GCC’s extraordinary hydrocarbons resources

The hydrocarbons sector largely stands behind GCC’s financial capability. Latest estimates put the value of sovereign wealth funds of GCC states at $1.5trn

The six-nation Gulf Cooperation Council (GCC) controls a sizeable portion of world’s proven oil and gas reserves. Also, monetary value of GCC’s oil and gas resources is reportedly higher than the size of US economy. Some hard facts support this phenomenon. Based on figures appearing at BP Statistical Review of World Energy June 2009, GCC countries controlled 40 per cent of the world’s proven oil reserves as of end 2008. To be sure, Saudi Arabia alone holds 21 per cent of global oil reserves. Still, Kuwait, UAE and Qatar grip 8.1 per cent, 7.8 per cent and 2.2 per cent of proven oil reserves, respectively.

Steady explorations
Yet, several GCC states are sparing no efforts to add to their oil reserves. For example, Qatar’s proven oil reserves stood at 4.5 billion barrels in 1988, increasing to 12.5 billion barrels in 1998 and still further to 27.1 billion barrels in 2008. Qatar succeeded in enticing international oil companies to develop its oil and gas industry through special production and sharing agreements.

Even Bahrain, the smallest oil producer in the region, is determined to shore up its oil fortunes. Earlier in 2009, an alliance of Occidental Petroleum Corporation of USA and Mubadala Development Company (Mubadala) of the UAE won a 20-year contract to expand oil and gas output from Bahrain Field, the country’s sole onshore source. Amongst others, the deal calls for raising the field’s oil capacity from 270 million barrels to 623 million barrel during the contract’s duration.

The agreement is essential, as the field suffers from age factor with production dating back to 1932. In 2008, production level of Bahrain Field stood at 33,000 barrels per day, down by 5 per cent. The concession calls for doubling the field’s output by 2014 reaching the peak of 100,000 barrels per day from 2016 and thereafter. By comparison, Bahrain Field achieved its highest output level of 75,000 barrels per day in the 1970s.

In addition, the deal calls for increasing gas production from the current level of 1.7 billion cubic feet per day to over 2.5 billion cubic feet per day in a span of five years. The stronger output partly explains lack of eagerness on the part of Bahrain to clinch a deal to import gas to meet demand.

Oil production
In addition, GCC countries are primary contributors to global oil output. Together, the GCC states accounted for 23 per cent worldwide oil production in 2008. Undoubtedly, Saudi Arabia is the world’s largest oil producer and exporter and contributed an average of 10.8 million per day to global oil output of 82 million barrels per day in 2008, representing 13 per cent of the total. Still, other GCC countries are notable oil producers, with the UAE, Kuwait and Qatar accounting for 3.6 per cent, 3.5 per cent and 1.5 per cent of global production in 2008.

Outstanding Omani efforts
Good news is that numerous GCC countries are succeeding in enhancing oil production. In the case of Oman, oil output amounted to 807,000 barrels per day (bpd) in June, up from 803,000 bpd in May and 784,000 bpd in April. The credit is primarily reserved to rising output from Mukhaizna oil field. Back in 2005, Occidental of the US and its partners won a concession to develop the field.

Latest available statistics put the field’s output at 55,000 bpd, up from almost 10,000 bpd a few years ago. At the time of winning the concession, Occidental and its partners indicated interest in investing some $2bn, as part of efforts to raise Mukhaizna’s production to 150,000 bpd in a span of five years. Oman’s current oil production level falls in line with projected average of 805,000 bpd for 2009. By comparison, the Sultanate’s oil output averaged 757,000 bpd in 2008. In fact, average oil output amounted to 792,000 bpd in the first half of 2009, up from 743,000 bpd in the corresponding period in 2008.

Growing gas
In addition, GCC states accounted for 8 per cent of global natural gas production in 2008. More importantly, GCC countries hold about 23 per cent of gas reserves. Qatar alone accounts for nearly 14 per cent of global gas reserves, in turn the third largest in the world after Russia and Iran.

In fact, Qatar is the largest exporter of liquefied natural gas (LNG) in the world. LNG output stands at some 38 million tonnes per annum but expected to reach 77 million tonnes a year by 2012. The fact is that other GCC states also have notable amounts of gas reserves. Saudi Arabia controls 4.1 per cent of natural gas reserves. The UAE follows suit with 3.5 per cent of total global gas reserves.

Substantial value
Interestingly, a recently released report by Dubai International Financial Centre Authority (DIFCA) put the present value of GCC’s oil reserves at $18.3trn. In effect, this amount is larger than the gross domestic product (GDP) of the US. The value of US’s GDP was estimated at $14.2trn in 2008. DIFCA study assumes averages of $50 per barrel and $9 per million British Thermal Unit (BTU). The same report puts present value of the wealth at $37.7trn with oil price of $100 per barrel and $15 of million btu.

The hydrocarbons sector largely stands behind GCC’s financial capability. Latest available statistics put the value of sovereign wealth funds (SWF) of GCC states at $1.5trn. The UAE stands out by virtue of accumulating an extraordinary $875bn. Also, with per capita income of $74,882 per annum, Qatar is ranked number three worldwide on the income level. Again, credit is reserved for progress made in the petroleum sector.

By one account, GCC states could supply the world with oil for the next 200 years at current production levels. Certainly, countries and companies do not need to plan for longer period. Undoubtedly, petroleum products such as petrol, diesel and jet fuel are vital for the viability of modern life.