ITP MEDIA GROUP / BUSINESS JANUARY 2022 • VOL. 18, ISSUE 01 RUNNING ON Major gas producers are lighting the way to a cleaner energy mix, but will oil gutter out?DRILL DEEPER The oil and gas sector is the heartbeat of Middle Eastern economies. Unlock OilandGasMiddleEast.com to keep your finger on the pulse Projects Empower your decision-making with timely updates about the latest upstream oil and gas projects in the Middle East. Events Take advantage of early bird access to be first in line for the industry-leading Middle East Energy Awards. Subscribe now to get every last drop of upstream insight from OilandGasMiddleEast.com, with exclusive benefits Lists Read our comprehensive annual rankings of the Middle East’s most powerful people and companies across upstream. Multimedia platforms Get insider information through our global webinars, podcasts, and video interviews with upstream leaders. 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AN ITP MEDIA GROUP PUBLICATIONJANUARY 2022 / Volume 18 Issue 01 24 The Middle East hydrogen hub 26 Awards update 16 Running on gas: Qatar in focus 06 The industry in numbers Highlights in this issue: 16 COVER STORY 3 IN THIS ISSUE oilandgasmiddleeast.com JANUARY 20224 IN THIS ISSUE oilandgasmiddleeast.com JANUARY 2022 DOWNLOAD IT TODAY ON YOUR iOS, ANDROID OR KINDLE Also inside: App 24 06 /In numbers US shale expenditure to surge but remain below pre- pandemic hieghts 16 /Running on gas: Qatar and the energy transition How well positioned is Qatar to take advantage of gas’s increasing role in the energy mix? 14 10 16 8 KEEP UP-TO-DATE For all the latest news, check out www. oilandgasmiddleeast .com 30 /Awards update The Middle East Energy Awards are coming soon! 20 / Outlook It’s time to move to collaboration from competition 20 Last month 8 /Industry Outlook The world’s capacity to generate renewable energy is accelerating 10 /Comment UAE is entering the end of its black gold era 32 /Project focus Everything you need to know about Tatweer Petroleum’s new well manifold facilities in Bahrain 42 /Five minutes with On the digitalisation trends shaping the energy industry, with Honeywell 12 /Comment Common ground at ADIPEC 2021 and COP26, but differences still remain 14 /Comment Protect your data or face disruption 24 / Sustainability Findings from Oil & Gas Middle East’s first Hydrogen Thinktank5 oilandgasmiddleeast.com JANUARY 2022 EDITOR’S LETTER H ello and welcome to the first issue of Oil & Gas Middle East for 2022, and also my first issue as editor of this publication. I would first like to extend my thanks to Carla for her invaluable help during my transition to the editorship of this brand. Having spent several years commenting on the oil and gas sector, I am delighted to have been given the opportunity to engage in deep, meaningful discussions with industry experts, insiders, and policy makers on the shape of the future of energy. We begin 2022 in a post-COP26, post-ADIPEC 2021 world, where discussions on sustainability and energy transition remain firmly in place. As you can tell from our cover for this issue, our focus remains decisively set on examining how the energy transition will transform the oil and gas industry. In particular, the rising prominence of gas as a cleaner, more climate-friendly energy-source. In this vein, you can find our analysis of one of the world’s biggest suppliers of gas in this issue – Qatar. Additionally, I was thrilled to hold the first Oil & Gas Middle East Hydrogen Thinktank this month. Hydrogen, in all of its myriad colours, has generated significant enthusiasm as an energy source of the future. Moving forward, we will continue to hold regular thinktank discussions with experts to assess the development of this future fuel. You can turn to page 24 for a write-up of the group’s findings so far. I firmly look forward to meeting you all in person in the near future as we continue on the march towards some semblance of post- Covid-19 normalcy. As we transition into the new year, I wish you all the best of luck with your endeavors over the next 12 months. With that I’ll let you get to reading. Matthew Amlôt Editor Oil & Gas Middle East On the subject of transitions… SUBSCRIBETo subscribe to Oil & Gas Middle East, or other ITP Business titles, go to: www.itp.com/subscriptions. PO Box 500024, Dubai, UAE Tel: 00 971 4 444 3000 Web: www.itp.com Offices in Abu Dhabi, Dubai, London & Mumbai ITP Media Group