INTERVIEW: A Sharjah oilman’s view on the energy world

INTERVIEW: A Sharjah oilman’s view on the energy world
Illustration by Luis Grañena
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Updated 26 July 2020

INTERVIEW: A Sharjah oilman’s view on the energy world

INTERVIEW: A Sharjah oilman’s view on the energy world
  • SNOC CEO explains how US shale will be big loser from price wars

The Sharjah National Oil Co. (SNOC) is not one of the big beasts of the global oil world, certainly in comparison with its giant neighbors such as Saudi Aramco or the Abu Dhabi National Oil Co. (ADNOC). 

As the SNOC’s CEO Hatem Al-Mosa admits, its production disappears in the rounding up of the UAE’s quota at the Organization of the Petroleum Exporting Countries (OPEC).

But Al-Mosa is a lifelong oilman, having worked at Amoco and then BP after the two companies merged, and he has a wealth of experience and insight into the business.

A conversation with him is well worth having for anybody seeking an expert view on what is happening in the energy world.

So who better to ask the burning questions of the last five months of unprecedented turbulence and volatility in the global energy business: Has there been a price war? And who won it?

 

On the latter, he is adamant. “Nobody won. Everybody lost very badly,” he told Arab News. “My perception is that what happened is that Russia didn’t want to continue playing with the production cuts. Saudi Arabia could at that moment have decided, ‘OK, Russia doesn’t want to play, we’ll also stop playing and we’ll continue from where we’ve stopped’,” he said.

“That wouldn’t have caused the huge crash that happened at that moment when Saudi Arabia decided to completely abandon the cuts and go for full production.”

But that was not the main reason oil prices collapsed in April. “Russia definitely didn’t want to cooperate, but didn’t have to go to that extreme,” Al-Mosa said.

“However what they all didn’t anticipate was (the coronavirus disease) COVID-19. It was in play, but COVID-19 wasn’t yet seen as a demand destroyer.”

But the big loser, he believes, has been US shale. The collapse of the oil price — the American benchmark West Texas Intermediate went into negative territory on Black Monday in April — meant that many US shale companies were no longer financially viable, and there has been a slate of bankruptcies and shut-ins since. Al-Mosa saw it coming.

 

“From the moment it started, I thought shale oil was going to be the biggest victim of the price war, but neither I nor anybody else thought the destruction was going to be so severe because of COVID-19. It was the perfect storm, and it just destroyed everything,” he said.

In some ways, shale had it coming. “If you look at history, before shale oil OPEC pretty much controlled prices. They tried to increase and reduce supply to have a cost matched to demand at a comfortable price for OPEC,” he said.

“Once shale oil came into the picture at the beginning of the 21st century, that formula has essentially gone away because every time OPEC ceded production to control price, shale oil went and grabbed that share.”

The price collapse in April was a reckoning. “Shale oil played in a very irresponsible manner. They were just completely driven by money, and every time there was a chance they’d grab another piece of the market share and OPEC lost some more production,” Al-Mosa said.


BIO

BORN: Kuwait 1962

EDUCATION

  • BSc chemical engineering, University of Illinois
  • MSc chemical engineering, Carnegie Mellon University

CAREER

  • Plant engineer, Amoco
  • Chief process engineer, BP-Amoco
  • Technical control manager, SNOC
  • CEO, SNOC
  • Secretary-general, Sharjah Petroleum Council

Does he think, as some experts have suggested, that Saudi Arabia planned to drive shale out of the market?

“It’s purely speculation on my side, whatever I say. I think if it was intentional on their side that was pretty smart, but they can’t say that because it would upset politicians in the US, so they could easily blame it on COVID-19 and Russia,” he said.

Some analysts have said Saudi Arabia needs to get oil prices as high as possible as soon as possible, but Al-Mosa believes a more measured approach is needed.

“People keep saying we should recover the oil price, but I think that shouldn’t be OPEC’s priority. It should be to maintain a price of $35-$45 and instead recover market share,” he said.

“Every time the price starts edging toward $45, they should be increasing production, reducing the cuts, and they should continue doing that to prevent oil going above $45 until they recover 100 percent of the cuts.”

