Dubai: "The bad news is, we did not find oil. But the good news is — we did not find gas either" — used to be the case in the Middle East's energy exploration business about half a century ago, according to legend.
Occasionally, oil explorers used to strike gas instead of oil while drilling for oil. The discovery of gas, even by accident, was considered a curse because there was little utilisation of gas in those days.
"But things have changed a lot in the energy landscape since then. Gas is playing a key role in the Middle East's economies," says Majid H. Jafar, Chief Executive Officer of Crescent Petroleum, a company established 40 years ago by his father Hamid Jafar, a UAE-based businessman of Iraqi origin.
"Now, the GCC, Iraq and Iran collectively hold 40 per cent of the global gas reserves and 60 per cent of the world's proven oil reserves. The region remains the biggest source of energy for the rest of the world. Gas is playing a much greater role in our economies as well as the rest of the world."
The UAE is expecting a 71 per cent increase in primary energy demand by 2019, according to market research.
"The total spend on energy in the region is expected to be $2.2 trillion [Dh8.09 trillion], with the UAE at the top of the list with $926 billion. Using energy efficient lighting in the Middle East and Africa could result in potential savings of Dh62 billion [$16.88 billion a year], while globally the savings would be Dh571 billion [$155.45 billion]," the report said.
Crescent Petroleum is celebrating its 40th year as the largest private energy company in the GCC focused on exploration, production and trade energy to meet the rising gap between demand and supply and help the region's economies. It was established to develop local oil and gas resources in the region — where oil and gas largely remains a government business.
According to Arab Petroleum Investment Corporation (Apicorp), the region is expected to invest about $200 billion in the next 20 years in oil and gas sectors alone.
The company last year established a joint venture with Russian state-owned energy giant Rosneft to jointly pursue energy opportunities in the Middle East. Later, Rosneft joined Crescent in a concession from the Sharjah government to explore for oil and gas in a 1,200- square kilometre onshore area.
In an exclusive interview, Jafar elaborated on the region's energy landscape.
Gulf News: How do you see the state of the oil and gas sector in the GCC?
Majid H. Jafar: As consumption rises across the globe and especially the emerging markets, rising demand for energy is going to remain a major concern to most countries who want to secure safe supply of energy. The region will need to invest more than $200 billion in energy exploration and development of associated infrastructure in the next 20 years, and it will need to come from the private sector, as well as from governments.
Saudi Arabia, Abu Dhabi and Qatar are investing a lot already to boost production, and Iraq is starting to come on stream and has huge potential. We see a great potential in this field. That's where we, Crescent Petroleum, come in to play a role in the overall energy exploration and supply business.
The Middle East will continue to feed the rest of the world and support their growth for decades to come. We are happy to play our small part in it.
What is your view on the latest situation with regards to the gasoline subsidy issue. The UAE is a hydrocarbon-rich country, yet a government-owned petrol retailer is finding it difficult to manage. Why?
The issue is related to the demand management of fuel, traffic. The UAE needs to bring in reform in the price of power, utilities and fuel. Domestic prices of power and gasoline should be market linked.
You see, when crude oil price was trading at $10-12 per barrel, refined oil, gasoline retail business was lucrative at the fixed price set in the UAE. The same crude is traded today above $100 a barrel. Has the fuel price increased in proportionate? Who bears the cost? If the gasoline retail price has to remain the same level, then someone has to pay for the balance.
When demand goes up, you need to develop mechanism to manage it. For example, if petrol prices are hiked, you might see less cars on the street and more people using public transport.
The staggered pricing of utility is another example. If you consume a large amount of power due to a lavish lifestyle, you should be charged a higher rate. Consumption-linked pricing also helps. It makes people more conscious. That's why people in the West are more conscious on energy consumption than those living here — getting power, utility and fuel in subsidised rates.
The petrol stations left out by Enoc and Eppco creates an opportunity for other players to enter market. Would your company or any other private company be interested in filling the vacuum?
No, I don't think so. In the current pricing mechanism, someone has to pay for the losses, or subsidise operation. Otherwise it remains uneconomic.
How do you see the UAE's energy security? Is the country doing enough for its own energy security?
Despite the rising demand for gas and limited imports, the UAE is well placed in its quest for energy security. The development of deeper gas reserves in Abu Dhabi as well as the renewable energy ventures through Masdar and the nuclear and coal power initiatives will complement the gas import projects and local petroleum production to create the right energy mix for the country in the future.
That way, the country is heading towards the right direction, though energy demand policies are also required, as I have mentioned.
Does the region have necessary skills in energy exploration? All the countries are dependent on foreign expertise. What are your thoughts on this?
Middle Eastern countries will have to create 100 million jobs in the next 20 years — that is much higher than the total number of jobs created by the region in the last 100 years. Yes, it is a challenge and the governments cannot do this alone.
