The national oil companies of the GCC and Iraq are shifting gears and are turning their attention eastwards, where the bulk of their exports will be headed for years to come. Wanting to lock in that market, they are also interested in inward energy investments that do more than produce energy. Asian players can provide a more holistic investment package that addresses some of the pressing economic challenges the region faces. These emerging trends point to a closer and more strategic Gulf-Asia energy relationship – one in which we expect to see business and diplomacy increasingly intertwined.
New production in North America is competing with Middle East exports; the OPEC Gulf exporters are also concerned about security of demand and markets.
Trends affecting the energy industry in the Gulf include the structural weakness of its labor force and rising fiscal break-even prices. This economic strain impacts the national energy industry in two ways:
New players in the Gulf
We should expect a closer and stronger relationship between Asian NOCs and their Gulf counterparts. While there is a complementarity of objectives, it is still uncertain what shape these partnerships will take in the future.
To lock in demand from Asia, the Gulf exporting countries are investing in large-scale export refineries there and at home. South Asian companies have been expressing interest in Gulf refineries and Gulf NOCs investing in downstream and marketing in Southeast Asia, with Southeast Asia emerging as the new investment frontier. There are a large number of cross investments between companies from GCC+Iraq and Asia.
In view of the interest in job creation and infrastructure development in the Gulf, we may see more bundled investments by Asian NOCs. Further, Asian NOCs are better designed and more experienced to make these investments in national development profitable and also partner with service companies and EPC providers from home to deliver integrated projects.
Mutual interest in upstream research
Both Gulf NOCs and Asian NOCs have interests in developing technologies for shale or finding solutions to environmental challenges. While there is competition between Asian and Gulf capitals to establish themselves as research hubs, collaboration on R&D projects could be beneficial.
Increased interdependence and emerging partnerships
Oil trade and investment between the Gulf and Asia are becoming mutually strategic and we expect business and diplomacy to be increasingly intertwined.