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The Middle East's Challenge To Meet Long-Term Needs With Heavy Oil.

If long-term global oil demand forecasts are to be met, OPEC states will have to turn their attention to developing heavy oil reserves. Work in this area has already begun. Before the 2008-09 global economic crisis, demand for heavier crudes was growing strongly. Across the Middle East, there are successful heavy oil developments under way. Sudan, Egypt and Oman have made significant progress in E&P. Oil-rich states, such as Saudi Arabia and Kuwait, are working hard to bring on stream more of the heavy crude oil deposits, and Iran and Iraq are set to follow suit. The challenge lies in technology.

Traditionally, heavy crude oil did not fit well with the processing capability of the global refining system. Consequently, Middle Eastern producers will need to source significant investment into new refineries to exploit their heavier fields.

Natural gas production is another market with great potential. Saudi Arabia aims to become the major global provider of cheap natural gas. Saudi Aramco, the world's largest petroleum company, has several multi-billion-dollar gas projects in development and it is considering the viability of more recently discovered non-associated fields. If investment is spent effectively, natural gas resources will give Saudi Arabia's export-driven and energy-intensive industries the competitive edge.

Heavier crude oil grades are primed to play a more prominent role in meeting global demand from the Middle Eastern. The region is not yet a hot-spot for heavy oil extraction, compared to established giants in bitumen such as Canada and Venezuela. Yet Middle Eastern reserves of discovered heavy and extra-heavy oil resources are estimated at 970bn barrels, most of which are undeveloped. Maximising recovery and arresting natural production declines will require advanced EOR techniques.

Bahraini Oil Minister Abdul-Hussain Mirza told the Heavy Oil World MENA conference on June 2010 Middle Eastern heavy grades accounted for 28% of the world's total recoverable oil reserves. If long-term global oil demand forecasts are realised, key producers, such as Saudi Arabia, Kuwait and Oman, will have to bring on stream more of the heavy oil deposits which are harder and more expensive to extract and refine.

Before the 2008-09 global economic crisis, demand for heavier oil was rising strongly, triggering growing interest in developing these reserves. In 2008, noted consultancy Wood Mackenzie in a heavy oil study released in February 2010, global crude oil and NGL production reached almost 82.1m b/d. Only about 11.8m b/d of this was from sources at less than 28[degrees] API, which is classified as heavy.

Across the Middle East, there are successful heavy oil developments under-way, including Sudan, Egypt and Oman. New heavy oil projects in Iran and Iraq could also make an impact. Sadad Husseini, a consultant and former head of E&P at Saudi Aramco, says: "Most of the new projects in Iran would be heavy crudes by Gulf standards and Iraq has extensive heavy reserves, such as the East Baghdad field, as well as heavy zones within the existing medium or light fields".

As heavy oil does not flow without stimulation, it is different from other types of crude production. This means IOCs and oilfield services firms such as Schlumberger are in increasing demand as technology partners to help bring the heavy crude deposits on stream. Kuwait has been negotiating with ExxonMobil to help it meet a target of 270,000 b/d of production from heavy oilfields.

In the Saudi-Kuwaiti shared Divided Zone, Chevron achieved first steam injection on a pilot steam-flood project to help pump heavy crude from the Wafra field in June 2009. The $340m project is expected to lead to the first commercial application of a conventional steam-flood in a carbonate reservoir anywhere in the world - injecting steam into heavy oil reservoirs to heat the crude underground, reducing its viscosity and allowing its extraction through wells.

Total is in talks with Kuwaiti officials to develop heavy crude oil deposits from northern fields, using EOR techniques. Kuwait Oil Co. (KOC), the local E&P arm of the state-owned Kuwait Petroleum Corp (KPC), is looking to develop its extensive heavy oil resources in sandstones at Ratqa, in the north, with its first pilot steam soak wells and plans to inject to its first nine spot patterns by 2012. The aim is to start with an output of 50,000 b/d by 2015 before hitting full production by 2030.

Saudi investment in heavy oil is further advanced than Kuwait with its offshore Manifa field, but has taken a relaxed approach to production schedules. The $9.28bn project, which involves building a man-made causeway to 27 shallow-water drilling islands, will produce 900,000 b/d of heavy crude oil, 900 MCF/d of associated gas and 65,000 b/d of condensate, along with new processing infrastructure to handle the volumes of sulphur-rich Arabian heavy crude.

Saudi Aramco appears increasingly committed to Manifa. It is considering plans to increase Manifa's capacity to 1.2m b/d, with the aim of adding 40 MCF/d of sour gas from the field. The company expects to complete Manifa by 2015, about four years later than originally planned. The main reason for the delay at Manifa is the availability of 4.5m b/d of spare capacity in Saudi Arabia. This is the bulk of OPEC's spare capacity. It is one of the most reassuring factors to world oil consumer nations.

Saudi oil policy-makers are adamant that the sanctioning of Manifa does not represent an admission that the future Saudi crude oil slate will be tilting heavier due to depleting light crude oil reserves. Rather, it is a sign that the kingdom needs to prepare new heavy crude oil supplies to feed planned heavy conversion refineries. Future Saudi crude exports will dominate by lighter grades, leaving the heavier volumes to be refined at home. All of Manifa's capacity will be used domestically to supply two planned 400,000 b/d export refineries at Yanbu' and Jubail.

Traditionally, heavy crude did not fit well with the processing capability of the global refining system, but this is changing. During the last two years, more than 1.5m b/d of grassroots refining capacity came on-stream, much of it in Asia Pacific, configured to process heavy crude. Over 1m b/d of coking capacity is being added in the Middle East and Asia Pacific, a significant proportion of which is within grassroots refineries being designed to process heavy crude from the Middle East.
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Publication:APS Review Oil Market Trends
Geographic Code:7SAUD
Date:Dec 27, 2010
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