The future path of the oil market depends on the relationship between Saudi Arabia and Russia, which are the main architects of the OPEC+ deal, which lays great emphasis on compliance — by all OPEC+ participants — with the new production levels.

“If Russia sees that Saudi Arabia is cutting too much and wants to get to $50, there’s a chance Russia will say, ‘No, I don’t want $50, I want market share back,” Al-Mosa said.

 

“If there’s any weakening in the Russia-Saudi agreement, it will encourage other smaller countries that are suffering in the cuts to pull out too,” he added.

“So I think the unity of OPEC+ is very crucial in the coming phase to keep stability in the market and the oil price, but also to be flexible enough to reduce the cuts as the oil price starts to recover.”

Outside the OPEC+ agreement, Al-Mosa sees a looming investment gap as independent oil companies, as well as national ones, cut back capital investment.

“Capital budgets have been cut so severely across all the NOCs (national oil companies) and IOCS (international oil companies) to the point where if demand comes back to where it was before COVID-19, OPEC+ won’t have the production to meet it,” he said.

“It will be worse one year from now if they don’t spend money today, and even worse two years from now. I expect by the end of next year there could be a big spike in the oil price.”

The big imponderable for the global energy industry is demand — how quickly can the big economies of the world reopen after the pandemic lockdowns, and recover the level of roughly 100 million barrels per day of demand that was the norm before the pandemic? Al-Mosa is not especially optimistic on that front.

 

“I don’t see any long-term recovery coming soon. There will be ups and downs along the way, but I think we’re very far away from a real recovery,” he said.

“COVID-19 isn’t going away anytime soon, and it’s just getting worse … everywhere in the world, with big economies like India, the US, Brazil, Russia. It’s also spreading in other places that have weaker reporting, like Africa.”

Al-Mosa believes that regional policymakers have to strike a fine balance in terms of economic stimulus packages to combat the virus, and is critical of the Saudi decision to triple the level of value-added tax (VAT).

“Raising VAT may get money faster to the government, but I think long term it will actually be worse because it hurts business and that revenue source will drop,” he said.

Al-Mosa does not subscribe to the beliefs of some global leaders who have minimized the effects of the virus.

“Some people mistake the reopening as a sign that the danger from COVID-19 is less than it was before, or that the virus is getting weaker. That’s all false propaganda and misinformation. The virus didn’t get any weaker. It’s as deadly as it was from day one,” he said.

But he thinks leaders in the Middle East have set a good example. “Throughout the reopening, we’re asking people to wear masks all the time, and we see our leaders wearing masks,” he said.

“There’s a consistent message that COVID-19 isn’t a safe game, it’s a very deadly pandemic, but you can combat it by taking simple precautionary measures,” he added.

“If our leaders don’t play this role, and they say it’s just another flu or something like this, it will encourage bad behavior.”

The SNOC is part of the wider UAE economy, and although Sharjah does not play a large role in that oil-dominated structure, it has inevitably been affected by the fall in the world’s oil prices and the resulting global economic downturn.

But it has managed to keep to an expansion strategy that was in place before the pandemic hit.

“We haven’t cut back any people during the pandemic. In fact, we’ve actually hired a few people,” Al-Mosa said.

“Before the pandemic, we were in expansion mode and had initiated several projects, major by our standards, though they may not be major on ADNOC’s scale. We were already moving ahead,” he added.

“The only impact has been that we slowed down a little bit on the execution of some of them, and we’ve implemented very strict measures to protect the workforce. Essentially all of the company’s workforce, except operations, began working from home. But operations continued 24 hours a day, non-stop.”


Egypt spent $100bn on govt projects in 7 years

Egypt spent $100bn on govt projects in 7 years
Updated 13 June 2021

Egypt spent $100bn on govt projects in 7 years

Egypt spent $100bn on govt projects in 7 years
  • The minister said these structural reforms could play a vital role in accelerating economic recovery from the coronavirus

CAIRO: Egypt’s infrastructure spending during the last seven years amounted to EGP1.7 trillion ($100 billion), according to the country’s Minister of Planning and Economic Development Hala El-Said.

