Three key challenges for successors of the Ali Al Naimi oil era

In Saturday’s reshuffle, Khaled Al Falih becomes only the fifth ever Saudi oil minister, replacing the doyen of oil markets, Ali Al Naimi. The change of faces should not bring a shift of policy, but does continue a turnover of Middle East energy leaders. The next generation has to master three key challenges: managing through an age of austerity; internationalising the national oil companies; and opening up the industry.

Mr Al Naimi’s removal is no surprise, even if accelerated by the collapse of Opec’s talks in Doha amid changes in the Saudi stance on oil output. Aged 80, and minister for 21 years, he has long been known to be ready for retirement. The 55-year-old Mr Al Falih, chairman and previously chief executive of Saudi Aramco, now heads a renamed Ministry of Energy, Industry and Mineral Resources.

Over the past few years, Abdullah Al Attiyah, the architect of Qatar’s gas industry, stepped down in 2011, Suhail Al Mazrouei came from Mubadala to be the UAE’s energy minister in March 2013, and Sultan Al Jaber, chairman of Masdar, and chief executive of energy at Mubadala, was appointed to head Adnoc in February. Anas Al Saleh, Kuwait’s 43-year-old minister of finance, became acting oil minister in November, though job security is a little less than for Saudi oil ministers (there have been 10 since 2004).

Their most urgent task is, of course, to cope with an era of low energy prices. National oil companies are under less immediate pressure than their public counterparts, but they are still cutting costs, squeezing contractors, laying off staff and cancelling extravagant projects.

At the same time, they need to assure a sufficient future supply of oil, positioning themselves to benefit from an anticipated rebound in prices. They have to deliver gas to the domestic market, and play their expected role in driving industrialisation via petrochemical and refining ventures. Mr Al Falih also has the job of overseeing the kingdom’s diversification drive into minerals – gold, alumina and phosphates.

As in the last slump in the late 1990s, there is a greater need for foreign investment. Then, Iran, Iraq, Algeria, Saudi Arabia, Kuwait, Qatar and Abu Dhabi all planned to open their oil and gas sectors. Qatar was highly successful, Abu Dhabi and Iran partially so, with negligible results elsewhere.

Now, the Saudi National Transformation Plan aims to attract businesses across the board. Iran similarly, though in a more jumbled fashion, has presented a long list of investment opportunities. With oil companies and banks alike constrained on the amount of capital they may dedicate to a single region, financial terms and bureaucracy will have to be welcoming.

The region’s state energy ventures are also increasingly going overseas – particularly into emerging Asian markets – while widening their focus at home to include unconventional oil and gas, and renewable energy.

The initial public offering of Saudi Aramco’s shares – a seismic event, if it goes ahead – will no doubt absorb much of Mr Al Falih’s time. Key questions need to be answered – valuation, listing location, transparency and which units will be included.

Mr Al Falih was a key figure in the negotiations for the Saudi Natural Gas Initiative in the early 2000s, which eventually ended in frustration for the foreign companies. Both Mr Al Jaber and Mr Al Mazrouei dealt widely with international joint ventures at Mubadala and Masdar.

Oman, with one of the region’s smallest but most innovative energy industries, is also looking at privatisations. But it seems unlikely that another major Middle Eastern national oil company will follow Aramco’s lead for now.

Every country in the region will have to look hard at the competitiveness of their national energy industry. The laggards, such as Iraq and Algeria, face even more struggles if they cannot keep up: not just faces are being reshuffled, but the region’s entire energy game is changing.

Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis


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