Middle East vies for upstream gas investment to rival U.S.

The Middle East is beginning to rival the U.S. in its volumes of gas production, with implications for resource allocation within the competitive global upstream sector.

The Middle East produced 725 bcm of natural gas in 2023, some 17.5% of global production. This compares to North American production of 1,285 bcm (31% of global production says the International Energy Agency).

By 2026, the Middle East is expected to produce 815 bcm of natural gas (an 86 bcm increase on 2023), while North America is expected to produce 1,314 bcm (a 50 bcm increase). In both regions, much of this gas production is focused on LNG export.

While the Biden administration temporarily paused approvals of LNG liquefaction capacity, Qatar Energy recently announced plans to increase capacity from 77 million tons per annum (mtpa) to 142 mtpa by 2030. Abu Dhabi will have capacity to export 15.4 mtpa once the new Ruwais LNG plant is onstream in 2028.

These changing patterns of investment activity are reflected in the results of oil services firms. SLB, which reported first quarter results in April, saw a 29% increase in Q1 revenue from the Middle East to over US$3bn, while revenue from North America fell 6% to US$1.6bn compared to last year.

“In the Middle East and North Africa, year-on-year growth was supported by continued investments in long-cycle developments and capacity expansion projects, in both oil and gas across Algeria, Egypt, Iraq, Libya, Qatar, Saudi Arabia and the UAE,” said SLB chief executive Olivier Le Peuch.

“Meanwhile in North America, activity remains soft due to weaker gas prices, sustained capital discipline, and the effects of ongoing market consolidation.”

Halliburton saw Middle East and Asia Q1 revenue rise 6% year-on-year to US$1.4bn. Its North America revenue fell 8% year-on-year to US$2.5bn.

Baker Hughes’ rig count report said offshore and onshore rigs in the Middle East grew from 323 in March 2023 to 344 in March 2024. During the same timeframe, North American rigs fell from 841 to 725. It expects a near term decline in North American activity this year, with any growth led by Middle East and Asian markets.

Changing patterns

Increasing global dependence on LNG from the Middle East has the potential to cause some market volatility, given political instability and the need for vessels to pass through maritime choke points in the Straits of Hormuz and, for European-bound vessels, the Red Sea.

“In a region that produces 35% of the world’s oil exports and 14% of gas exports, the impact of a potential production disruption looms large,” says an outlook from the International Monetary Fund published in December.

To broaden their geographical portfolio and mitigate these risks, many large firms in the Middle East are investing in U.S. projects.

Qatar Petroleum plans to invest around US$20bn in the U.S. oil and gas sector, including growing its LNG offtake volumes. Saudi Aramco has said it is in discussions with a number of U.S. LNG projects with a view to investing. In March 2024, Aramco completed the $500 million acquisition of a minority stake in U.S. LNG firm MidOcean Energy.