “is reported to be financing 90% of the development of the North Azadegan oilfield”.

CNPC is also heavily involved in one of the world’s biggest natural gas fields, having this year clinched a deal to develop Phase 11 of Iran’s South Pars gas project. These initiatives by CNPC run in tandem with its US$60 billion global investment plan over the next decade, aimed at increasing its overseas oil production to 4 million bpd from its present 284,000 bpd.

Equally significantly, they will not violate the UN Security Council draft resolution devised by the US to punish Iran for its nuclear programme.

China, along with Russia, has only agreed to the draft after concessions from Washington that will protect their energy and financial ties to Iran.

These are growing because Beijing is faced with declining domestic oil production and rising demand.

Indeed, China’s linkage with Iran is so

tight that complying with sanctions would cut off 10-12% of its oil imports and jeopardise oil contracts worth hundreds of billions of dollars, according to estimates.

In 2009, Iran supplied 23.1 million tonnes of oil to China.

Illustrating that ties are, if anything, growing, another CNPC subsidiary, Chinaoil, sold two petrol cargoes of about 600,000 barrels worth around US$55 million for April delivery to Iran, according to an April 14 Reuters report.

This marked Chinaoil’s first direct sales to Iran since at least January 2009, said the report, adding that another Chinese major, Sinopec Corporation, was poised to resume petrol sales to Tehran following a hiatus of nearly six years, the report said. Iran’s allure CNPC keeps assets in politically sensitive countries like Iran and Sudan clear of PetroChina to avoid any backlash from international shareholders. But China’s other big state-owned oil companies, including China National Offshore Oil Company (CNOOC) and Sinopec, also have projects in Iran, as do oil companies from more than three dozen other countries, including the UK, France and Japan.�

MAY

Iran sanctions drive undermined

by China’s growing energy links China’s growing dependence on Iranian oil presents a serious obstacle to US efforts to seek tougher sanctions on the Islamic Republic’s nuclear programme By Kevin Godier � CNPC is gearing up for more investment in Iran’s up stream oil and gas industry � Beijing is reliant on Iranian oil, which accounts f or over 10% of Chinese imports � Despite the oil connection China is also a believer in nuclear non-proliferation






US monitoring A GAO report, entitled ‘Firms Reported in Open Sources as Having Commercial Activity in Iran's Oil, Gas, and Petrochemical Sectors,’ cited 41 foreign companies that have helped Iran develop its energy sector since 2004.

“According to the information, the firms provide technical expertise, equipment or funding that enable Iran to increase the productive capacity and profitability of its oil, gas, and petrochemical sectors,” the GAO said.

GAO said Iran had sought technological assistance to increase the level of oil production in declining fields.

“Iran requires increasingly modern and advanced enhanced oil recovery (EOR) technologies in order to stop natural declines of oil production, but has found advanced technology difficult to import owing to international sanctions and high costs,” the report noted.

No American companies were listed in the report, but the document identified seven foreign firms that not only were commercially active in Iran, but also had contracts with the US government, worth a total US$879 million over five years.

They are: Repsol (Spain), Total (France), Eni (Italy), PTT Exploration and Production (Thailand) and South Korea’s Daelim Industrial Company, Hyundai Heavy Industries and GS Engineering and Construction.

Sanctions situation Iran has made clear that it has no intention of suspending the domestic enrichment the West suspects is aimed at making bombs.

US Secretary of State Hillary Clinton told the Senate Foreign Relations Committee on May 18 that major Western powers had now convinced China and Russia to impose new economic sanctions on Iran in an effort to deter Tehran’s alleged nuclear weapons aspirations.

However, the new sanctions proposal relies heavily on discretionary enforcement against Iran.

If adopted, this still leaves China with room to manoeuvre on how strictly it wants to enforce the new proposals.

While China agreed to the new sanctions draft, it also applauded a nuclear fuel exchange deal with Iran brokered by Brazil and Turkey earlier in the week, which could seriously pre-empt the UN Security Council action.

Concerned that the UN lacks effectiveness, the US has drawn up fresh legislation for unilateral sanctions on fuel suppliers to Iran. But this has drawn some opposition from US business groups seeking to limit damage to US companies that do business with firms connected with Iran’s oil sector.

There is also ambivalence towards Iran in China, where support for the Islamic Republic is not unreserved.

China has kept close ties with Iran, but has also backed past UN Security Council resolutions criticising Tehran’s stance on nuclear issues, and wants to cast itself as a supporter of nuclear non-proliferation.

But trade between the two markets, dominated by Iran’s energy exports, is just as strong a policy driver.

In 2005, bilateral trade was worth US$10.1 billion. In 2009, it was worth US$21.2 billion, and has risen by a massive 47.4% year-on-year in the first three months of 2010.

China is an investor in Iranian oil and gas, and Chinese state-owned energy conglomerates have been exploring for new fields there, with an eye to expanding their stake.

The bottom line is that while China believes stability in the Middle East is good for energy security, it does not want sanctions to cut off its hard-won supply of Iranian crude.�

Israel may be on the path to exporting energy for the first time in its history

after Noble Energy and its partners said their offshore discoveries in the country

may hold twice as much natural gas as the UK.�

MAY

China’s other big state-owned oil companies,

including CNOOC and Sinopec, also have projects

in Iran

JUNE

Israel’s gas export hopes grow The potential scale of reserves sitting in the Levant Basin means Israeli energy planners are now starting to draw up export plans By Kevin Godier






Noble, the Houston-based operator of the Leviathan block, said in an early June statement that the area may have a massive 16 trillion cubic feet (453 billion cubic metres) of gas, and predicted “a geologic chance of success of 50%”, based on the preliminary results of a 3-D seismic survey.

