Dubai: The news that the CEO of state-owned Saudi Aramco was uncomfortable about oil prices will have added fuel to the fire to speculation about the latest rally in the cost of the precious commodity — currently hovering around $120 a barrel.
Aramco chief executive Khalid Al Falih told Reuters that the hike in oil prices could have a negative impact on the global economy, but re-affirmed that there was no tightness in global oil markets. The Saudis can, and will, continue to serve the market with spare capacity.
It is a fairly regular worry in times of high prices that one day the world's oil supplies will finally run out, but doomsday scenarios aside, concerns are real. The International Energy Agency (IEA) has predicted that non-Opec oil supply will peak in the middle of this decade, pointing out that this will force the Organisation of Petroleum Exporting Countries (Opec) to boost contribution to global oil markets from 42 per cent in 2011 to 52 per cent in 2035 — a level not seen since the early 1970s.
A report published this month by consultancy Booz and Company claims that a development of less productive, more complex reservoirs, including those in the Gulf Cooperation Council (GCC), as well as development of smaller fields and heavy or sour oils will be an essential part of meeting future demand. Techniques such as enhanced oil recovery (EOR) — which uses heat, chemicals and water to extract more oil out of smaller or more difficult wells — have traditionally taken place in countries such as Bahrain and Oman, where oil is harder to extract.
In its report, Booz and Company suggest that countries with traditionally easy to get oil — such as Saudi Arabia and the UAE — will need to consider advanced recovery techniques too.
"The times are certainly changing," David Branson, one of the authors of the report, told Gulf News. "This issue has been building up for the last few years. When oil was $140 a barrel, capacity was a problem. If things don't improve you will see this issue build and build over the next few years. Opec countries of the Mena (Middle East and North Africa) region will play a pivotal role in meeting future oil demand in the years ahead, even as the technological challenges of extracting resources in these countries increase considerably."
But Christiaan van der Harst, regional resource value manager for Shell in Dubai, says that key to the take-up of EOR techniques is cost. The GCC's oil is some of the cheapest in the world, estimated to cost around $1 to $3 to take a barrel out of the ground — meanwhile, using EOR can boost costs by almost five-fold, to between $15 and $30 a barrel.
It is therefore difficult to see why countries like the UAE and Saudi Arabia would invest in such technology. "They still have so much easy oil left. You need to invest more money [with EOR] and it takes longer. It can take between five and ten years before the benefits come out," he said.
But while EOR take-up has been slow in the UAE, Oman is leading the GCC in advanced oil extraction. The country rewards companies that use or develop sophisticated oil extraction techniques, including Shell, which in 2004 set up the Shell Technology Oman in Muscat. The centre works with local universities to study new EOR techniques, and has already led to three pilot projects in Qarn Alam, Marmul and Harweel oil fields. "Oman has a lot of heavy oil which isn't really a problem in the UAE," van der Harst said.
In 2005, the ministry awarded the major Mukhaiza oil field to Occidental, which is currently drilling 2,000 more wells and utilising high-tech EOR systems to increase production from 10,000 barrels per day to 150,000 barrels per day by the end of 2012
It is not only in terms of technology where future demand will change the oil trade, according to Booz and Company, but in legal terms as well. By requiring international firms to use and develop new technology — and providing incentives to do so — the Omanis are recognising the importance of a partnership between international oil companies and their national counterparts.
"There has been a good relationship between international and national oil companies in the region [but] as companies move into more mature stages, that balance need to change. It needs to make sure it is achieving the right things and benefiting the parties on both sides," Booz and Company says.
Most arrangements between national and international oil companies in Mena are based on production sharing agreements — whereby international companies fund exploration and production and revenues are shared between both parties — or royalty systems, whereby the host government receives a portion of profits and international firms pay corporate tax.
But in countries such as Algeria and Libya — and more recently Iraq — companies have been forced to accept low rates or been hampered with corporate tax rates as high as 30 per cent. These are not conducive to good partnerships and may make IOCs reluctant to make the effort to press forward with new technologies. "In Saudi Arabia, Qatar and the UAE the relationships there are ongoing, and I would say they are based on trust and understanding. But it still takes both sides to recognise that the game is changing," Branson said.
Making the most of it
Middle East producers take a closer look at EOR methods
Dubai: A number of EOR (enhanced oil recovery) methods are currently being used in the GCC and not only in Oman, Bahrain, Kuwait and Saudi Arabia also have projects underway, at various stages of development.
There are four main techniques being used by oil companies in the region. The first is thermal, which involves hearing the oil in order to make it flow into the pumps more smoothly. Gases, including hydrocarbons and carbon dioxide, are used to displace heavy oil and sweep it out of the reservoir while chemicals can be used to break up the oil and then extract it. The last technique is water flooding, which uses water with a high salinity to displace stuck oil.
In the so-called Neutral Zone, shared by Saudi Arabia and Kuwait, Chevron is involved in an EOR scheme aimed at developing heavier crudes using steamflooding. Abu Dhabi for Onshore Oil Exploration is working on an EOR project involving carbon dioxide injection. And Saudi Aramco is working on plans to implement a CO2 EOR demonstration plant in the next two years, although this project is, for now, aimed at trapping emissions rather than boosting recovery rates.
Bahrain's energy minister Abdul Hussain Bin Ali Mirza says his country's ageing Bahrain field, where EOR boosted output from an average of 29,000 barrels a day to a level of 40,000 barrels a day within a year, will see output hit 100,000 barrels a day within seven years.
However, while Middle East producers are starting to take a closer look at EOR, many are handicapped by the reliance of the technology on gas, which is sometimes used as an injectant and sometimes burned to generate another common injectant, steam. Despite massive reserves in countries like Qatar, natural gas is in short supply in most other countries in the region due to its increased usage in power generation and in industries such as petrochemicals.
Accordingly, there is a new focus on alternative technology solutions, including the use of solar power to generate steam for injecting into oilfields.
One such new technology has been developed by Glasspoint, a US-based company that says it can generate steam using the sun's heat at lower cost than by burning gas. It locates the solar installations inside large commercial greenhouses, which protect the delicate panels from harsh desert winds, according to Rod MacGregor, the company's chief executive.
— With inputs from agencies