Awash with pressure points, the downstream oil industry in the Middle East is holding its own. The dramatic and rapid impact of the Covid-19 pandemic, and the subsequent recession, are the latest additions to what was already a complex market for downstream operators.
Other drivers of uncertainty include the global energy transition towards a greener world and the volatile oil price.
However, this is not stopping national oil companies (NOCs) in their tracks. After decades of international oil companies (IOCs) taking the lead, NOCs are tightly holding onto their new spot on the global energy stage. Today, they are not only aligned with the business models of IOCs, they are worthy competitors.
One of the most notable changes are increased vertical integration and a burgeoning regional petrochemical market. State-owned oil firm Saudi Aramco recently acquired a 70 per cent stake in petrochemicals giant Sabic, making it one of the largest petrochemical companies in the world.
Still, the pressure points are very real — and none will likely abate soon. So, NOCs must adapt in order to hit their growth goals. Four key areas have been identified in Woods’ latest Whitepaper, ‘Downstream Growth in the Middle East: How can NOCs deliver on their ambitious growth strategies in a transitioning energy landscape?’
Each of the four key themes were shaped by the discussions of a round-table of 25 high-level energy executives in Abu Dhabi.
* First is the value of integration and how streamlined processes along the value chain can drive efficiency, therefore unlocking major economic potential.
* The second is the global gamechanger of digitalisation. NOCs must ask and answer this question: How can the next generation of tools revolutionise your operations and balance-sheets?
* This feeds directly into number three: how to nurture talent and a new style of innovative thinking. The energy market is being overhauled, so curating a new type of workforce is non-negotiable.
* Finally, the fourth is how to navigate the rapidly changing environmental landscape amid talk of net-zero targets in a bid to make the Paris Agreement a reality. Decarbonisation is undoubtedly the biggest shift in global energy markets in a century and NOCs must keep up.
The region’s abundant resources mean it will remain the world’s biggest oil producing region up to 2040, accounting for 36 per cent of global liquids, according to the 2019 BP Outlook. This geographic good fortune is accentuated by the region’s position at the heart of the world’s East-West trade routes.
To the East, overall energy demand in Southeast Asia has grown by more than 80 per cent since 2000, according to the International Energy Agency (IEA). To the West, more than 500 million people will be added to Africa’s urban population by 2040, much higher than the growth seen in China’s urban population in the two decades of its economic and energy boom.
It appears to be a win-win for the Middle East.
The Middle East is also on the doorstep of two major shipping lanes — the Strait of Hormuz and the Suez Canal — that will help broaden NOCs’ global footprint and influence. The Strait, for example, is the world’s most important oil transit bottleneck, with its daily flow accounting for 21 per cent of global petroleum liquids consumption, according to the Energy Information Administration (EIA).
Plus, NOCs’ downstream operators have one of the lowest cost feedstocks worldwide, multiple, and extensive port infrastructure and strong government support. This provides a robust foundation for NOCs’ regional and global expansions and their bid to ever improve energy security and commercial success.
Despite the eruption of current distractions, NOCs and their stakeholders are determined to stay on track for continued growth and success worldwide.
— Dan Carter is Global Technical Leader — Oil and Gas Consulting at Wood.