CEO: Ali Akawi Managing Director: Alex Reeve Editorial Group Editor: Carla Sertin Editor: Matthew Amlôt Tel: +9714444 3264 email: matthew.amlot@itp.com Art Director: Amjad Ayche Advertising Group Sales Manager: Mark Grennell Tel: +971 4444 3202 email: mark.grennell@itp.com Photography Senior Photographers: Efraim Evidor, Adel Rashid Staff Photographers: Yuliya Petrovich, Fritz John Asuro, Ajith Narendra Production & Distribution Group Production & Distribution Director: Kyle Smith Production Manager: Denny Kollannoor Production Coordinator: Manoj Mahadevan Senior Image Editor: Emmalyn Robles Circulation Distribution & Warehouse Manager: Evijin Pathrose Circulation Executive: Rajesh Pillai Distribution Coordinator: Avinash Pereira Marketing Director of Awards & Marketing: Daniel Fewtrell ITP Group CEO: Ali Akawi CFO: Toby Jay Spencer-Davies The publishers regret that they cannot accept liability for error or omissions contained in this publication, however caused. The opinions and views contained in this publication are not necessarily those of the publishers. Readers are advised to seek specialist advice before acting on information contained in this publication which is provided for general use and may not be appropriate for the reader’s particular circumstances. The ownership of trademarks is acknowledged. No part of this publication or any part of the contents thereof may be reproduced, stored in a retrieval system or transmitted in any form without the permission of the publishers in writing. An exemption is hereby granted for extracts used for the purpose of fair review. Published by and © 2022 ITP MEDIA Group FZ-LLC. US SHALE EXPENDITURE TO SURGE Despite large increases in expenditure, rates still remain far below pre-pandemic heights U S shale expenditure is set to surge nearly 20 percent next year as the industry recovers from the unprecedented volatility caused by the Covid-19 pandemic. Expenditure will leap to a predicted $83.4 billion in 2022, up from an expected $69.8 billion in 2021, a 19.4 percent increase, according to energy research firm Rystad Energy. This figure represents the highest expenditure for the industry since the onset of the Covid-19 pandemic. Covid-19 proved a major upset for the US shale sector. US shale oil firms were generally highly leveraged at the start of the pandemic, and had some of the higher breakeven figures among global producers as a result of having to service debt. When the pandemic hit and crashed global demand for energy, oil prices plummeted, with West Texas Intermediate prices even turning negative for the first time in history in April 2020, leaving producers having to pay buyers to take excess crude off their hands amid a storage capacity shock. Now, as the impact of the pandemic on demand has begun to level out, US shale firms are ready to begin investing in production again. Service price 6 IN NUMBERS oilandgasmiddleeast.com JANUARY 2022inflation is expected to add $9.2 billion of expected year-on-year spending increases, with increased activity accounting for an additional $8.6 billion, according to Rystad. These additional costs are expected to be partially offset by increased efficiency gains driven by additional adoption of simul-frac equal to around $4.2 billion in savings. “Oil and gas activity and upstream spending in US Land has been exposed to significant volatility in the last two years. Aggressive strategies from private operators in the US shale patch have driven spending this year, but we anticipate significant growth in 2022 from public and private operators alike,” Rystad’s Head of Shale Research Artem Abramov said. Despite the 20 percent increase in spending, the total spending level for 2022 will still remain significantly below the forecasted amount for the year prior to Covid-19. In November 2019, Rystad estimated total US shale spending for 2020 at $104.9 billion, with 2021 and 2022 placed at $109.7 billion and $119.8 billion, respectively. Instead, once the pandemic took hold, spending in 2020 plunged to $60 billion. In 2021, public independents mostly maintained their US shale budgets compared to 2020, with a modest increase noted by Rystad in the weighted-average well index. Increased activity was further offset by structural efficiency gains and lower service costs behind actual drilling and completion operations, the agency said. Private operators, however, moved more aggressively in 2021 and