Don’t panic! Oil price outlook improves as US shale faces headwinds in 2018

Workers hired by US oil and gas company Apache Corp. drill a horizontal well in the Wolfcamp Shale in west Texas Permian Basin near the town of Mertzon. The US shale sector may not proveas much of a threat to Gulf oil producers as previously feared according to energy analysts. (Reuters)
Updated 26 December 2017
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Don’t panic! Oil price outlook improves as US shale faces headwinds in 2018

LONDON: Arab News has been told that 2018 is unlikely to see a massive ramp-up in US shale production that could potentially wreck attempts by Russia, Saudi Arabia and other producers to stabilize oil prices and shrink surplus inventories.
Speaking from Denver, Colorado, senior Wood Mackenzie energy analyst Ryan Duman said there were “headwinds” for the US shale industry which would hold back production next year, reducing the danger that the oil price would head south again.
Duman said: “US shale operators who don’t have rigs or crews under contract are going to have to pay dearly because the oil services industry is overstretched right now.”
That’s because it pared back considerably during the slump — building it up again is going to take time, he said.
There were plenty of wells, but the big question was how quickly can they come on line.
“One of the things we are looking for in 2018 is the rate of completions, whether they start to catch up to the rate of drilling. And then, how fast can the oil get to market.”
He added: “What we need to see is a massive rehiring to make up for the labor that was let go during the bad times, and operators need more equipment, such as pressure pumping and other assets, in order to push forward with hydraulic fracturing — in other words, the completion stage — which comes after the rigs have dug the wells.”
There were also infrastructure challenges in terms of transporting shale oil to refiners, some of which don’t process that type of crude.
Asked if he thought the US could overtake Saudi Arabia to become the world’s second-largest producer after Russia, Duman thought this was years away, “although I am not saying it won’t happen.”
The way he saw it, the obstacles for US shale currently were the following: Not having ample takeaway capacity — that is, pipelines and other equipment, essential to get crude to market; and a dearth of workers, both skilled and unskilled who were laid off three years ago.
Duman said: “We have seen rigs added back quickly this year, but operators can’t get the crude to customers fast enough — which has implications for costs.”
The outlook for 2019 was a different matter, as long as the oil price stayed between $60 and $65 — because at those prices the shale operators were in the money, he said.
“I think 2018 could be about hiring and rebuilding the sector that has been neglected in recent years. After that, a very strong production year in 2019.
One important factor was that technological improvements and efficiencies would gradually make the shale industry more profitable.
Operators today are able to drill and complete wells much faster than before thanks to developments in predictive analytics or big data — all of which propel optimization.
In the Permian Basin (the region of Texas and New Mexico at the center of the shale revolution), Goldman Sachs estimates that wells have become 50 percent more productive over the past two years.
And shale companies have locked in higher oil prices when they occur by turning to hedging contracts. More and more oil companies are using hedges to give them certainty.
“But the other part of it is the sheer learning curve … shale is still in its infancy if you think about how young the industry is compared with Big Oil,” said Duman.
But will huge quantities of US shale be cascading into the market next year?
Duman doesn’t think so — “We have growth rates almost equivalent for 2017 and 2018 at about 850,000-900,000 bpd.”
His overall analysis was echoed by BP CEO Bob Dudley who told the Financial Times that traditional producers such as Saudi Arabia would continue to exert more influence over crude prices.
Dudley said he was less worried these days about the extent to which US shale resources could hold down prices as more was learned about their geology. 
He told the FT: “There are cracks appearing in the model of the Permian being one single, perfect oilfield.”
He warned of emerging technical challenges, and called into question the ability of shale companies to rival conventional producers over the long term. 
Dudley was outspoken on another matter. While acknowledging that oil faced long-term competition from electric vehicles, he claimed the technology had been “hyped” and that environmental problems surrounding the mining and disposal of materials used in lithium-ion batteries that power electric vehicles had been underestimated.
On the issue of shale, however, the International Energy Agency (IEA) sees things differently to Wood Mackenzie, and — as we’ll see — OPEC as well.
In a report this month, IEA said the recovery in oil prices this year to about $63 per barrel had spurred growth in US tight oil output (which includes crude, condensates and natural gas liquids, which the IEA said would cause global supplies to exceed demand in the first half of 2018.
It added US oil output until 2025 will be the strongest seen by any country in the history of crude markets, making it the “undisputed” leader among global producers. “Technological advances that have enabled production from US shale oilfields to thrive will lead to growth of 8 million barrels a day between 2010 and 2025, surpassing expansion rates enjoyed by any other nation,” said IEA executive director, Fatih Birol.
In an interview with Bloomberg, Birol said the US would become the undisputed global oil and gas leader for decades to come and is expected to account for 80 percent of the increase in global supply over the same period.
US tight oil production will rise to 13 million bpd by 2025, out of total US output of 16.9 million bpd.
“The growth in production is unprecedented, exceeding all historical records, even Saudi Arabia after production from the mega Ghawar field or Soviet gas production from the super Siberian fields,” Birol said.
Moreover, if oil did settle at $60, we should expect a ramp up in US production which would stop inventories coming down, according to Birol. OPEC’s views are different still. At a recent forum in London, secretary general Mohammed Barkindo said the global oil market was tightening at an “accelerating pace,” and he cited a sharp reduction in worldwide inventories as evidence that last year’s agreement by producers to cut supply was having an effect.
He added: “OPEC stocks in September were about 160 million barrels above the five-year average, down from 340 million in January. There has been a massive drainage of oil tanks across all regions, a balanced oil market was fully in sight,” said Barkindo.
OPEC and other producers want to get stocks down to the five year average in order to remove the glut built up when the price was above $100.
Perhaps, the only thing one can say with any degree of certainty about the oil industry is that there is widespread disagreement about almost everything.
It was always thus.


