At the dawn of the Middle East’s oil boom, American companies rushed to the region, hungry for crude oil. Such was its presence there and its importance in its awakening as the energy heart of the world that the consortium created between Standard Oil and Saudi Arabia, known as Arabian American Oil, is what is known today as Aramcothe national state-owned “black gold” company and the largest producer in the world. But today, the opposite is happening: countries in the region are coming together to become stronger in the American energy sector, at the dawn of a new era.
As happened in these Asian countries at the turn of the century, a radical turn of events shifted a new balance. The United States, which until not so long ago depended on foreign countries, is today the world’s leading producer with 12.9 million barrels per day. That is to say, from the depths of North American power one barrel in five entering the market leaves. And meanwhile, the former king of Saudi Arabia is turning off his taps in an attempt to keep the price of the raw material high (even though he is now talking about correcting this position). And, hand in hand with oil, the United States is strengthening its position as the great gas dominator on a global scale.
In this context, where the Persian Gulf countries see the United States flooding the world with its liquefied natural gas (LNG), they have chosen to prepare a somewhat different path to maintain their hegemony: if we cannot defeat the enemy, join him. This same month of September Aramco announced it was expanding its stake in MidOcean Energy for 17.2% of the capital. This latest movement is by no means something isolated. Aramco has already signed an agreement with NextDecade to supply it with 1.2 million tonnes of LNG per year for the next two decades. It also entered into another similar agreement with Sempra, to acquire 5 million tonnes during the same period.
Although beyond the purchase and sale agreements, Saudi Arabia signed an agreement with Sempra last June, to take back 25% of the capital of the LNG project Port Arthur Phase 2. From Bloomberg they also point out that it is in negotiations to enter the Driftwood factory, in Louisiana. This is one of the most important projects in the entire country to develop its liquefied natural gas industry and be able to use it to supply the whole world with its LNG tankers. This is a capital project in its strategy aimed at consolidating its reference position in the global energy market.
But Saudi Arabia is not alone. Abu Dhabi’s state-owned oil company, Adnoc, announced in May that it had acquired an 11.7% stake in Rio Grande LNG, a Next Decade project in what is the country’s first such investment in the United States. So far (last year in the case of Saudi Arabia, which entered the Mid Ocean in 2023), this represents a new milestone in the global energy market.
Why invest in the United States?
Behind all these operations lies a clear idea: maintaining not only the world’s energy supply but also a excellent position in the global energy market. Starting with Aramco, which wishes to become a key player in the future LNG sector, as they themselves recognized after announcing their participation in Port Arthur 2.
Although oil demand could decline, Saudi Aramco’s 2023 annual report “highlighted its investment in MidOcean and said Aramco expects strong growth in LNG demand,” comments S&P Global. “The company said it plans to develop an integrated global LNG business and seeks direct investments and corresponding joint venture opportunities.
Saudi Arabia has repeatedly said it does not believe oil demand will decline for a long time, but has said They must diversify their income to gain stability. This is in line with the country’s idea, as explained by Saudi Arabia in its “Vision 2030”, which is to increase gas production by 60% so that this expansion represents almost $20 billion in GDP. . This industry has a crucial role in its strategic shift.
“LNG will gain weight thanks to the energy transition, it now occupies a preponderant place in the projects of these countries”
This, among other massive spending bets, serves to protect against fluctuations in crude oil, as seen with the recent price drop to $70. Furthermore, countries in the region believe that LNG will be the key to navigating towards a less polluting world. “We believe that LNG can be an important transition fuel that would enable global energy and industrial systems to balance the reduction of greenhouse gas (GHG) emissions and energy security,” explained Nasir K. Al- Naimi, president of Aramco Upstream. “LNG has potential as a suitable fuel for the energy transition, particularly in Asian economies that are largely dependent on coal. Replacing coal with LNG could mean a significant reduction in CO2 emissions,” the senior official said .
“Aramco and ADNOC will remain advantaged oil producers thanks to their large resources and low production costs, but Like other national oil companies, “They are adapting to the energy transition and natural gas now occupies a prominent place in their long-term plans,” commented the Arab Gulf States Institute (AGISW).