The spending had a direct impact on Egypt’s ranking in the Global Competitiveness Index as it focused on improving the quality of roads and providing uninterrupted power to the private sector and citizens, she said on Saturday.

She also said the government was taking several measures to boost public-private partnerships to expedite economic growth, and that the government had founded the first Egyptian sovereign fund designed to carry out projects in partnership with the private sector.

The minister said that, to strengthen such partnerships, the government kept the private sector and other stakeholders in the loop while formulating economic policies and regulations.

One example was a recent investment law, which encouraged the participation of the private sector and its increased collaboration with the public sector.

The minister said these structural reforms could play a vital role in accelerating economic recovery from the coronavirus pandemic, as well as boosting overall growth.

El-Said said the government was proceeding with the implementation of structural reforms that would protect African economies from external shocks in the future.


Private sector partnerships created 400k jobs for Saudis since 2018

Private sector partnerships created 400k jobs for Saudis since 2018
Updated 13 June 2021

Private sector partnerships created 400k jobs for Saudis since 2018

Private sector partnerships created 400k jobs for Saudis since 2018
  • Saudi Arabia seeks to raise $54.5 billion over the next 4 years through its privatization program

RIYADH: Jobs have been created for about 400,000 Saudi nationals as a result of 11 Saudization agreements put in place since 2018, the Argaam website reported, citing information from Abdullah Abuthnain, vice minister of human resources and social development at the Ministry of Human Resources and Social Development.

Increased privatization and Saudization of roles are the key goals of the Kingdom’s Vision 2030 program.

Finance Minister Mohammed Al-Jadaan last month said that Saudi Arabia is seeking to raise about $54.5 billion over the next four years through its privatization program.

Al-Jadaan expects to raise $38 billion through asset sales and $16.5 billion through public-private partnerships, he told the Financial Times.

The Saudi government has identified 160 projects in 16 sectors, including asset sales and public-private partnerships through 2025.

Asset sales will include government-owned hotels, television broadcasting towers, and cooling and water desalination plants.

The plan does not include Public Investment Fund entities or the sale of other assets of Saudi Aramco. The new privatization law will be enacted in Saudi Arabia in July this year.

The National Privatization Center (NCP) in March also announced the creation of the Registry of Privatization Projects, a comprehensive central database of information and documents related to projects targeted for privatization.

According to the director general of Strategic Communication and Marketing at the NCP, Hani Al-Saigh, the new system seeks to enhance the existing privatization system. One of its most important roles will be to strengthen existing governance and ensure fairness and transparency.

“The law allows participants from the private sector to set up a committee to submit grievances related to the bidding and selection procedures of privatization projects and lay the regulatory basis to compensate the aggrieved in case the gap cannot be addressed,” he told Arab News.

A report by the National Labor Observatory issued in April this year indicated that the percentage of Saudization in the private sector rose to 22.75 percent in the first quarter of 2021 compared to 20.37 percent during the same period last year.

Recent data has shown that seven major job groupings in the private sector have achieved Saudization figures of more than 50 percent. While the rate across the private sector as a whole is around a quarter, Al-Eqtisadiah newspaper reported that the financial and insurance sector had achieved a rate of 83.6 percent, followed by public administration, defense, and mandatory social insurance (71.9 percent), mining, and quarrying activities (63.2 percent), education (52.9 percent), and information and communications (50.7 percent).

Saudi Arabia has the lowest dependence on foreign labor among Gulf Cooperation Council countries at around 77 percent, while Qatar has the highest, at about 94 percent, according to data from S&P Ratings.

While the Saudization figure is moving in a positive direction, some sectors face challenges. In December, the Saudi government added accountancy to the list of professions set to be Saudized, announcing that 30 percent of all accounting jobs at all local Saudi private sector companies with at least five accounting professionals must be filled by Saudi nationals. 

The ruling will come into effect on June 21 this year, and it is predicted that the move will create around 9,800 job opportunities for Saudi accountants.