ADNOC boosts drilling capabilities with 2 new jack-up rigs

Updated 9 sec ago
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ADNOC boosts drilling capabilities with 2 new jack-up rigs

  • ADNOC Drilling will expand its fleet to 142 platforms
  • UAE possesses the sixth-largest crude oil reserves globally

JEDDAH: The Abu Dhabi National Oil Co. has received two new jack-up rigs, reinforcing its position as one of the largest drillship fleet owners globally.

ADNOC Drilling will launch the new rigs by the first quarter of next year, expanding its fleet to 142 platforms. This marks a strong year for the company, showcasing its performance and strategy, according to UAE state news agency WAM.

For over 50 years, ADNOC Drilling has been the exclusive provider of drilling and rig-related services to ADNOC Group under agreed contractual terms, supporting the firm’s upstream operations in exploring and developing oil and gas resources in the UAE.

With most of the Gulf country’s crude oil and gas reserves located in Abu Dhabi, ADNOC oversees the majority of nationwide exploration, appraisal, development, and production activities, which are managed by ADNOC, either independently or in partnership with third parties.

In its analysis of the company’s performance, JPMorgan, a global financial services firm and one of the largest and most influential investment banks in the world, said: “Since its initial public offering, ADNOC Drilling has proven to be a high-quality, defensive business, consistently meeting and surpassing guidance and expectations. The exceptional performance also reflects positive progress with ADNOC Drilling’s two joint ventures.”

The UAE possesses the sixth-largest crude oil reserves globally, with approximately 107 billion stock tank barrels of proven oil reserves. Since its inception in 1972, ADNOC Drilling has played a crucial role in enabling ADNOC to unlock the country’s oil and gas resources efficiently and reliably, contributing to the nation’s energy sector.

This year, Enersol, a joint venture between Alpha Dhabi Holding and ADNOC Drilling, acquired four oilfield services technology companies, while Turnwell, another business partnership between ADNOC, SLB, and Patterson-UTI, set a record for initial well delivery time, accelerating the development of the UAE’s unconventional energy reserves.

Following its second upward guidance revision this year alongside its third-quarter results, ADNOC Drilling is on track to deliver its best-ever performance in Q4. ADNOC Drilling anticipates at least mid-single-digit expansion as it scales operations, according to WAM.

