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BBG Legal Focus Blog - 2

Date Posted: Thu, 25 Jul, 2019

BBG Legal Focus Blog - 2

I am pleased to share the December instalment of the BBG Legal Blog. This month’s blog comes from Mark Raymont, a Partner at member law firm, Pinsent Masons, an International law firm with offices throughout the region and globally.

I am pleased to share the December instalment of the BBG Legal Blog.  This month’s blog comes from Mark Raymont, a Partner at member law firm, Pinsent Masons, an International law firm with offices throughout the region and globally.  Here, Mark shares his perspectives on ADIPEC and the energy sector more generally.  Mark will be joining us as a panelist at the BBG Energy Dinner next month, when he will share his insights, along with other industry experts, on the legal issues being faced by the energy sector here in the Middle East.  Many thanks Mark!

Last month, more than 2,200 global firms, including 42 major national and international oil companies, gathered at the 21st edition of the Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC) in the UAE.

The four-day event highlighted the shifting dynamics of the global energy landscape. Overall, the mood was reasonably buoyant as industry players swopped market intelligence and insights on key issues and trends, which naturally included pricing and supply, as well as investment opportunities and digital disruption in the sector. The overall impression was that the numbers attending were up on last year with increased footfall reported by our friends and contacts around the exhibitors stands.

There is little doubt that 2018 has been an eventful year for the energy sector, and the effect of geopolitical tensions in the Middle East, including the re-imposition of sanctions on Iran, and the general upswing in oil prices were particular topics of discussion. As oil pricing has recovered to levels where most producers are starting to become more profitable (and balance sheets are repairing rapidly), there was a general mood of optimism in the discussions and debates that were held around the conference tempered with caution as to how the political issues in the region were likely to play out.

Feedback from our own networking evening held with FWB Park Brown during ADIPEC, which involved a number of key players in the oil and gas sector, reflected this general optimism with the existing challenges and opportunities within the local market being a fruitful source of debate.  Key future issues were identified as including a reasonably high chance of a supply crunch towards the middle of the next decade if capital expenditure doesn’t swing back as a major priority, the implications for the energy sector of the general lack of investment during the last three years, and the continuing lack of investment in greenfield exploration,  predicted for the future, all of which factors may well mean that supply is likely to tighten.

Having said this, the Middle East is focused on strongly driving growth in conventional oil output;  witness for example the fact that the Abu Dhabi National Oil Company (ADNOC) has awarded  700,000bpd of offshore concessions in a bid to raise production by 2021. There would also appear to be a clear determination to continue to increase the supply of Liquefied Natural Gas (LNG), with ADNOC and Saudi’s national oil company Saudi Aramco agreeing to explore more opportunities for collaboration in the natural gas and liquefied natural gas sectors.

Another key topic that was highlighted during our discussions with friends and clients at this year’s ADIPEC was the use of technology  - this has been instrumental in exploring new markets and facilitating new supply streams – see for example the signing of a bilateral agreement between Egypt and Cyprus for the construction of an underwater pipeline to export natural gas to Egypt. This gives rise to a realistic prospect that Egypt could be a key supplier of gas to Europe in the near future.

More generally, environmental issues were also on the agenda. There was, for example, some discussion around companies such as Shell aiming for zero emissions by 2070 in a bid for a more environmentally sustainable practice and our Head of Projects, Tim Armsby, highlighted the fact that the dwindling demand from internal combustion engines and improved vehicle standards may well see the demand oil for transportation stop growing in the next decade. With the exception of passenger transport sectors such as shipping, trucking and air transport, liquid hydrocarbons likely to remain dominant long into the future, with hydrogen and electricity being the only possible disruptors for these fields. However, the technology is not quite ready to support the changes in the short term, resulting in an increase in price for liquid hydrocarbons globally.

In short, the general consensus was that the GCC is rapidly gearing towards economic diversification, investing in technology, tourism and entrepreneurship as the focus shifts to a more diversified economy. Looking ahead,  it is likely that governments will to continue to roll out policies focused on nurturing innovation, technology, entrepreneurship and human capital, all with the ultimate aim of reducing reliance on the oil and other energy sectors.