Does encouraging foreign national oil companies (NOCs) into the Arabian Gulf dampen the region’s competitive edge? Not at all.
Smart partners with outlooks that promote affordability, efficiency and sustainably are highly valued. Unity between NOCs in Asia and the Middle East amid this outlook of $60 (Dh220.35) for a barrel of oil and uncertain geopolitics makes sense. We are stronger together.
On a fundamental level, there’s the challenge of meeting rising energy demand. The BP Outlook anticipates a 55 per cent rise in the Middle East’s energy consumption up to 2040, while the Asian Development Bank expects energy demand to almost double in the Asia and Pacific region by 2030. In Malaysia alone, the population will grow five-fold between 1950 and 2030 from 6.1 million to 36 million people, according to UN data.
Collaborations also support the broadening global footprint increasingly coveted by both regions. A fifth of Petronas’ 50,000 employees are based abroad, and the national visions of Arab Gulf states all promote deeper international alliances.
Reaching out and accepting helping hands from fellow NOCs will help hedge against the political, financial and environmental hurdles in 2019. As the African proverb goes: “If you want to go fast, go alone, and if you want to go far, go together.”
Geopolitics and economics are the biggest wild cards this year. From the US-China trade stand-off to Brexit, the list of uncertainties gets longer.
The International Monetary Fund (IMF) pulled back its global growth forecast again. Estimated at 3.7 per cent last October for 2019 is now 3.5 per cent, with 3.6 per cent in 2020, while brows become increasingly furrowed over Beijing’s financial resilience. This is despite one of the world’s biggest economies on track to post 6.2 per cent growth in GDP this year — one of the highest worldwide.
Such is the nervousness in energy finance; unsettled sentiment that is superseding what had been increasingly positive financial outlooks. The good news is that monetary tightening spurs appetite for consolidations; a trend that will likely translate into more partnerships this year.
Think of digitalisation as a well-timed moderator which has entered the room of NOCs — some engaging, some not — to kick-start a conversation that everyone can benefit from if they pay a little attention. Digitalisation could unlock up to $2.5 trillion of industry and societal value in the global oil and gas markets in the medium-term.
Benefits include reduced emissions and $170 billion in cost savings for customers, according to the World Economic Forum (WEF). Such potential is especially coveted in a world of $60 a barrel oil. Unsurprisingly then, a quarter of GIQ Industry Survey respondents said NOC-Silicon Valley partnerships will be the most popular in the 2020s, second to NOC-NOC alliances.
A refined digital toolbox will be vital in easing the mounting pressure on NOCs to meet lower-carbon targets. Clearly, momentum for green growth is accelerating. A staggering 30,000 people attended the UN’s Conference of Parties (COP24) annual gathering on climate change in the southern city of Katowice in Poland last December. Both Asian and Middle Eastern NCOs must keep pace.
All responsible NOCs must take the seriousness and effectiveness of their potential partner’s “green ethos” into account before signing on the dotted line. This can range from reducing CO2 emissions in enhanced oil recovery (EOR), waste water management, enhancing employees’ understanding of sustainability and so on. Misalignment on these critical issues would risk expensive backtracking.
Working together will enable NOCs in Asia and the Middle East to steer away from the volatility and towards energy security. Collaborations today will pay dividends in the 2020s — the clock is ticking.
Abd Malik Jaffar is Regional Director, Petronas Subsidiaries M.E.