ADNOC forecasts a rise in drilling activity in the coming years, driven by its commitment to increasing crude oil production capacity by 25 percent, reaching five million barrels per day by 2027.

As the company looks to expand beyond the UAE and explore opportunities in the region, it foresees a growing need to expand its rig fleet to support its strategic growth plans.

The energy giant believes that expanding its rig fleet will enhance its current capabilities in rig hire, drilling, completion services, and associated operations and enable the company to offer unconventional drilling and biogenic well services. This expansion is expected to contribute to increased revenue and profitability.


Terminal 4 at Cairo International Airport to boost Egypt’s aviation and tourism sectors

Updated 2 min 41 sec ago
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Terminal 4 at Cairo International Airport to boost Egypt’s aviation and tourism sectors

RIYADH: Egypt is advancing its aviation sector with the ongoing development of Terminal 4 at Cairo International Airport, set to accommodate 30 million passengers annually.

According to a statement from the Cabinet, the “New Republic Air Gateway” project is expected to bolster the country’s tourism goals, improve traveler experiences, and position Egypt as an international aviation hub.

This year, the government announced plans to involve the private sector in airport management, including a global tender for Cairo International.

Egypt’s aviation sector also improved 36 spots to 27th in the 2024 edition of the Air Transport Infrastructure Index, aligning with Vision 2030’s focus on sustainable development, innovation, and global competitiveness.

Prime Minister Mostafa Madbouly, during a meeting at the New Administrative Capital, reviewed progress on the project alongside Minister of Civil Aviation Sameh El-Hefny. The session focused on the terminal’s specifications, implementation strategy, and potential to reshape the African nation’s aviation and tourism landscapes.

“Airport development works come within the framework of presidential directives to upgrade the Egyptian airport system, raise its capacity and improve the level of services provided to passengers,” he said.

At the meeting, Madbouly emphasized the importance of creating world-class facilities to accommodate rising traveler numbers. 

El-Hefny outlined the project’s phased execution, with completion expected within four to five years. He also revealed that negotiations are underway with international firms specializing in airport construction and management to ensure world-class execution. 

The minister emphasized the cutting-edge features of the new terminal, including its ability to initially handle 30 million passengers annually, with expansion potential to 40 million. 

In September 2023, Cairo Airport Co. partnered with Pangiam, a trade and travel technology company, and signed two agreements to develop the new terminal. These deals, focused on enhancing the airport’s operations with advanced technology, include a feasibility study to incorporate emerging technologies and deliver a seamless travel experience.

The terminal will feature a state-of-the-art runway equipped with advanced navigation and lighting technologies that meet international standards. 

Once operational, Terminal 4 is expected to elevate Cairo International Airport’s global status, making it a hub for regional and international travel. 


Saudi banks report 24% profit growth amid strong non-interest income 

Updated 22 min 10 sec ago
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Saudi banks report 24% profit growth amid strong non-interest income 

RIYADH: Saudi banks’ aggregate profit reached SR7.7 billion ($2.05 billion) in October, marking a 23.67 percent year-on-year increase, newly released data has revealed. 

According to the Saudi Central Bank, also known as SAMA, these figures represent profits before zakat and taxes. 

Cumulatively, from the beginning of the year to the end of October, banks recorded a total profit of SR73.28 billion, compared to SR64.47 billion during the same period last year. 

The increase in banks’ profits is primarily attributed to a combination of favorable factors that highlight the sector’s strength and ability to adapt.  

The third quarter of 2024 marked a significant turning point, with non-interest income playing a pivotal role.

According to a Fitch Ratings report published in November, strong gains on securities and trading contributed SR1.4 billion to non-interest income, offsetting higher financing impairment charges and helping push combined quarterly profits to SR20 billion.  

This growth followed SAMA’s decision to implement a 50-basis-point interest rate cut in September, which mirrored the US Federal Reserve’s shift toward a more accommodative monetary policy. 

The rising interest rate environment that characterized much of the Gulf region in recent years had previously bolstered bank returns on loans, as higher borrowing costs translated into greater income from financing activities. 

