Opportunities and Risks in the Middle Eastern Energy Industry
The growth in demand for advanced energy technology and experience in the Middle East has created a myriad of opportunities as well as inherent risks for the global industry.
While traditionally associated with low technology and low cost production, the volume, scale and complexity of the region’s energy projects are driving demand for high technology solutions and know-how. The factors influencing this trend include: mature infrastructure and corrosion; accelerating requirements for enhanced oil recovery; gas supply, exploitation and transportation to market; sour gas; heavy oil; deep/tight gas; shale gas; LNG; GTL and clean fuels refineries; carbon capture and storage; and nuclear and solar technologies.
The scale of the Middle East’s reserves and capital investment program is impressive. Just over half of the world’s proven conventional oil reserves and 42% of the world’s proven conventional gas reserves are situated in the Middle East and North Africa. The region has 13 of the world’s 20 giant oilfields as well as the largest gas field in the world. There is an estimated US $3 trillion of projects underway or planned in the six Gulf Cooperation Council countries (Saudi Arabia, UAE, Kuwait, Oman, Bahrain and Qatar) plus Iraq and Iran. The majority of these relate to upstream oil and gas, downstream (including refineries, LNG and GTL), petrochemicals and related infrastructure projects.
Hugh Fraser explained: “The opportunity for operators and the supply chain is significant. The region has 78 years remaining of oil production to reserves compared with a global average of 53 years and for gas it is over 100 years compared with a global average of 56 years. Combine this with an estimated US $480 billion of project work now under study, in design or out to bid and you begin to see the attraction.”
There is a profusion of projects valued above US $10 billion. They include the Jubail, Yanbu and Petrorabigh refineries and petrochemicals schemes in Saudi Arabia; the Rumaila, West Qurna and Majnoon field development in Iraq; Zadco Upper Zakum artificial islands field development, ADCO onshore field development programs, ADMA-OPCO offshore field developments and Shah/Bab sour gas field developments in Abu Dhabi; Khazzan deep/tight gas project in Oman; and the Barzan gas development in Qatar.
The indigenous petroleum industry is balancing the politics of resource nationalism with its need for the majors – who pulled back from the region in the 1970s – and their technology. A further technology drive is expected if Red Sea and East Mediterranean exploration and appraisal programs bring deepwater fields into play in a region hitherto dominated by onshore and shallow water production.
The region’s current and emerging technology requirements are extensive and include enhanced oil recovery and artificial lift; LNG and GTL; seismic, geology, reservoir characterization and fluid modeling; unconventional drilling and completions – horizontal drilling and hydraulic fracturing; advanced completions and well intervention; automation, advanced control systems and digital systems; asset integrity management; and carbon capture and storage. The need for nuclear power and renewables, especially solar, waste to energy, desalination, and IT security and asset protection technologies is also increasing.
Hugh Fraser said: “Companies entering the market – drawn by the undeniable commercial opportunities – need to ensure that they have the appropriate commercial and legal strategies and protections in place as part of their overall risk and reward assessments. Protecting their IP being one key consideration.”
The considerations for market entrants include territorial application of patent rights; who owns new IP that arises from work; specialist personnel contracts and restrictive covenants that reflect the increasingly mobile and consultant-heavy workforce; licensing and enhanced technology services agreements; and infringement monitoring, defense and indemnities. Appropriate weight must also be given to the governing law of contracts and statutory laws, dispute resolution planning and jurisdiction issues.
With an increasing amount of private equity investment in the service sector, often focusing specifically on realizing IP value at an early stage, businesses also need to plan ahead for corporate exit strategies and due diligence, including establishing IP asset registers and audits.
Hugh Fraser said: “Companies hoping to operate successfully in the region will have to have a legal strategy that is tailored to the specifics of the region if they are to realise their business development aspirations.”