It has also raised its estimate for the nearby Tamar field by 33% to 8.4 trillion cubic feet (238 billion cubic metres), as a result of updated reservoir studies, and said all its areas in the eastern Mediterranean may hold a potential “in excess of 30 trillion cubic feet (850 billion cubic metres)”, more than twice the UK’s proven gas reserves.

“In total, Noble Energy’s discoveries represent approximately 35 years of Israel’s natural gas needs at projected 2012 demand rates,” the company said in a statement. Export hopes

Significantly, with the Tamar field alone – which is due to begin production at the end of 2012 – - expected to fulfil Israel’s gas demand for the next two decades, the country may be eyeing a position where it is able to export the commodity to Asia and Europe.

“In addition to the increase in estimated Tamar resources, we have identified significant additional drilling opportunities nearby which, if successful, could position Israel as a potential energy exporter in future years,” Charles Davidson, Noble’s chief executive, said.

Israel has been dependent on oil and coal imports from as far away as Mexico and Norway and has bought gas from Egypt in the past decade, but “the option for exporting natural gas has become much more realistic”, according to Asaf Bartfeld, chief executive officer of Delek Group, one of Tamar find’s partners.

“We may be able to supply the European market and the Far East where demand is highest. Though, of course, at this point, we are waiting to drill and to try and confirm the gas,” he said on June 3, in an interview with Bloomberg.

While results to date from Israel’s

offshore fields are encouraging, the discovery process remains of course at a relatively speculative stage, and the optimism comes when Israel’s standing in the international community has been savaged by the diplomatic fallout following the May 31 raid of a flotilla carrying aid to Gaza, which left nine dead.

As well as necessitating buyers prepared to do business with Israel, the export process would also require many billions of dollars in investments.

With pipeline options around the region limited due to the continuing political tensions, market observers have highlighted that liquefied natural gas (LNG) might be the most feasible export option for the Noble-led consortium, albeit one that has generally taken LNG producers at least half a decade to put into place.

2011 drilling plan Noble Energy, which owns 39.66% of the Amit and Rachel licenses forming the Leviathan gas find, announced on June 3 that the site would be its next exploration target in the region, and that it plans to drill at Leviathan later this year.

“The preliminary results of the 3-D seismic survey of the Leviathan structure published by Noble Energy Inc. are exceeding all of our expectations,” said billionaire Isaac Tshuva, who controls the Delek Group.

Delek is a partner in the Leviathan natural gas find through its subsidiaries Avner Oil and Gas and Delek Drilling, each with 22.67%.

Ratio Oil Exploration 1992 holds a further 15% in Leviathan.

In addition to the gas potential at the

Leviathan site, the results of a seismic survey also indicated signs of oil at greater depth, Tshuva said.

The momentum building across Israel’s gas sector began in January 2009, when the discovery of the Tamar natural gas field was made 90 kilometres offshore from Haifa.

Marking the largest gas discovery globally in 2009, and split between the Tamar-1 and Tamar-2 sites, the field was also the largest exploration discovery ever for Noble Energy, which has a 36% working interest and also discovered another natural gas field in Israel in 2009, at Dalit, where gas reserves have been estimated at 500 billion cubic feet (14.2 billion cubic metres).

Noble’s partners at Tamar are Isramco Negev (28.75%) and Delek Group (31%), the latter again through its Avner Oil Exploration and Delek Drilling units.

Noble Energy confirmed on June 3 that the Tamar project remains on schedule for sanction in 2010 and Davidson said that Noble is “working hard” to enable Tamar first gas sales late in 2012.

The capital investment for Tamar is estimated at around US$2.8 billion.

Already, the state-run Israel Electric Corporation has said it planned to buy at least 2.7 billion cubic metres of gas from Tamar over 15 years, in a deal that could be worth nearly US$10 billion. Levant Basin strength The rapidly growing prospects for Israeli energy self-sufficiency and major new export revenues was also mirrored recently by an April 8 review by the US Geological Survey of the Levant Basin, where Tamar and Leviathan are located.

The basin, which stretches the length of Israel and Lebanon, may hold as much as 227 trillion cubic feet (6.43 trillion cubic metres) of gas, said the review.

That compares with Egypt’s 77 trillion cubic feet (2.2 trillion cubic metres) of reserves in 2008 and the UK’s 12 trillion cubic feet (340 billion cubic metres), according to BP’s statistical survey.�

JUNE

Noble Energy’s discoveries represent approximately 35

years of Israel’s natural gas needs at projected 2012

demand rates






The US Geological Survey numbers are so striking that some observers may even see Israel as an embryonic Qatar, which has exploited its approximately 890 trillion cubic feet (25.2 trillion cubic metres) of gas reserves to stunning economic effect to become the world’s largest gas exporter, and the globe’s wealthiest per capita country.

But Tshuva made the more realistic point that Israel – which has been importing gas from Egypt since 2005 – is

set to be “an energy independent country”.

Equally down to earth was Finance Minister Yuval Steinitz, who said in an e-mail to Bloomberg that the government will be studying how to collect some of the potential revenue.