have felt the impact of cost inflation more keenly. This increase in private exploration and production resulted in total US shale capital expenditure growing by around 16 percent in 2021 compared to 2020. Among the US shale producing regions, Rystad pointing to Permian and Haynesville spending as relatively resilient during 2020’s downturn, with faster structural activity in 2021. Meanwhile, the Niobrara region saw a deeper increase in spending in 2021 on a percentage basis, and the Appalachia and Eagle Ford regions experiencing minor growth in 2021. In the Bakken and Anadarko regions, spending declined by between seven and 14 percent in 2021 compared to 2020. In 2022, the Niobrara, Eagle Ford, and Anadarko regions are expected to beat nationwide average spending growth as a result of increased rig activity expansion in recent months, while the Bakken region is forecast for 19 percent spending growth and the Permian to grow 17 percent. Rystad also anticipates spending to increase in the regions of Appalachia and Haynesville by around 15 percent and 10 percent, respectively. US SHALE REINVESTMENT RATES HIT RECORD LOW US shale oil producers hit an all-time low for reinvestment rates in the third quarter of 2021, which resulted in a record free cash flow for the same quarter. Reinvestment rates are expected to fall even lower by the end of 2021, Rystad predicts. Rystad’s analysis focused on a group of 21 public US shale oil firms, excluding majors that account for 40 percent of expected 2021 output. The group’s combined reinvestment rate for Q3 2021 was 46 percent, down from 53 percent in the same period in 2020. This figure is still significantly down over the sector’s historical average of over 130 percent. Reinvestment rates are calculated by comparing shale firm’s oil and gas capital expenditure against their cash flow from operations. Rystad notes that cash flow from operations in Q3 2021 was the strongest since the Q2 2019. “Such a low reinvestment rate stands out for shale industry observers, especially as the peer group reported a record-breaking free cash flow (FCF) and earnings before interest, tax, depreciation and amortisation (EBITDA) of $6 billion and $16 billion, respectively. But it’s not the end of the reinvestment slide,” Alisa Lukash, vice president for North American shale at Rystad Energy said. Reinvestment is expected to fall further to 40 percent in Q4 2021, according to Rystad’s analysis. Additionally, among the group surveyed, for the first time since late 2018 net debt dropped below the eight- year average floor of $52 billion, hitting $51 billion in Q3 2021. Leverage ratios have also continued to decline in line with past three quarters, Rystad added. Meanwhile, dividend payments jumped 70 percent in the group in Q3 2021 compared to Q2 2021. Capital spending control by the shale firms was primarily aimed at deleveraging and increasing stable shareholder support, Rystad said, with stock buyback mostly paused as the market recovers in line with oil price increases. 7 IN NUMBERS oilandgasmiddleeast.com JANUARY 20228 INDUSTRY OUTLOOK oilandgasmiddleeast.com JANUARY 2022 fossil fuel prices also make renewables even more competitive.” Over the next fi ve years, China will dominate the space for renewable capacity growth, accounting for 43 percent of global growth. Europe, the US and India round out the top four, and together these markets will account for 80 percent of all capacity growth. Both China and the EU are predicted by the IEA to overshoot their current targets, with the agency suggesting that China will reach its goal of 1,200 GW of wind and solar capacity by 2030 four years early. Meanwhile in the EU, the IEA believes the organisation will overshoot the current National Energy and Climate Plans 2030 goals. “China continues to demonstrate its clean energy strengths, with the expansion of renewables suggesting the country could well achieve a peak in its CO2 emissions well before 2030,” Birol said. In the US and India, ambitious targets, improved competitiveness, and policy support will help propel renewable power to new heights. Compared to current capacity, renewable power will grow faster in India than in any other market in the world, the IEA said, with solar leading the way as part of the government’s target of 500 GW of renewable capacity by 2030. In the next fi ve years, renewable capacity expansion in the US is expected to be 65 percent