They need the private sector, players like us to help generate create jobs, help develop skills — in all economic sectors, not just energy. The recent political changes in the region are a polite reminder of how important the issue of job creation is to our region. The region's private sector can help create more jobs. But the governments will have to open doors.
Crescent Group employs about 2,000 professionals across various business verticals. If opportunities rises, we will hire more. But the governments need to open up these core sectors for private players — to create jobs.
How do you see Crescent Petroleum's role in the overall energy business landscape, being one of the pioneers in the private sector?
We are very much part of the UAE and our history and growth is tied with the history and growth of our home in Sharjah and the UAE, and it's thanks to the wise policies of the founding fathers of the UAE and its current rulers, who ensure political stability and also a market economy where business can thrive. We have always focused on a local approach and long-term relationships to support the local economies in which we work.
In addition to our historic role as an upstream oil and gas producer, we have been a pioneer in gas development and cross-border gas trade, starting between Sharjah and Dubai in the 1980s. Our initiatives have been in line with the government's energy vision — to help boost energy security and help cross-border cooperation.
Despite the fact that the UAE is an energy-rich country, it still is short of gas. The country's population and economic growth requires securing uninterrupted gas supply and at the right price.
This is precisely why we had also looked beyond the UAE at a regional level. We had initiated a move to transport gas to Pakistan from Qatar by sea pipeline- which eventually did not materialize due to political instability in Pakistan. We had started negotiations with the National Iranian Oil Company (NIOC) in 1997 to bring in Iranian gas to the UAE to help meet the rising demand for gas.
Then in 2001, we signed a contract with to supply 500 million cubic feet of gas per day to Sharjah through a pipeline with deliveries due to have commenced in December 2005. Accordingly, Crescent had invested and built its pipeline and associated transport infrastructure for the supply of gas, mostly to Sharjah Electricity and Water Authority (Sewa), Federal Electricity and Water Authority (Fewa) and some private companies.
What is the current state of the deal with Iran?
Unfortunately, there were technical delays from NIOC in completing its upstream supply facilities, though it completed the 280km pipeline to transport gas across the Gulf in 2006.
In 2009 we filed for international arbitration due to NIOC's performance delays, as per the mechanism of the contract. We had to take this step to protect the interests of our customers and the losses made by the stakeholders to the deal from the UAE side after years of delay.
However, following the arbitration filing, we received encouraging signs from NIOC and in July last year, and the company had supplied limited quantities of gas to Sharjah for testing purposes. Subsequently however, they discovered leaks in their pipeline that halted the commercial supply of the gas.
The International Arbitration Tribunal in The Hague will deliver their decision in February next year, which is binding on both the parties.
How is your joint venture with Russia's Rosneft doing?
Crescent Petroleum last year established a joint venture with Russian state-owned energy giant, Rosneft, to jointly pursue energy opportunities in the Middle East. Later, Rosneft joined Crescent in a concession from the Sharjah government to explore for oil and gas in a 1,200- square kilometre onshore area.
We have already invested $35 million in the field in drilling and exploration activities. We are optimistic and hope to deliver some good results in future.
What about your international operations, especially those in the Kurdistan region of Iraq?
Crescent Petroleum and our affiliate and partner, Dana Gas, are proud to already be the largest private sector investors in the Iraqi oil and gas sector
Our projects in Iraq's Kurdistan region are going ahead very well, and we achieved gas in a record time of only 15 months from the contract signature, despite all the local security and logistic challenges and the lack of experienced contractors.
Focused energy
Crescent Petroleum has been operating as a regional upstream oil and gas company in the UAE for almost 40 years. It began its activities in the early 1970s and was the first regional, independent, privately-owned Middle Eastern petroleum company to engage in the acquisition, exploration and development of petroleum concessions; and the production and sale of crude oil, petroleum products and natural gas.
It is headquartered in Sharjah with international offices strategically located in the UK, Iraq and Iran and affiliate offices in Canada and Egypt. Crescent Petroleum traces its origins to Buttes Gas & Oil Co. International Inc, a wholly owned subsidiary of Crescent Petroleum and holder of a concession granted in 1969 by the Sharjah Government, pursuant to which the Mubarak Field was discovered offshore Sharjah in the early 1970s. By the mid-eighties the Crescent Petroleum Group was fully established, appropriately reorganised, and making its mark on the international energy scene.
Crescent Petroleum's continued search for, and identification of, opportunities in the oil and gas sector resulted in securing numerous international oil concessions worldwide. At the end of the 1980s it held concessions in Argentina, Canada, Yugoslavia, France, Tunisia, the UAE and in the 1990s it added concessions in Egypt, Pakistan and Yemen.
Crescent Petroleum's current focus is on energy opportunities in the Middle East, specifically within the Gulf region, but more widely also encompassing North Africa, the Caspian Sea region and South Asia.