“These are discoveries of very meaningful proportions. The discoveries only strengthen the need to establish a committee which will examine the royalties and taxing system which will

ultimately make their way into the government’s coffers,” he said. For the time being, however, the only certainty is that a new and potentially very significant energy basin is being delineated in the eastern Mediterranean.

But if events progress at the level which matches the optimism on display in early June, the prospect of Israeli LNG cargoes making their way to Asia and the Atlantic Basin market in 2020 may not seem so far-fetched.�

After the rush for oil blocks earlier in the year, Iraq is shifting its sights to other parts of its energy sector, notably gas and downstream industries.

Although post-war priorities to raise crude oil production remain intact, most of the big oilfields auctioned under the two bid rounds of 2009 have now been handed over to international investors.

These companies – which include the world’s biggest oil corporations such as ExxonMobil and Shell – are now tasked with raising the country’s production as quickly as possible, up to a target perhaps as great as 12 million barrels per day (bpd).

Not all of the jigsaw pieces are in place – the country still has no ratified petroleum law, nor indeed a firm government following the March elections – but conditions now appear

sufficient for these companies to put boots on the ground and commence work.

BP and China’s CNPC are leading the charge with an aggressive drilling programme in the making at the super-giant Rumaila field outside the oil hub of Basra.

Raising oil production is vital if Iraq is to fund its development and reconstruction effort. Beyond oil But it is other areas, possibly, that will make the biggest difference to the Iraqi people.

One of those areas is gas. With abundant, yet virtually untapped reserves, Iraq holds immense potential as a gas producer and, one day, as a gas exporter.

This natural resource could be the cure for Iraq’s power drought, a fuel to feed the rejuvenation of the nation’s decrepit electricity system.

Last month, power shortages cost Iraq’s former electricity minister his job, a portfolio that has now been handed over to Oil Minister Hussain al-Shahristani on a temporary basis. The switch followed angry protests over energy shortages in the Shi-ite south, including in the city of Basra itself.

The decision to offer three gas projects to investors – effectively Iraq’s third post-war licensing round – offers a glimpse of its longer-term ambitions, beyond merely raising oil output.�

JUNE

JULY

Iraq targets natural gas,

downstream investment Iraq is looking to meet its own domestic energy needs through the development of its gas fields and refineries By Martin Clark � The Iraqi cabinet has approved Shell’s US$12 billio n southern gas collection project � An auction for three other gas projects is schedule d for September 1, 2010 � There are plans for four new refineries at Karbala, Kirkuk, Nasiriyah and Maysan






Baghdad hopes investment in the three fields – Akkas in Iraq’s western desert, Mansuriyah in eastern Iraq and Siba in Basra – will increase its negligible production and increase overall reserves. An auction is slated for September 1, 2010.

But it is an existing deal with Shell to exploit various southern gas fields, around Basra, that may have the more immediate and decisive impact.

After a lengthy wait, the cabinet last week formally approved the Shell deal, to capture and use gas currently being burned at the Rumaila, Zubair, and West Qurna Phase One oilfields. A preliminary agreement for the project was signed in September 2008. Basra Gas The Basra Gas Co. project, which also includes Japan’s Mitsubishi, will see investment of US$12 billion, possibly rising to US$17 billion over a 25-year period. The Iraqi government will hold a 51% stake in the venture. The gas produced by the Shell consortium would be used first in the domestic market and then later for exports through a liquefied natural gas

(LNG) facility. At present, this gas resource is being

wasted, with Iraq losing an estimated 1 billion cubic feet per day (cfd) (28 million cubic metres) of gas through flaring.

Iraq’s government sees the exploitation of its gas as a means to ease energy shortages.

It will also have learned from the lessons in the Gulf, where oil-rich peers failed to invest enough in their gas output and faced serious shortages as a result.

Under Iraq’s latest five-year plan, approved this year, it hopes to produce 2.75 billion cfd (77 mcm) of gas by 2014. Crude oil output is tipped to grow to 4.5 million bpd by 2014.

Current oil production stands at about 2.4 million bpd.

As well as gas, Iraq is also courting about US$20 billion in foreign investment for building four new refineries to ease local fuel demand.

The government has offered sweeteners, including a discount of 5% on the price of crude compared to international prices, to entice prospective partners. Oil Minister al-Shahristani has also promised tax breaks, and assistance

with land and transport. The four projects are to be located in

the central province of Karbala, in the northern oil hub of Kirkuk and in Nasiriyah and Maysan in the south of the country.

The government aims to boost national refining capacity by 740,000 bpd on top of the existing 550,000 bpd through the new projects. Iraq currently has three refineries: in Baiji in the north; Basra in the south, and Dora in southern Baghdad.

The priority is Karbala, officials have stressed, given its location in the middle of the country. The Karbala refinery will have a capacity of 140,000 bpd, the Nasiriyah refinery 300,000 bpd, and the Maysan and Kirkuk plants 150,000 bpd each.

“Iraq during the next six years will become the biggest producer and exporter of crude as well as a major exporter of refined products,” Shahristani told a media conference last week.

In June, Foster Wheeler announced that it had won a contract with the Ministry of Oil to conduct a feasibility study and front-end engineering design (FEED) work at the Nasiriyah refinery site.�

Lebanon’s parliament has approved an oil law that will open up new blocks for exploration in the eastern Mediterranean Sea. Lebanese Energy Minister Gibran Bassil said last week that the government hoped to award its first contracts to oil investors by 2012, paving the way for

more offshore drilling in this nascent gas province.