larger than in the previous fi ve years. “The growth of renewables in India is outstanding, supporting the government’s newly announced goal of reaching 500 GW of renewable power capacity by 2030 and highlighting India’s broader potential to accelerate its clean energy transition,” Birol commented. COMMODITY PRICE HEIGHTS WON’T SLOW SOLAR, WIND While commodity prices have continued to rise and increase manufacturing costs for solar, capacity still grew 17 percent 2021, the IEA said. Furthermore, in a “signifi cant majority of countries worldwide,”utility- scale solar energy is the lowest cost option for adding new electricity capacity, the IEA added. This fact means that utility-scale solar projects have continued to account for over 60 percent of all solar additions worldwide. W ith stronger policies linked to climate change, renewables are now being deployed at record levels, with the world’s capacity to generate electricity from renewable sources, such as solar panels and wind turbines, set to accelerate over the coming years, the IEA said in a report. The report, titled Renewables 2021, found that the number of renewable electricity installations is set to hit a new all-time record in 2021, driven heavily by solar power. In 2021, almost 290 gigawatts (GW) of renewable power was commissioned, a three percent increase over 2020’s growth. Of this, solar power accounted for over half of all renewable power expansion in the year, followed by wind and hydropower. Over the next fi ve years, renewable capacity is expected to accelerate, and account for almost 95 percent of all increases in global power capacity through to 2026. This growth will equal a more than 60 percent increase from 2020 levels to 4,00 GW, which is also equivalent to the current global power capacity for fossil fuels and nuclear energy combined. “[2021’s] record renewable electricity additions of 290 gigawatts are yet another sign that a new global energy economy is emerging,” Fatih Birol, IEA executive director, said. “The high commodity and energy prices we are seeing today pose new challenges for the renewable industry, but elevated The world’s capacity to generate renewable electricity is accelerating, according to the IEA RENEWABLE ELECTRICITY ACCELERATES9 INDUSTRY OUTLOOK oilandgasmiddleeast.com JANUARY 2022 commodity prices continue to remain high through 2022, the agency believes that three years of cost reductions for solar, along with fi ve years for wind power, would be erased. The IEA pointed to government policy as key to further accelerating the growth of renewables. Governments need to address key barriers to the industry, including grid integration challenges, insufficient remuneration, and social acceptance issues. The agency also noted that the high financing costs of renewable energy in the developing world will remain a major challenge in the future. In one scenario which assumes some of the challenges are overcome, the IEA predicts that renewable capacity growth would be 25 percent higher in the next fi ve years. However, while the growth in renewables may present a positive move for climate change advocates, the IEA said that more is still needed to hit net zero emissions by 2050. The agency said that for solar and wind energy, average annual growth would need to almost double its current predictions over the next fi ve years to hit the net zero scenario. Furthermore, biofuel demand would need to quadruple, with countries implementing existing and planned policies that will ensure biofuels will be produced sustainably and avoid negative impacts of the sector. Renewable heat demand growth would also need to triple from the agency’s current predictions. Meanwhile, wind energy growth is expected to be no slouch over the next fi ve years. While solar energy may be rapidly growing, onshore wind capacity growth is predicted to be nearly 25 percent higher over the next fi ve years than the last fi ve. In addition, the IEA predicts that off shore wind will triple over the next fi ve years and account for 20 percent of the global wind market. The cost increases of polysilicon, steel, aluminium, copper, and freight fees, mean that the IEA now estimates that the investment costs for utility-scale solar and onshore wind power to be 25 percent higher than in 2019. Furthermore, around 100 GW of contracted capacity growth is now at risk of being delayed due to commodity price shocks. Should Next >