Egypt launches KSA marketing drive to boost tourism

Egypt launches KSA marketing drive to boost tourism
Updated 13 June 2021

Egypt launches KSA marketing drive to boost tourism

Egypt launches KSA marketing drive to boost tourism
  • Saudi Arabia ranked among the top countries for travel to Egypt before the pandemic

RIYADH: Saudi Arabia is among the top markets for tourism in Egypt, and now that the Kingdom has opened its borders for international travel, the Egyptian Tourism Promotion Board (ETPB) is ramping up its marketing drive in the Kingdom.

Ahmed Youssef, chairman of the ETPB, told Arab News: “Revenues from tourism reached the highest point at $12.6 billion in 2019. Saudi Arabia ranked among the top countries for travel to Egypt before the pandemic. The Saudi market represents the first and most important Arab market, ranking fifth for visitors to Egypt. The trend continued into the first two months of 2020 that recorded 8 percent year-on-year growth in terms of numbers and revenues, with 2.4 million tourists visiting the country during this period.”

Tourism is a big revenue generator for Egypt, reaching $13 billion in 2019. About 3.5 million visitors traveled to the country last year, compared to 13.1 million in 2019. Although numbers are still below pre-pandemic levels, many establishments have resumed operations in a bid to kick-start the tourism sector, the chairman said.

Saudi Arabia is an important market for Egypt, which is why the ETPB is making significant investments in promotional activities.

“Now that the country has opened its borders for international travel, we plan to run promotions in partnerships with Saudi tour operators,” Youssef said. “In addition, we have incentive programs in place for the aviation industry, where airport landing and housing fees have been discounted by 50 percent. We also launched a digital campaign in the GCC, especially in Saudi Arabia, starting the last week of Ramadan (May 2021).”

“We are already seeing strong interest from travelers based in Saudi Arabia, especially Arab families. Our two countries share similar culture and values, which, in addition to the relative proximity, makes Egypt a highly attractive destination for Saudi tourists,” he said.

Wego, one of the biggest online travel marketplaces in the Middle East and North Africa (MENA) region, said in the run-up to the resumption of international travel on May 17 that Egypt topped the list of desired destinations.

Youssef said: “Our main goal now is not to measure the number of tourists but to reassure visitors that Egypt is a safe tourist destination. Saudi Arabia has now opened its borders for its nationals to travel again. We have also started receiving tourists from Saudi Arabia and we are hoping they will enjoy their time here.”

Egypt has adopted strict precautionary measures to limit the spread of COVID-19 while taking steps to support the economy, including the tourism sector.

The World Travel and Tourism Council (WTTC) granted Egypt its Safe Travels stamp, the ETPB chairman said.

“We have introduced the requirement for tourists to carry a negative COVID-19 PCR test certificate from their country issued up to 72 hours before the time of departure (96 hours for travelers arriving from Japan, China, Thailand, the US, Canada, South America, as well as London Heathrow, Paris and Frankfurt airports). Exceptions apply to travelers arriving by plane at the most frequented tourist destinations — Sharm El-Sheikh, Taba, Hurghada, and Marsa Alam — who can do a PCR test upon arrival at a cost of $30,” Youssef said.

The ETPB is targeting tourism revenue of $8 billion and aiming to attract 8 million overseas visitors in 2021. Demand is expected to stabilize and lead to a growth in reservation rates for the 2021-2022 winter season.

“We hope the numbers will return to pre-pandemic levels by fall 2022,” Youssef said.


King Salman Energy Park wins US Green Building Council’s leadership award

King Salman Energy Park wins US Green Building Council’s leadership award
Updated 5 min 2 sec ago

King Salman Energy Park wins US Green Building Council’s leadership award

King Salman Energy Park wins US Green Building Council’s leadership award
  • SPARK is being built on an area of 50 square kilometers

RIYADH: The King Salman Energy Park (SPARK) has been awarded the 2021 US Green Building Council (USGBC) Leadership Award for the Middle East in recognition of its environmentally friendly approach to construction and development.

SPARK, in Saudi Arabia's Eastern Province, was the first industrial city in the world to obtain Leadership in Energy and Environmental Design (LEED) Silver Certification.

