MANAMA, Bahrain Mar 26, 2007 (Dow Jones Newswires)
Exxon Mobil Corp. (XOM) is betting that soaring domestic energy demand among the booming economies of the Middle East will spur regional leaders toward offering improved access to their energy resources, with technology the key that may unlock the door.
International oil companies searching for hydrocarbons are struggling to secure exploration rights in much of the Middle East, home to some 60% of global oil and gas reserves, as oil-rich nations emboldened by high crude prices tighten up on contract terms and access rights.
But economic growth among the 6-member Gulf Cooperation Council countries, for example, is forecast at 5% to 2010, according to Standard Chartered Bank, following high levels of growth for the past three years, placing a particular strain on the use of gas in domestic energy consumption.
Indeed, there is talk of major infrastructure-related businesses currently being built without any assurance of energy supplies to power them.
In an interview with Dow Jones Newswires, Stephen Cassiani, head of Exxon Mobil's upstream research globally says the region is still relatively undeveloped.
"The Middle East has plenty of capacity," he says and "there's quite a realization in the region that they have some challenges relative to their desire to grow."
Qatar has been the most welcoming nation in the region, having allowed foreign firms to enter and book reserves from its massive North Field, which holds more than 900 trillion cubic feet of gas resources, the world's third largest.
Exxon Mobil has enjoyed some success here and technology, including development of super-sized liquefied natural gas tankers, has been its passport, Cassiani says.
But Qatar has paused large-scale gas development until at least the end of the decade while it probes the quality of its reserves.
And Exxon Mobil's plan to develop a costly and high technology project to turn gas into liquid fuels was canceled in February, with Qatar's domestic demand taking priority, according to the country's oil minister.
This explains why the neighboring emirate of Abu Dhabi has attracted several international oil firms to its $10 billion sour gas development project, which will meet its energy hunger.
The Abu Dhabi National Oil Co. has asked international oil companies, including Exxon Mobil, Royal Dutch Shell Group (RDSB.LN) and Total SA (TOT), to submit bids.
Sour gas is rich in sulfur and so is more costly and difficult to process because its corrosive nature requires special handling and infrastructure.
"We reinject acid gas in Qatar" Cassiani says, and "we do it in the west of the U.S. We have a lot of history with sour gas."
"From a technology standpoint we offer all they would need," he says, though that is precisely what Shell says too.
Exxon won a 28% interest in Abu Dhabi's Upper Zakum field last year in order to raise its daily output by half to 750,000 barrels.
"NOCs have chosen us specifically because of the technology we brought," Cassiani says. Abu Dhabi "awarded it to us because we brought the best technological capability to the opportunity."
Exxon Mobil is also joining the lengthening queue lining up to enter Iraq, though that day may be some way off.
"There are areas like Iraq that at some point in time we may be able to go," Cassiani says.
"We can't go now for obvious reasons...but that doesn't mean we're not watching it. It doesn't mean we don't understand it."
Oil prices can affect the pace of project development but interestingly Cassiani believes it has little impact on technology, whose pace is shaped more by outright demand.
Cassiani estimates that 15 years on, the world will consume a fifth more oil than it does today.
Exxon Mobil will spend $700 million on research this year against $600 million seven years ago.
"We've been pretty consistent, not only in research but in capital investment," Cassiani says. "We're gonna spend $20 billion next year, but we were spending $15 billion in 1998-1999, when oil prices were $10 or below."
Friday, U.S. light, sweet crude traded in New York rose above $62 a barrel.
That being said, such levels of capex and technological innovation are no guarantees of greater riches.
"It is not up to the technology, it is up to how the Middle East governments choose to handle their reserves," Cassiani adds.
"We don't control the flow of opportunities."
Copyright (c) 2007 Dow Jones & Company, Inc.
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