The government has put together the new hydrocarbons law following exploration success off the coast of Israel. Last year, US-based company Noble Energy made the Tamar gas

discovery, which holds reserves of 8.4 trillion cubic feet (235 bcm). The field is now under development, with first gas due in late 2011.�

JULY

AUGUST

Lebanon oil law paves the way

for offshore block awards Gas discoveries off Israel have triggered interest among other states in the crowded and confrontational eastern Mediterranean zone By Martin Clark






The company plans further drilling this year on a much larger prospect, Leviathan, which may generate more excitement across the region, if its 16 tcf (448 bcm) estimated potential is borne out by the drill bit. Bid round plans According to Bassil, the new oil law means the government can now start to think about its first-ever offshore bidding round.

“Now that the law on the exploration of offshore oil and gas reserves has been passed by Parliament, we expect to begin the licensing process for the exploration of reserves in 2012, barring political hurdles,” he told a news conference.

The law had been delayed while officials debated the mechanism for receiving potential funds from any oil and gas production. Bassil has also indicated that the law and contracts will be based on the principles of production-sharing agreements (PSAs), typically the vehicle most favoured by the industry. Unknown territory Little is known about Lebanon’s offshore potential, however.

The government hired Norwegian seismic contractor Petroleum Geo-Services to conduct initial exploratory work and mapping of the area.

The company has said only that its studies contain “valuable information” on potential gas resources.

It has shot around 1,500 sq km of 3-D seismic in the central part of the Levantine Basin, plus a further 750 sq km on the Latakia Ridge area.

Around 5,000 km of 2-D seismic has also been shot by the company across the area, providing vital initial data to would-be explorers.

There are no prospective resource estimates at present, although the US Geological Survey has cited a figure of 122 tcf of recoverable gas (7.2 trillion cubic metres) and 1.7 billion barrels of recoverable crude oil across the entire Levant Basin.

This includes Lebanon, plus areas offshore areas of Israel, Syria and Cyprus.

But Lebanese officials will no doubt take encouragement from what has happened across the border in Israel, where domestic gas will soon meet a large chunk of the country’s energy needs for decades to come.

Noble Energy’s success has also stimulated interest among other drillers in the area, attracting more investment into Israel.

Beirut officials will hope that this goodwill will be evident when it launches its own blocks to investors in the coming years or so.

However, this may not necessarily follow, with goodwill a rare commodity indeed in this volatile corner of the world.

Border issues

Indeed, the potential for conflict between Lebanon and Israel has not been lost either in official circles or in the media, where there has already been frenzied speculation about the two sides squaring up to each other over gas fields.

It is a sobering thought, given that the two countries remain technically in a state of war and have no diplomatic ties. It makes the prospect of overlapping gas fields offshore a potentially explosive issue.

Fanning the flames, Israel’s Minister of National Infrastructures Uzi Landau said in June that his government was willing to use force to protect its undersea gas finds if need be.

Bassil has also stated that his government had already advised Noble not to work near Lebanon’s maritime economic zone.

He said his country would not allow Israel or a company working on its behalf “to take any amount of our gas that is falling in our zone.”

Despite these early salvoes, Lebanon has been busy talking to some of its other neighbours.

According to the energy minister, Lebanon and Cyprus – itself keen to start offshore drilling work – are close to an agreement on a maritime border.

Bassil said Lebanon was also working unilaterally to identify its sea borders with Israel before submitting further details to the UN Security Council. Timeline One thing Israel and Lebanon do have in common, of course, is a dire need for their own energy resources, with both totally dependent on imports at present.

The complexities of this volatile region have stumped even the brightest of political minds, however.

Introducing shared gas fields may just open up a whole new offshore front in this longstanding and seemingly intractable dispute.

But that is all in the future. For now, Lebanon is pressing ahead

alone with plans to map out blocks, build data packs and whip up interest among potential investors in its own offshore sites.

Bassil has hinted that the government may hold an initial meeting for prospective investors as early as this October to get the show on the road.

One local official, Ali Hamdan, an advisor to the Lebanese parliamentary speaker Nabih Berri, confirmed to AFP that he expected oil rights to be up for grabs by the end of 2011.

The passing of the oil law, he said, marked a key step in the process.

“This is definitely a major cornerstone in Lebanon’s oil policy ... and will help Lebanon divide its reserves into blocks and eventually bring in tenders and start looking into production-sharing agreements,” he was quoted as saying.�

AUGUST

The new oil law means the government can now start to think about its first-ever

offshore bidding round.






Oil giant Saudi Arabia is prioritising unconventional gas reserves as a means to address rising domestic energy needs and free up more crude oil for export.

According to the head of the world’s biggest oil producing company, Saudi Aramco, unconventional gas will play an increasingly important role in the country’s future.

Aramco CEO Khalid al-Falih said this would, in part, shape future strategy at the state-owned company itself.

Falih told the Financial Times in an interview last week that the kingdom’s unconventional gas deposits could effectively double the nation’s known gas reserves. He said that Aramco’s exploration efforts had indicated that the kingdom could hold “hundreds of trillions of cubic feet of unconventional resources such as shale gas, more than doubling its proven reserves of 280 [tcf, 7.93 trillion cubic metres].”

“We’re talking to our IOC [international oil company] partners about bringing their knowledge to bear,” Falih was quoted as saying by the FT.

Accessing unconventional gas reserves has been made possible by improvements in technology.

This has transformed the energy outlook in places such as North America, which has abundant unconventional gas potential of its own.

