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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Gulf national oil companies face pivotal year

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The fortitude of Gulf national oil companies’ (NOCs) ongoing transformation into fully-fledged international operators may be tested this year. But any suggestion that a rise in oil prices beyond the $40s/bl range of late-2016 to today’s $50s/bl range and higher would trigger NOCs’ retreat from their quest for global integration is premature.


After half a century of letting international oil companies (IOCs) play the role of fixer, NOCs are now approaching negotiating tables with more knowledge and independence than ever before. Their steps — sometimes leaps — into new territory mark their biggest overhaul since the days of nationalisation in the late 1970s.


Jonty Rushforth[/caption]

The extent of their resolve in this is demonstrated by what they have faced so far. Gulf NOCs’ performance has remained on track against a backdrop of a ‘lower for longer’ oil price era since mid-2014, with bearish sentiment deepening when oil prices dipped to a 12-year low in January 2016.


Alongside this is the US’ shale oil and gas revolution, corporate restructurings, shortened payrolls and serious security issues in the wider Middle East.


But the hurdles are not over. US production continues to be a challenge and Gulf NOCs also have to consider how the Vienna Agreement, the first Opec-non-Opec agreement to cut supply in 15 years, will fare in the remainder of the year.


Plus, Eurasia Group expects 2017 to be the most politically volatile since World War Two. A glance at the calendar quickly reveals why. The surprise results of the US election saw US President Trump take his seat in the Oval Office in January this year and the UK activated Article 50 in late-March to move towards Brexit.


What impact will President Trump’s ‘America First’ policies have on state-owned energy giant Saudi Aramco’s ability to flex its muscle as it gets ready to take control of the US’ largest refinery, the 600,000 b/d Port Arthur facility?


And will Qatar, the world’s biggest LNG exporter, protect its dominant role in the UK’s LNG import market amid competition from across the Atlantic and Russia? Qatar currently provides 90 per cent of the LNG needs for the world’s fifth largest economy.


Political jockeying in China up to September’s election for the new Party of Congress could also have an impact on the Gulf NOCs’ playbook, as coveted Asian importers top their client list. Indeed, the producers have spent significant energy protecting their share of markets in the East, and any threat to the sustained health of those markets is a major risk for the newly commercial NOCs. Indeed, investors have been voicing concerns that the stars could align for a Beijing-centred banking crisis in the next few years. Guangzhou-based fund ShoreVest Capital Partners estimated in late-March that China has around $3 trillion in distressed debt.


Ratings agency S&P Ratings expects China’s high GDP to stave off a banking crisis this year, but stresses that the outlook remains negative and unsustainable.


Many Gulf NOCs have already made considerable headway and gotten a firm foothold as “Gulf Majors”, including Saudi Aramco, Abu Dhabi National Oil Company (ADNOC) and Kuwait Petroleum Corporation (KPC). Each is keen to integrate a global view into their operations.


Saudi Aramco’s debut initial public offering (IPO), for example, has been pencilled in for late 2018 and the 5 per cent stake could lead to the world’s biggest IPO at $100 billion – if it proceeds.


In late-March, Riyadh diluted some of the market’s doubt by slashing the income tax paid by the energy giant to attract investors.


Most importantly perhaps is that the IPO will force the highly secretive Kingdom to start removing bricks from the fortress of secrecy it has constructed around data on its oil and gas reserves.


Kuwait also plans to list a power and water company this year, with the two Opec members’ efforts likely to encourage their neighbours to take their own blueprints more seriously this year.


[Jonty Rushforth, Director, Oil and Shipping Price Group, S&P Global Platts]


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