Developed by the US Green Building Council, LEED aims to reduce the environmental impact of the construction process, limit resource use, reduce carbon emissions and proactively address climate change.

Saif Al-Qahtani, president and CEO, said in a press statement: “At SPARK, we are committed to ensuring sustainable solutions are continuously implemented as we grow to become the leading energy-centric ecosystem in the world. 

Saif Al-Qahtani, SPARK president and CEO. 

“We have achieved many firsts in our initial stages of development and will continue to adopt and support innovative initiatives that help improve the quality of life for our people, while also strengthening our business and the Kingdom’s economy. 

“We are very proud of our team and the work they have done to guarantee SPARK provides long-term value and supports national and regional programs aimed at building a more sustainable future.”

The 2021 USGBC Leadership Award recipients are selected from among USGBC’s around 10,000 member organizations and the 106,000 LEED commercial projects in more than 180 countries.

SPARK is being built on an area of 50 square kilometers between Dammam and Al-Ahsa. Phase one will be 14 square kilometers, in addition to a dedicated logistics zone and dry port. SPARK announced in March that 80 percent of the project’s first phase was officially complete.

Oilfields Supply Center Ltd. (OSC) announced in April it is to invest $570 million in building a center at SPARK.


WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?

WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?
Updated 13 June 2021

WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?

WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?
  • OPEC+ has done a tremendous job and has successfully managed to contain the largest oil demand shock in history

Oil prices continued their rally for the third week in a row, amid confidence in the strong oil demand outlook and accelerating vaccinations allowing people to travel more.

On the week closing, Brent crude rose to $72.69 per barrel. West Texas Intermediate (WTI) rose to $70.91 per barrel.

International benchmarks’ futures forward curves are further tightening, and the Arabian Gulf Dubai benchmark is trading at its steepest backwardation market structure for almost a year, which indicates supply tightness.

Brent crude seems to have settled above the $70 mark since the beginning of June. WTI closed the week above $70 for the first since October 2018, but back then it had moved steeply downward and ended that year at $45 per barrel even though oil inventories from the Organization for Economic Co-operation and Development (OECD) were at 19 million barrels above their five-year average.

The June monthly oil market report of the Organization for the Petroleum Exporting Countries (OPEC) kept the second half of 2021 oil demand growth unchanged at 96.58 million barrels per day (bpd), up 5.95 million from 2020 when demand was at 90.63 million bpd.

OPEC reported that OECD April commercial oil inventories fell to 25 million barrels below the latest five-year average, around 34 million barrels higher than the pre-pandemic 2015–2019 average, and 160 million barrels lower than the same month a year ago. This means that OPEC+ has done a tremendous job just one year on from the largest oil output cuts in history, and has successfully managed to contain the largest oil demand shock in history.

The US Energy Information Administration (EIA) June Short-Term Energy Outlook came with bearish notes that the market remains subject to heightened levels of uncertainty related to the ongoing economic recovery from COVID-19.

However, the EIA sees the global crude oil market balancing in the third quarter of this year. It predicts a decline in oil prices, and expects Brent crude to average $68 per barrel this year and $60 in 2022 as global oil production increases.

The EIA expects US oil output to rise to 11.8 million bpd in 2022. Though WTI has breached the $70 mark for the first time since October 2018, the US still produces 10.8 million bpd through the Permian Basin, where the rig count rose to its highest level since April 2020.

The International Energy Agency (IEA) June report came with huge contrasts as it forecast that global oil demand is set to return to pre-pandemic levels by the end of 2022, but reported that OECD oil inventories fell 1.6 million barrels below the pre-pandemic 2015-2019 average for the first time in more than a year.

How can the IEA suggest to OPEC to open the taps while it forecasts oil demand to surpass pre-pandemic levels by the end of 2022? If prices were below the $70-per-barrel mark, would the IEA still suggest to OPEC to loosen oil output cuts?

The latest figures from the Commodity Futures Trading Commission on June 8 showed that long positions on crude oil futures on the New York Mercantile Exchange numbered 661,994 contracts, up 15,477 from the previous week (1,000 barrels for each contract).

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter: @faisalfaeq