However, the methods used in the US, including the injection of large volumes

of water to crack the rock and allow the gas to flow out, may not be suitable for the hot deserts of Saudi Arabia. And these are skills that Aramco may not yet possess.

Gas focus The newspaper also said Falih’s comments confirmed that Riyadh had not found as much conventional gas as it had hoped.

It follows disappointing results from an active gas search by Aramco and various IOCs, including Shell and Total, in the hostile Empty Quarter desert region.

Saudi Aramco is focusing aggressively on the kingdom’s gas potential after the completion of a project to raise its oil export capacity to 12.5 million barrels per day (bpd). Some 4 million bpd of this capacity is currently idle because of subdued global demand.

However, local gas demand is rising sharply in Saudi Arabia – as it is across the whole of the Gulf region – driven by

high population growth and a more robust internal economy, one that is being fuelled by huge public spending programmes.

The shortage of gas means that some of the country’s power plants are burning oil instead, a more costly alternative, and more environmentally damaging.

According to the International Energy Agency (IEA), Saudi Arabia this summer burnt around 750,000 bpd of its oil to maintain electricity output.

That is roughly the same amount of oil consumed by Belgium.

Falih said Aramco’s aim was to move from this scenario to one using more economic and sustainable gas resources. “Our goal is to reduce to the maximum extent possible the utilisation of more valuable liquids, and make those available for export,” he said.

New era This means tapping into more gas.

Work is already under way on a number of large-scale conventional gas projects to feed local demand.

But with limited conventional reserves to spare it will also lead to the exploitation of the kingdom’s unconventional gas deposits. According to IHS senior Middle East analyst Samuel Ciszuk it confirms the era of new conventional oil and gas discoveries in the kingdom is more or less over.�

SEPTEMBER

Saudi Arabia targets

unconventional gas potential Saudi Arabia sees unconventional gas as a solution to its rising energy needs, suggesting that the days of easy-to-access reserves are nearing an end By Martin Clark � Future Saudi oil and gas production increases could hinge more on technology � Recent gas exploration in the Empty Quarter has yie lded little excitement � The extraction of unconventional gas could radicall y alter Saudi production costs

A focus on unconventional gas will come at a

production cost radically different from what the

kingdom and its population have been accustomed to.






“While some of the reserves discovered recently in the offshore Gulf or in the Rub’ al-Khali (Empty Quarter) have indeed been tight and/or sour, those reserves have not been of a scale to increase the kingdom’s reserves by anywhere near what al-Falih suggests, meaning that the bulk of such a change would probably come from shale gas reserves,” he said.

Little has been revealed about the kingdom’s shale gas potential to date, with Aramco currently exploring this area alone, without the involvement of the IOCs.

According to Ciszuk, this might continue.

In the FT interview, al-Falih appears to indicate that the bulk of Aramco’s efforts to raise its shale gas expertise will derive from its in-house training programmes and its sponsorship of about 1,500 students at international universities, although JVs with IOCs at particular

developments could be considered once more.

Nonetheless, the fact that the head of Aramco is already including shale gas potential to bump up Saudi Arabia’s gas numbers is telling.

“These are very early days to count on Saudi Arabia’s shale gas potential, especially if IOCs are not to be part of the exploration work,” said Ciszuk. Production costs It also means that future production capacity will come at a very different production cost for Saudi Arabia than has been the case previously.

Like most Gulf oil producers, Saudi Arabia’s extraction has been low-cost.

If the company is to start focusing on new unconventional hydrocarbons then this will require not only large investments, but also the attainment of new technology.

This, of course, will all come at a cost.

In the oil sector, this is already evident, with innovative steam flooding technology from Chevron being utilised in the Divided Zone, which it shares with Kuwait.

A focus on unconventional gas developments will come at a production cost radically different from that to which the kingdom and its population have been accustomed.

“In the long term this inevitably has to result in reforms of already costly energy subsidy regimes,” said Ciszuk.

Such a change would also have consequences for Riyadh’s job creation and industrialisation strategy, which has utilised its low-cost energy as a foundation to create high energy-consuming industries.

“If Saudi Arabia slowly starts moving away from being a low energy-cost market, its efforts to diversify its economy might become the first casualty.”�

Lebanon and Iran signed 17 memoranda of understanding (MOUs) and trade agreements during a trip to Beirut last week by Iranian President Mahmoud Ahmadinejad.

Ahmadinejad’s visit, on October 13-14, received an enthusiastic welcome, especially from Lebanon’s Shia Muslim community and the Hizbollah political organisation.

The agreements signed focused on energy supply and development, participation by Iran in Lebanon’s

fledgling hydrocarbon sector, and on general economic co-operation.

It provides an early boost to Lebanon’s offshore gas hopes and, at the same time, opens a new door for overseas work for Iran’s energy companies, besieged at home by sanctions.

Lebanon’s Minister of Energy and Water, Jibril Basil, visited Tehran a few days prior to Ahmadinejad’s arrival to discuss with Iranian officials the assistance his country was seeking.

During a gathering at the presidential

palace in Beirut, where the documents were signed, Ahmadinejad told Lebanese President Michel Suleiman that Iran could solve Lebanon’s energy problems. There is the future prospect that electricity could be supplied by Iran through a Turkey-Syria grid or an Iraq-Syria grid.

