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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Oil Majors Are Succeeding In Securing More Gas From The Middle East

  • TotalEnergies, along with Italy’s Eni and the UK’s BP and Shell, have been quick to secure new energy supplies for Europe.
  • European energy companies are investing in several major Middle East upstream projects such as TotalEnergies’ $27 billion megaproject in Iraq.
  • Big U.S. involvement in several major supply deals signals the U.S’ commitment to keep several crucial Middle Eastern countries in its fold.
LNG terminal

TotalEnergies, along with Italy’s Eni and the UK’s BP and Shell, have been at the vanguard of securing new oil and gas supplies for Europe to substitute for lost energy supplies from Russia since its invasion of Ukraine in February 2022. The focus of these efforts has been on liquefied natural gas (LNG), as it can be bought and transported quickly and does not require the time- and capital-intensive build out of infrastructure needed to move gas supplies through pipelines. In this sense, LNG was, and remains, the emergency energy of the new global oil market order, as analysed in my new book on the subject.  The French oil and gas giant continues to secure such new supplies and to cement the presence of European energy firms in the Middle East, as evidenced again by two key developments in recent days.

The first of these is a three-year US$1-1.2 billion LNG supply agreement, beginning this year, made with the Abu Dhabi National Oil Company (ADNOC). ADNOC Gas’s chief executive officer, Ahmed Alebri, accurately summed up the broader significance of the deal, saying that it represented part of a long-term strategic partnership with TotalEnergies. In these wider terms, the seven-emirate UAE (of which Abu Dhabi remains the key energy source), had been earmarked by the U.S. and its allies as a key future energy, economic, and political partner prior to the Russian invasion of Ukraine. 

This was evidenced by its being the first country to sign a ‘relationship normalisation’ deal with Israel on 13 August 2020. These deals were a key part of the U.S.’s response to the expansion of Chinese and Russian influence in the Middle East after Washington had unilaterally withdrawn from the Joint Comprehensive Plan of Action (JCPOA, or colloquially ‘the nuclear deal’) with Iran in May 2018, as also analysed in my new book. In the aftermath of this withdrawal, Israel had become increasingly sure that Iran was no longer ‘years’ away from being able to create a nuclear weapon but rather just ‘weeks’ away – around three weeks away, to be exact. Those around the then-U.S. President, Donald Trump knew that any escalation by Israel against Iran could be a catalyst for a broader conflict across the entire Middle East. This could eventually draw China and Russia into the conflict, in direct opposition to the U.S., and was a conflict scenario in war planning on all sides that almost inevitably led to global nuclear war.  Related: Oil Price Volatility Will Only Get More Extreme

The U.S. intention for the UAE in the relationship normalisation deals plan was for it not just to act as a beacon for other Arab countries to sign such deals but also for it to be used for Washington’s new global oil market model for Middle Eastern countries allied to the West. Firstly, the U.S. would ensure massive investment into such countries by its big oil firms, which would require increased on-the-ground presence of U.S. personnel in them to safeguard the assets. Secondly, the oil and gas from such countries would find a very willing end-buyer for all their energy in India, which was to be used as the substitute big global oil and gas bid to China in this model. 

India perfectly fitted the requirements in this context, as also analysed in my new book on the new global oil market order. The country’s role as the U.S.’s counterpoint to China in the Asia-Pacific region, led by its economic development and the corollary growth in its demand for oil and gas, was further underlined by data released in the first quarter of 2021 by the International Energy Agency (IEA). This showed that India would make up the biggest share of energy demand growth - at 25 percent - over the next two decades, as it overtook the European Union as the world’s third-biggest energy consumer by 2030. 

Additionally, around the same time as the U.S. was pushing its new global oil market order strategy, a clash between China and India (on 15 June 2020) in the disputed territory of the Galwan Valley in the Himalayas reflected a much greater change in the core relationship between the two countries than the relatively small number of casualties might have implied. It marked a new push back strategy from India against China’s policy of seeking to increase its economic and military alliances from Asia through the Middle East and into Southern Europe, in line with its multi-layered multi-generational ‘One Belt, One Road’ (OBOR) power-grab project. It seemed to the U.S. that India was ready to pursue more aggressively its own ‘Neighbourhood First’ policy as an alternative to China’s OBOR initiative.

The tie-up between Abu Dhabi and India was to provide a showcase for this new U.S. strategy to fightback against growing Chinese and Russian influence in the region. At the time, ADNOC’s chief executive officer, Sultan al-Jaber, stated that he looked forward to exploring partnerships with even more Indian companies across the energy giant’s hydrocarbon value chain. He added that he wanted this to include expanding the commercial scale and scope of India’s vitally-important strategic petroleum reserves (SPR) partnership. This was in line with the crucial position that ADNOC was given in being the only overseas company allowed at that stage to hold and store India’s SPR. Additionally positive for the U.S. plan was that India’s government at that stage approved a proposal that would allow ADNOC to export oil from the SPR if there was no domestic demand for it. 

These plans came screeching to a halt from the U.S. side when around Christmas 2021 intelligence officers discovered that China had been building its own secret military facility in and around the UAE port of Khalifa. Based on classified satellite imagery and human intelligence data, US officials stated that China has been working to establish ‘a military foothold in the UAE’. At almost exactly the same time, the U.S. also discovered that Saudi Arabia was manufacturing its own ballistic missiles, again with the help of China. In short, China was increasing the pace of its own efforts to create its own new global oil market order in its own image, building on the ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ first revealed anywhere in the world in my 3 September 2019 article on the subject. This solid foundation work by China in the Middle East was powerfully evidenced again recently in the landmark relationship resumption deal between Iran and Saudi Arabia, brokered by China.

Nonetheless, following Russia’s dismal performance in Ukraine to date, there has again been a shift in the attitude of the UAE towards the U.S. and its allies it seems. From the UAE’s Sheikh Mohammed bin Zayed al Nahyan refusing to take a telephone call from U.S. President Joe Biden to talk about help in bringing oil prices down from inflation-fuelling levels, the UAE now appears to be more inclined to do deals again with Western companies. So too is Iraq, in which Total Energies is also leading the West’s efforts, with news last week that the French company is expected to begin its US$27 billion four-pronged megadeal within the next two weeks. 

The first of these projects - the completion of the Common Seawater Supply Project (CSSP) - is crucial to enabling Iraq to reach its longer-term crude oil production targets of 7 million barrels per day (bpd), and then 9 million bpd and then perhaps 12 million bpd, as also analysed in depth in my new book. The project involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities to maintain pressure in oil reservoirs to optimise the longevity and output of fields. The long-delayed plan for the CSSP is that it initially supplies around 6 million bpd of water to at least five southern Basra fields and one in Maysan Province and is then expanded for use in other fields. The second of the projects is also a matter of urgent necessity: to collect and refine associated natural gas that is currently burned off at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Artawi. Successfully capturing associated gas rather than flaring it will also allow Iraq to revive the also long-stalled US$11-billion Nebras petrochemicals project with Shell, which could be completed within five years and would generate estimated profits of up to US$100 billion for Iraq within its 35-year initial contract period. Increasing crude oil output from the Artawi oil field is the third of the four projects to which TotalEnergies is committed. This is aimed at boosting output from the Artawi oilfield to 210,000 bpd of crude oil, up from the current 85,000 bpd. The last of the four projects that were to have been undertaken by the French company would be the construction and operation of a 1,000-megawatt solar energy plant in Iraq.

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By Simon Watkins for Oilprice.com

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