BMI View: Oil production in the Middle East will remain in a firmly upward trend throughout our 10-year forecast period. The fall in Iranian output due to international sanctions has been more than offset by increased production from other regional OPEC members, including Saudi Arabia, the UAE, and Iraq. There is significant upside potential in terms of gas production as well. This includes new entrants and growing players in the LNG export market, including Qatar, Iraq, and Israel, as other states channel increased production into meeting rising domestic demand.
Oil: The Resurgence of Iraq
We expect strong oil and natural gas production growth across the Middle East through our forecast period. The clear outperformers will be Saudi Arabia and Iraq, with Iraqi an average growth rate of 11.5% through 2021 far exceeding all other regional producers.
|Saudi Remains On Top, Iraq Rising Quickly|
|Key Middle East Oil Producers|
Oil consumption increases will help drive production growth, with economic growth driving a 29% increase in oil demand through 2021. Simultaneously, oil exports will increase from our forecast of 18.9mn b/d in 2012 to 24.1mn b/d in 2021. Export growth will begin to taper off towards the end of the forecast period, however, as production growth slows amid rising domestic demand.
Natural Gas: The Mediterranean's Promise
Natural gas output is forecast to rise 38% between 2012 and 2021, primarily on the back of new offshore gas fields coming onstream in Israel, as well as strong growth from Qatar, Saudi Arabia, Iran, and Iraq. Indeed, international players are gearing up for a slice of Israel's 453bcm Leviathan field, currently the largest gas discovery made in the region. Lebanon also represents considerable upside potential, with the Lebanese energy minister estimating nearly 340bcm of gas offshore. Persistent political risks make it unlikely that Lebanese gas will reach the market within our forecast period, however.
Gas consumption is also set to increase over the forecast period, particularly as regional political dynamics indicate decreasing likelihood of fuel subsidy reform across all states. As such, we are currently forecasting a 41% increase in gas demand over the next 10 years
|Gas Production On The Rise|
|Middle East Regional Gas Production and Consumption|
Key Trends In The Middle East's Oil & Gas Sector:
Iraq remains the stand-out growth story in the region in terms of oil production. Indeed, many new production streams are expected to come online over the next several years. We expect a significant amount of new production to reach the market in the coming years, and particularly in 2017, with a 35% boost in production expected that year alone. Ongoing disputes between the Kurdish Regional Government (KRG) and Baghdad represent some downside risks to our forecast, particularly if Baghdad does punish IOCs for bilateral deals made with the KRG. The outlook is undeniably bright despite these political headwinds, however.
Saudi Arabia, already the region's largest crude oil producer, is looking to increase its gas production as well. Its goal has suffered a setback however, particularly as Sino Saudi Gas, the joint venture (JV) between China's Sinopec and Saudi Aramco, announced an indefinite delay in plans to drill for gas in Saudi Arabia's Empty Quarter. Saudi Arabia is under pressure to increase its gas output, particularly in non-associated gas, to meet soaring domestic demand and also substitute the main source of power generation.
LNG exports are set to increase across the region, with Qatar remaining a strong global LNG producer, and Israel and Iraq looking to install LNG terminals towards the end of the decade. Oman will see fluctuations in its LNG exports, although the country will ultimately conclude our forecast period with 10.13bcm of LNG exports, representing approximately a 28% drop from our 2012 forecast of 14.02bcm.
|Omani LNG To Decline|
|Omani Natural Gas Production and LNG Exports|
International sanctions on Iran have weighed heavily on Iranian exports, as well as its overall attractiveness as a destination for investment across all sectors of the economy. As a result, Iranian long-term output is set to grow only slightly through 2021. The country also has immense gas potential, but output will be similarly stifled by a lack of market demand and development funding. Similarly, the country's hopes for bilateral gas trade with Pakistan through the Iran-Pakistan Pipeline (IP), primarily due to progress made towards the construction of the Turkmenistan-Afghanistan-Pakistan-India pipeline (TAPI). Reforms to its domestic energy subsidies have also forced us to cut Iran ' s short-term oil and gas consumption forecast.
|Sanctions Cause Production Setback|
|Iranian Oil Reserves, Production, Consumption|
The Strait of Hormuz remains a critical strategic chokepoint for global energy supplies, despite recent infrastructure built to bypass it. Emirati state-owned International Petroleum Investment Corporation (IPIC) inaugurated a US$4.2bn pipeline in July, which will transport 1.5 million barrels per day (b/d) of oil from Abu Dhabi, where over 90% of the UAE's oil is held, over 423 kilometers (km) to the port city of Fujairah. While the pipeline does not remove the need for exports via the Strait of Hormuz, it does provide the UAE with some flexibility should shipping via the waterway become disrupted or blocked due to an outbreak of conflict with Iran.