There has also been talk of Iran helping to build one or two power stations in Lebanon and assisting with the development of hydroelectric facilities.�

SEPTEMBER

OCTOBER

Lebanon and Iran commit

to joint energy future Iran’s growing energy ties with Lebanon could create a new destabilising force in the emerging eastern Mediterranean gas sector By Charles Coe






The purchase of Iranian gas via pipelines through Turkey, Iraq and Syria is also a possibility.

Tehran has recently announced that it plans to invite Lebanon, Syria and Iraq to a gathering to discuss future gas sales.

Lebanon has also expressed an interest in purchasing Iran’s petroleum products, which many countries have stopped buying owing to international sanctions, and it plans to enlist Tehran’s industry expertise in the construction of new refineries.

Earlier in the month, the two sides signed a deal whereby Iran would make US$450 million available to Lebanon to finance various energy and water projects. Talk talk While it is clear that Iran is keen to increase its influence in Lebanon, where the majority of the population is Shia Muslim, it remains to be seen if all the assistance that has been promised will materialise.

Both countries are facing serious financial problems and other difficulties.

Having been in a state of war or political crisis for most of the time since the mid-1970s, Lebanon is struggling to provide basic social infrastructure and services.

Iran’s promise to provide energy supplies and expertise for power generation is therefore highly welcome in Lebanon, where electricity demand is estimated at 2,400 MW, against a total installed capacity of only 1,600 MW.

At the same time, Iran is struggling to counter the impact of international sanctions levied by the United Nations, the European Union and the United States in response to its nuclear research programme.

In recent months, several international energy companies involved with Iran’s hydrocarbon sector have announced their departure from business relations with Tehran, while others have stopped supplying the country with petrol, which

Iran is unable to produce in sufficient quantities to meet local demand.

However, to prove that sanctions are pointless, Iran has announced that it has started making product exports as a gesture. Political ties On October 14, Ahmadinejad visited the town of Bint Jbeil in southern Lebanon near the border with Israel.

Iran is estimated to have contributed US$1 billion to its political ally, Hizbollah, since the last war with Israel in 2006

The money has gone towards the reconstruction of the town, which was practically demolished during the war, and other parts of southern Lebanon,

where the majority of the population supports Hizbollah, and by default, Iran.

Tehran is also believed to have supplied Hizbollah with millions of dollars worth of weapons to replenish its arsenal, as well as funds for political activity.

Ahmadinejad is famous for his anti-Israeli rhetoric and while addressing a crowd of thousands in Bint Jbeil he called again for Israel to cease to exist and for “Zionists to be wiped out.”

Significantly, Lebanon’s latest dispute with Israel focuses on offshore hydrocarbon prospects.

The recent discovery made by US company Noble Energy in the Israeli offshore of the Tamar gas field, where reserves are put at 8.4 trillion cubic feet (238 billion cubic metres), prompted Lebanese politicians – particularly some

from Hizbollah – to claim the field was in Lebanese waters and that Israel was robbing it of its natural resources.

The remarks from Lebanon caused Israel to warn that it would protect its offshore discoveries with force if necessary.

The heated exchange brought Iran into the picture with a promise to help Lebanon explore and develop its offshore deposits. Offshore activity This month, Noble Energy is expected to start drilling in the Leviathan prospect offshore Israel, where natural gas reserves are estimated at 16 trillion cubic feet (453 bcm).

Drilling is expected to take five months and if it proves successful, it will provide Israel with the potential to make the country a gas exporter.

The evidence proving that hydrocarbon deposits do exist in the eastern Mediterranean hurriedly led Lebanon to pass a hydrocarbon law in August.

Energy Minister Basil has since announced that Lebanon’s offshore waters should be demarcated by the end of 2011 – although this will not be done in co-operation with Israel – and that exploration for oil and gas could begin in 2012.

Lebanon has reached a preliminary accord with Cyprus over the exploitation of oil or gas deposits that cross into each other’s territory.

Iran has been invited to participate in the offshore project, and it will likely become involved – even if just to spite the Israelis, as well as help the Lebanese government and through it, Hizbollah.

Basil has announced that an international conference is planned in Beirut for November for companies interested in Lebanon’s offshore prospects, but questions remain about whether it will be able to move fast enough in establishing the legal framework for offshore work.�

OCTOBER

It provides an early boost to Lebanon’s offshore gas

hopes and opens a new door for overseas work for Iran’s energy companies






The country is in the process of setting up a model production-sharing agreement (PSA) and it must also establish a petroleum council to oversee the sector as well as set up a fund to collect and disperse revenues that future oil and gas exploitation may bring in.

Meanwhile, Lebanon has asked the UN to establish its economic borders with Israel, which maintains that the border of its economic zone runs to the north of the Tamar and Dalit gas fields as well as the Leviathan structure.

Lebanon believes the demarcation line

that Israel uses is too far north. Now, the involvement of Iran throws a

whole new dimension to the emerging eastern Mediterranean offshore gas story.�.

As the world’s leading crude oil producer, and blessed with over 260 billion barrels of reserves, Saudi Arabia’s state oil company Saudi Aramco could take it easy.

However, it has used every opportunity presented by either a dip in global energy demand or crude oil prices to ensure its capabilities are sharpened to pump additional volumes when the need arises.

“When it comes to oil, it is like a treadmill for Aramco,” a senior executive of Australian project management firm, WorleyParsons, told MEOG, requesting anonymity.

“They will never stop; they take advantage of the time available to retrofit and refurbish existing infrastructure, replace ageing production platforms or corroded pipelines and carry out whatever is necessary to maintain capacity.”