However, the country has not only set a goal to produce more, but also to become one of the world’s largest gas exporters within six years. The problem is that in 2022 it barely exported $5.8 billion. It is only the 41st most exporting country in the world, according to data from the International Energy Agency. With the fifth largest proven reserves in the world, behind the United States, Russia, Iran and Qatar, even if it expands its production, it is difficult for it to realize its ambitions through production.
The rest of the Gulf countries, such as the United Arab Emirates, they see potential to stabilize their accounts and find another source of wealth in gas, a land that Qatar has exploited for years, becoming the hub of the region and the third largest exporter in the world (126 million cubic meters) only behind the United States and Russia, but ahead of giants like Norway.
In this sense, beyond the expansion of its own capacity, These countries have found a solution. Take a position in the largest industry on the planet, the United States, to become giants of the sector by owning part of it. However, the critical factor is that “while creating a portfolio of overseas capital investments is not necessary to establish a gas marketing business, such investments create new partnerships and help companies to learn the trade,” commented AGSIW.
Institute experts emphasize that the United States is “the logical starting point” to develop these vast portfolios that support its renewed gas empire. The United States is already the world’s largest producer of LNG, with capacity expected to nearly double by 2030. Most of the growth in LNG supply over the next two decades will come from the United States and of Qatar. “The latter country being out of reach of investments from its neighbors, the United States occupies a special place, and many projects are vying to gain a foothold in the market.”
The booming American oil sector in the Permian Basin created enormous gas projects which, as a by-product of these explorations, allowed the United States dominate the market with an iron fist. This growth is expected to continue and the plans of the Banking House involve the construction of infrastructure that will allow it to generate an impressive industry based on being the absolute dominator of the market with Europe and a player important in Asia. According to the Institute for Energy Economics and Financial Analysis, just with the projects currently under construction in the United States concerning LNG terminals and gas exploitation, in 2030 the capacity will be 173 million tonnes per year, or 176% of demand. that Europe will need.
Arab support at a critical time
It’s a two-way street. On the one hand, this turn of events offers these countries the opportunity to make money from North American gas companies, diversify your energy income. At the same time, they are beginning to enter an industry that American companies dominate with an iron fist, thereby learning and allowing them to create a global network through their investment portfolio.
But for these American firms, the entry of the Gulf countries represents a tremendous opportunity. “Aramco and ADNOC are an emerging source of global gas capital. For project developers, the Gulf national oil companies They offer investment capital and seriousness. Their capital investments determine the viability of projects and their purchase agreements help projects unlock financing and move towards final investment decisions,” comments AGSIW.
A wave of investment is also a boost for an industry that is suffering from falling prices and is therefore incentivized to further increase its supply, even under current conditions. At the beginning of this year, many of these companies reduced production and projects because low prices were causing a sharp decline in their profitability. This was the case of Chesapeake Energy, Comstock, BKV or Antero. These companies reduced their investments and projects, but production still continued to increase, thanks to the fact that oil companies “flood the sector with gas because for them, gas is just an additional reward compared to their core business,” explained Nicholar O’Grady, CEO of Northern Oil.
“The expansion of LNG in the Middle East is driven mainly by Qatar and the United Arab Emirates and, within these countries, by a strategic vision”
In this complicated context, the sector needs money to continue to maintain its growth. According to estimates from the International Energy Forum, investors’ annual capital expenditure They are expected to increase by 22% by 2030 continue to secure supplies that maintain its dominance in the new world of LNG. In this sense, paradoxically, Middle Eastern oil money could be one of the pillars of a new phase of the energy market dominated by the United States.
For its part, this also represents a certain setback for the “favored” neighbor. Until now, Qatar was the big winner in the region (along with Oman to a lesser extent), with a growth in projects around the world, the emirate’s dominance will be a little more diluted while these countries can continue to develop on this new front. According to Qamar Energy “LNG expansion in the Middle East is mainly driven by Qatar and the United Arab Emirates and, within these countries, more for a strategic vision on the importance of LNG and the growth of the market, rather than for more national discoveries. » In any case, what seems clear is that the situation has changed. and the United States fills the role that these newly independent countries had in the 1940s and 1950s, although, surprisingly, its strategy may make it the great patron that American companies once were to them.