However, this dynamic also increased funding costs, particularly for savings accounts and external liabilities.   

Many Saudi banks navigated these challenges by diversifying their funding sources, tapping into external markets, and issuing a record $13 billion in debt in the first eight months of 2024 to meet growing foreign-currency financing demands, particularly for giga-projects.  

Despite these efforts, deposit growth in the third quarter of 2024 lagged behind earlier quarters, according to Fitch, reflecting the sector’s strategic pivot toward external funding to sustain its expansion.  

The recent shift in monetary policy by the US Federal Reserve, which influences rates in Saudi Arabia due to the riyal’s peg to the dollar, has injected new dynamics into the financial landscape. 

After a period of aggressive rate hikes to combat inflation, the Fed lowered interest rates by 50 basis points in September, followed by successive 25-basis-point cuts in November and December, signaling a focus on boosting economic growth as inflation eased to acceptable levels. 

This policy change benefited Saudi banks by improving the valuation of certain securities, as noted by Fitch, and created a more favorable environment for non-interest income growth. 

Another critical factor underpinning Saudi banks’ profitability has been their robust asset quality and prudent risk management.  

The average impaired financing ratio, according to Fitch Ratings, remained low at 1.5 percent by the end of the third quarter, with provision coverage at a healthy 116 percent.  

This stability reflects the resilience of Saudi banks in managing risks associated with their expanding financing books, which grew by 3.6 percent during the quarter, led by strong performances from banks like Aljazira, Saudi Awwal Bank, and Saudi Investment Bank. 

The sector’s healthy operating environment is supported by the Kingdom’s broader economic stability and strategic investments under Vision 2030, which continue to drive demand for corporate financing. 

While external liabilities and a negative net foreign asset position present challenges, Saudi banks remain well-capitalized, with average Common Equity Tier 1 ratios of 15.6 percent, and are positioned to maintain strong asset quality metrics as they navigate a shifting global monetary landscape. 

The combination of rising non-interest income, strategic funding diversification, and favorable monetary policy shifts underscores the resilience of Saudi Arabia’s banking sector, making it a key player in the region’s economic transformation. 

As SAMA continues to align with global trends, Saudi banks are poised to further strengthen their profitability while maintaining a balanced approach to growth and risk management. 


Saudi Arabia strengthens food security with trout farming breakthrough

Updated 18 min 25 sec ago
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Saudi Arabia strengthens food security with trout farming breakthrough

RIYADH: Saudi Arabia’s food security strategy has received a boost with a trout farming project developed through a partnership between King Abdulaziz City for Science and Technology and King Abdulaziz University. 

The initiative, carried out at KACST’s research station in Al-Muzahmiyya Governorate, was supported by the Ministry of Environment, Water, and Agriculture’s National Livestock and Fisheries Development Program. 

The project introduces trout as a species suited for diverse environmental conditions, expanding the availability of fish with high nutritional value. This move aims to address the growing domestic demand for seafood while mitigating potential supply chain disruptions. 

This aligns with Saudi Vision 2030, which set a target of increasing domestic fish production to 600,000 tonnes annually to ensure sustainable food supplies. 

The initiative also supports the National Fisheries Development Program’s goals of optimizing resource use, boosting the sector’s contribution to gross domestic product, achieving seafood self-sufficiency, and diversifying income sources. 

The new project employs a recirculating aquaculture system, which uses less water than traditional methods and reduces the risk of parasites and viral infections that could harm fish. 

These advanced systems also regulate key environmental factors in fish farming, such as temperature, oxygen levels, and nutrition, thereby enhancing aquatic animals health and quality. 

This initiative aligns with the National Laboratory’s ongoing efforts to localize RAS technology using fresh water. 

Trout were farmed and raised from the egg incubation stage to the point where they reached a commercial size of over 1,200 grams. 

This success has encouraged the private sector to adopt the technology across various regions in Saudi Arabia, including Riyadh, Makkah, Al-Baha, and the northern regions. 

Trout and other cold-water river fish were specifically chosen for local farming to meet the growing demand for high-protein, omega-3-rich, and vitamin-packed fish, which are essential for human health. 