With this in mind, Aramco recently awarded a construction contract to Jebel Ali-based J Ray McDermott (Middle East) to keep steady offshore oil production at the giant Safaniya and four adjoining fields – Berri, Marjan, Zuluf and Abu Safah.

The fabrication and installation contract primarily entails the refurbishment of production deck modules and existing platforms.

“The contract is in line with Aramco’s policy of revamping 40-odd topsides each year. They are rather serious about this,” the project management executive said.

For McDermott, this was its second Saudi oil engineering, procurement and construction (EPC) contract this year.

In March, Aramco placed an estimated US$1 billion order to upgrade the crude oil-gathering network and power supply facilities for the Safaniya field.

Under this deal, McDermott will build a new 6,000 tonne offshore oil platform and install flowlines and new electrical facilities at an existing platform, 156 km of electrical cables and a series of control and communication systems.

Front-end engineering and design (FEED) work has already been completed by WorleyParsons and fabrication is due to start shortly at McDermott’s yard in Jebel Ali, Dubai.

The facilities are scheduled for installation by 2013.

MSC project Both contracts are part of Aramco’s maximum sustainable capacity (MSC) programme, aimed at maintaining short-term output from the five offshore acreages at 500,000-800,000 barrels per day (bpd).

A contract has also been awarded for the north-west in the Divided Zone, which is shared equally between Saudi Arabia and Kuwait.

Upstream operator al-Khafji Joint Operations (KJO) has awarded a US$400 million lump sum turnkey contract to Technip to install two wellhead jackets, power distribution platforms and a main submarine power cable.

The scope of works for the Paris-based engineering and construction firm also entails carrying out refurbishment of existing offshore platforms. KJO is 50:50 joint venture between Aramco-subsidairy Aramco Gulf Operations Company and Kuwait Gulf Oil Company and is the operator of four primary oil and gas acreages.�

OCTOBER

NOVEMBER

Saudi Aramco maintains

oil production potential Upgrades and maintenance remains a key part of Saudi Aramco’s strategy as oil demand still recovers from setbacks inflicted by the financial crisis and economic recession By Ashok Dutta






They include al-Khafji – which is in reality a northern extension of the Safaniya field – Hout, Lulu and Dorra.

Work to maintain production potential has also been completed onshore, with Aramco carrying out a tie-in of 134 new oil and water injection wells at various oilfield sites.

“With a spare capacity of 4 million bpd and OPEC deciding at its last meeting to leave output unchanged, Aramco is utilising the opportunity to take a closer look at its heavy oil development programme and some of its challenging and unexplored reservoirs,” the WorleyParsons executive said.

The spotlight is on the offshore Manifa field, which will be Aramco’s first major heavy oil project to be developed on a commercial scale.

Under an original plan, first output of 500,000 bpd was to be brought onstream in the current year.

But Aramco has now pushed this back to 2013, with full-field development of 900,000 bpd targeted in 2024. Another project, increasing output by 250,000 bpd from the onshore Shaybah field to 1 million bpd, which was to be completed in 2010, has been put on hold.

New data However, from a geological perspective, engineers at Aramco’s headquarters at Dhahran have started analysis of a 3-D transition zone survey that covered the Berri field.

The aim will be to understand the Hanifa reservoir better.

Besides, a special team set up by Aramco to identify new hydrocarbon deposits in the kingdom has completed acquiring about 22,000 sq km of 2-D seismic data over the Red Sea and the Western region.

Called Red Sea exploration team, it has also carried out an airborne gravity and magnetic survey covering a 20,000-sq km area over the Red Sea and the adjoining coastal areas.

The surveys were part of a plan formulated by Aramco in 2005 to scout for new oil and natural gas deposits beyond the Eastern Province – home to its prolific oilfields.

Two areas were identified then: the Rea Sea and the Western region, and the area north of Riyadh, termed as Najaf.

Initial work has also been completed in the Najaf area, with Aramco acquiring 2-D seismic data over 3,000 sq km.

Undoubtedly Aramco is exploring new

frontiers, but its days of easy oil are far from over.

Petroleum and Mineral Resources Minister Ali al-Naimi told reporters in mid-October in Riyadh that the super-giant onshore Ghawar field still had reserves of 88 billion barrels that could be “easily” extracted.

“Proven reserves of Ghawar alone are more than [those of] many countries in the world and production from the field is still being maintained at 5 million bpd,” he said.

For the past few years, Aramco has been implementing cautious reservoir management techniques to stem the declining rate – estimated to be about 2.5-3.5% each year – and also improve recoveries at its oilfields.

The efforts are already proving to be beneficial.

At North Uthmaniyah, the most mature area of Ghawar, average well production rates have remained unchanged during the past several years.

“Aramco has several cards up its sleeve. The best example is the Ghawar field that has been in production since 1951,” the WorleyParsons executive said.�

The Kurdistan Regional Government (KRG) has stipulated that passage of Iraq’s long-dormant hydrocarbon law is key to its membership of the new coalition government under formation by Prime Minister Nuri al-Maliki.

Iraq has been without a new government since March, when elections failed to provide any political party with a clear-cut majority of 163 seats in the country’s 325-member parliament. When Kurdish leader Jalal Talabani was

re-elected as President by the Iraqi parliament in November, he asked presiding Prime Minister al-Maliki to form a new government, but that is proving to be difficult task.�

NOVEMBER

DECEMBER

KRG demands Iraq government

pass oil law, recognise contracts Differences remain between Iraq and Kurdish officials but the war of words over oil contracts appears to have eased By Charles Coe






Al-Maliki has until the end of December to fill his cabinet. KRG wishlist The semi-autonomous KRG has agreed to place its 57 parliamentary seats in the coalition with the 159 seats won by Mr. Maliki’s Shiite Muslim alliance, but it has drawn up a list of demands.

First among them is the passage of a hydrocarbon law, which since its proposal in 2007 has proved to be contentious as Iraq’s factions argue over the terms.

Unwilling to wait for the Iraqi parliament to address the stalled legislation, the KRG passed its own oil law, which it says is in line with the Iraqi constitution.

Speaking at the Iraq Petroleum Conference in London on November 30, KRG Minister of Natural Resources Ashti Hawrami said the hydrocarbon law must be passed by mid-2011 for the KRG to continue as a member in the federal government.

Passage of the new oil law is expected to clarify the KRG’s relationship with the central government in Baghdad, which has maintained that Iraqi Kurdistan does not have an independent right to enter oil and gas exploration and development contracts with foreign companies without the consent of the Ministry of Oil. Impasse The KRG has signed contracts with more than 40 companies concerning the operation of 38 blocks in Iraqi Kurdistan.

Among those companies now active in the region are: Marathon Oil of the US; Norway’s DNO; China’s Sinopec; Turkey’s Genel Enerji; Austria’s OMV and Hungary’s MOL.

As far as Bagdhad is concerned, however, the contracts are not valid because they have not been sanctioned by the federal oil ministry.

Furthermore, it has blacklisted the foreign companies involved with the

KRG from participating in contracts in the rest of Iraq.

In the meantime, Baghdad itself has signed numerous contracts with foreign companies despite the absence of a hydrocarbon law.

Iraq is looking to increase its crude oil production capacity to 12 million barrels per day (bpd) before the end this decade from 2.3 million bpd at present.

During 2009, the KRG was exporting crude oil from the Tawke field, operated by DNO, and from the Taq Taq field, developed by Genel Enerji and Addax (now part of Sinopec), through Iraq’s northern export pipeline to the Mediterranean port of Ceyhan, Turkey.

The exported crude was sold by Iraq’s State Oil Marketing Organisation (SOMO) and earnings were placed in the federal account.

But the central government refused to transfer earnings to the KRG, telling Irbil that it should pay DNO and the other exporters from its share of the federal budget.

The KRG refused to agree with Baghdad on the issue and the exports were halted. The companies have yet to be paid for the exports, worth an estimated US$400-500 million.

Kurdish investment Hawrami told the conference that Iraqi Kurdistan’s energy sector had made considerable progress in recent years, with eight new oil discoveries over the last three years, the commissioning of three refineries with a combined capacity of 200,000 bpd and the overall investment of some US$10 billion by foreign groups.

Three new power generation plants provide the region with 80% of its requirements, he added.

The KRG minister said Iraqi Kurdistan was ready to resume crude oil exports from the Tawke and Taq Taq fields at a rate of 100,000 bpd and would boost this

to 150,000 bpd in 2011. Hawrami said the KRG had the

potential to boost production capacity to 1 million bpd over the next three years.

His remarks appear to be supported rather than contradicted this time by Iraqi Oil Minister Hussain al-Shahristani, who said on December 6 that he too expected a resumption of exports early in 2011.

“It is supposed to be resolved and the region will start handing over the oil at the beginning of next year,” he told reporters in Baghdad.

“The region informed us that they could produce 150,000 barrels (per day) next year.” Gas potential The Kurdish region also holds significant potential gas reserves.

Non-associated gas reserves are estimated as high as 200 billion cubic feet (5.7 billion cubic metres).

OMV and MOL, both partners in the Nabucco Gas Pipeline, have become shareholders in the Pearl development led by the UAE’s Dana Gas.

The Nabucco partners hope to ship natural gas from Iraqi Kurdistan to Turkey and Europe through its proposed 3,300-km pipeline.

Iraqi government spokesman Ali Dabbagh, also addressing the London conference, acknowledged that one of the priorities of the new government would be the approval of the hydrocarbon law, which he said would be designed to resolve differences between Baghdad and the KRG.

He said exports from the KRG would be included in the country’s 2011 budget. He added that the new oil law would provide a legal environment that would reassure international oil companies and that the legislation would likely bring the oil contracts signed by the KRG with international companies in line with the directives of the central government.�

DECEMBER

MEOG 2010 Annual Review Back Page

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HEADLINES FROM A SELECTION OF NEWSBASE MONITORS THIS WEEK

Oil and Gas Sector

AfrOil Ghana's Jubilee field has started up, which is to e levate the country to the top tier of African oil producer s.

AsianOil Malaysia and Brunei have signed a historic agreemen t to explore and produce oil and gas in two blocks off B orneo.

EurOil Energean has launched its Prinos 5000 drilling programme in the Gulf of Kavala.

FSU OGM BP Azerbaijan has suspended operations at the Chira g production platform because of safety concerns.

GLNG BP wants to build a third 3.8 million tonne per yea r train at the Tangguh LNG plant by 2014.

LatAmOil Brazil’s new president is to retain Jose Gabrielli as CEO of Petrobras.

NorthAmOil Sasol and Total have both committed to investments of more than C$1 billion in Canada.

Unconventional OGM The Obama administration favours a “cumulative impa ct” study on natural gas hydraulic fracturing.

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