In October, the Ministry of Environment, Water, and Agriculture announced that Saudi Arabia’s fisheries and aquaculture production increased by 55.56 percent in 2023, surpassing 140,000 tonnes. This highlights the Kingdom’s commitment to achieving food self-sufficiency and promoting sustainable development. 

The ministry noted that the country has achieved record-breaking production levels in saltwater and inland aquaculture projects, surpassing the 90,000 tonnes recorded in 2021.

Aquaculture in the Kingdom, which began in 1982, has grown substantially, establishing the nation as a leading exporter of white shrimp.


‘Paradigm shift’ as GCC urban population to surge 30% by 2030: Arthur D. Little

Updated 23 December 2024
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‘Paradigm shift’ as GCC urban population to surge 30% by 2030: Arthur D. Little

RIYADH: Urban populations across the Gulf Cooperation Council region are projected to grow 30 percent from 2020 to 2030, increasing demand for housing, infrastructure, and inclusive development, analysts say.

In its latest report, international management consulting firm Arthur D. Little said that 90 percent of GCC residents will live in cities by 2050, providing a $150 billion economic regional opportunity.

The study revealed that Saudi Arabia is leading this transition, with the Kingdom eyeing to build 500,000 new housing units to meet the rising demand. 

Saudi Arabia is undertaking a dozen giga-projects to address the needs of its growing urban population. These developments are key to the government’s economic diversification goals, forming a core component of Vision 2030.

“We’re witnessing a paradigm shift. This isn’t about building cities — it’s about creating living, breathing economic ecosystems that grow from within local communities,” said Rajesh Duneja, lead researcher at Arthur D. Little. 

Driven by Vision 2030 objectives and its Quality of Life Program, Saudi Arabia is striving for three of its cities to be recognized among the top 100 in the world for livability.

The consulting firm added that the Kingdom’s ongoing efforts are not just a construction initiative but a catalyst for opportunity, education, and long-term economic contribution, with Saudi Arabia embedding workforce development, small and medium enterprises, and local engagement in this journey. 

Earlier this month, a report released by real estate and investment management firm JLL said that the ongoing urban infrastructure development in Saudi Arabia is creating new hotspots for growth, driven by a surge in tourism and economic diversification efforts. 

In July, an analysis by British property consultancy Savills said that the Kingdom’s capital city, Riyadh, is poised to be one of the fastest-growing metropolizes in the world over the next decade, driven by the growth of the country’s mega projects. 

In July, a report released by Statista also outlined urbanization progress in Arab world nations, with Kuwait already having a 100 percent urban population in 2023. 

Statista added that 99.35 percent of people in Qatar live in urban areas, followed by Bahrain, the UAE, and Saudi Arabia, with 89.87 percent, 87.78 percent, and 84.95 percent, respectively. 

The Arthur D. Little report said the surging demand for housing and infrastructure in the region also calls for community-driven strategies to adopt a more inclusive approach, as traditional infrastructure models alone cannot meet the scale of this demand. 

“The pace of urbanization across the Middle East, especially Saudi Arabia, is unprecedented. To ensure that ambitious goals, such as those embodied in Vision 2030, are reached, it is vitally important that communities participate in, and feel part of, the changes,” said Arthur D. Little. 

The analysis added that these community-focused strategies are not only enhancing social impact but also driving economic growth. 

The management consulting firm projected that community-focused initiatives could support the region’s 4 percent gross domestic product growth trajectory, reinforcing its economic resilience amid global challenges. 

“This is not just urban development. It’s the emergence of a new economic blueprint that places human potential at its core,” said Maurice Salem, principal at Arthur D. Little Middle East. 

According to the study, the region’s demographic profile also strengthens the necessity for a community-driven approach. 

“With only 3 percent of the population in Saudi Arabia over the age of 65, the Middle East has an unparalleled opportunity to leverage its young, dynamic workforce,” said the report. 

It added: “When integrated with local talent, cultural heritage, and SME development, infrastructure projects become engines of socio-economic transformation.”