IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

Presentation to the IEEJ Meeting
Tokyo, May 18, 2011apsnews@terra.net.lb

The Arab Spring Of Change
And Its Implications For
The Global Energy Business
By
Pierre Shammas
President

APS Energy Groupapsnews@terra.net.lb
In Japan, the March 11 earthquakes and ensuing tsunami shook the world including the Middle
East, where I come from. But in our region, we have had our own earthquakes and tsunamis of
another kind this year which keep having implications across the globe. Ours we call the ArabSpring of Change, which in reality is a string of revolts which seems to keep stretching acrossthe Greater Middle East (GME).
The GME is a huge part of the globe and by far the largest reservoir of energy resources in theworld. It stretches from Russia to Pakistan and from China’s Central Asian borders to Mauritania
and Morocco on the Atlantic, and running from Egypt down to the Horn of Africa.
Among many other things, the Arab Spring of revolts caused Tunisia’s so-called “dictatorial andcorrupt” President Zine el-Abedine Ben’Ali to flee his country to Jeddah on Jan. 14 andEgyptian President Husni Mubarak on Feb. 11 to step down after three decades of autocratic
rule. Tunisia’s was called “The Jasmine Revolution”. Egypt’s was called “The Jan. 25
Revolution”.
In varying degrees, the wave of revolts has hit Algeria, Bahrain, Iraq, Jordan, Kuwait, Libya,
Mauritania, Morocco, Oman, Saudi Arabia’s oil-rich and Shi’ite populated Eastern Province,
Sudan, and Yemen. Even China is worried that it might be hit by this wave, which now seems
likely to spread to other parts of the GME and beyond. The Chinese government has omitted theword jasmine from its Internet search engines – just one example how worried Beijing has beenby the likely effects of the Arab Spring on its future stability.
The revolts against Col. Mu’ammar Qadhafi’s 42-year rule in Libya are called “The Feb. 17
Revolution”, which has so far split Libya in two parts. The revolts in Syria against the Assadregime are called “The March 15 Revolution” – this is because school-boys arrested for having
written anti-regime graffiti were on March 15 released without their finger-nails.
There is, meanwhile, an ugly power-struggle in Iran between President Mahmoud AhmadiNejad and the Shi’ite theocracy’s Supreme Leader Ayatullah ‘Ali Khamenei. Khamenei insists
he is God’s representative on Earth and that he must be obeyed by all in the world of Wilayat ulFaqih (WuF) – a concept of universal Shi’ite theocratic rule which I shall explain during the
Q&A part of this meeting if necessary. Ahmadi-Nejad, a supremacist somewhat like the Nazis,
contests this claim and says the WuF concept should not affect his authority as a “popularlyelected president of the Islamic Republic of Iran”.
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IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

This has caused a serious split within the command of the ruling Islamic Revolutionary Guard
Corps (IRGC) and its militia arm, the Basij. A relatively junior but supremacist faction of thiscommand is siding with Ahmadi-Nejad, while the main faction is fiercely loyal to Khamenei.
The main reason behind the rift is Ahmadi-Nejad’s plan to have a dialogue with the US and get
his controversial in-law and close aide Esfandiar Rahim Masha’ie to succeed him as president
in the 2013 elections, both of which strongly opposed by Khamenei. But Ahmadi-Nejad has
finally bowed to Khamenei, although the stubborn president is expected again to challenge
Khamenei’s “divine authority” on another occasion. So the current developments in Iran are notdefinitive and there will be momentous changes in this country in March 2012 parliamentaryelections and in the 2013 presidential elections.
The Arab Spring of revolts has hit Syria so hard that Iran’s theocracy and its Lebanese branch
Hizbullah have become extremely worried about the ability of President Assad’s regime tosurvive. To them in Tehran, the loss of Syria could eventually mean a great weakening – or eventhe collapse – of the Iran-led axis of anti-US/anti-Israel forces in the GME. This is why the
IRGC and its unit Hizbullah have been actively involved in the Syrian regime’s violent crackdown on ever spreading protests throughout the country. For its part, Assad’s regime is using all
possible means, including taqiya (a formula to deceive), in order for it to survive.
In geo-strategic terms, Syria’s centrality means that the collapse of its regime would cause themap of the GME to change. Both Khamenei and Ahmadi-Nejad are doing all they can for
Assad’s regime to survive. For their part, leaders in the US, EU, Israel, Saudi Arabia, Turkey andother important countries are split over whether it is good or bad for them if Assad survives.
At this point, it is important to note that the IRGC controls Iran’s controversial nuclear andregional ambitions. These are ambitions to control the GME, because in Tehran’s calculations –and here both Ahmadi-Nejad and Khamenei agree – whichever power controls the GME will
ultimately be able to control the whole world.
The protests in Iraq in late February prompted the country’s Prime Minister Nuri al-Maleki toimpose a 100-day deadline for his administration to improve or face dismissal. Maleki had
already cut his own salary by half both in fear of the Arab Spring’s likely effects on his rule andin response to charges of corruption sweeping across Iraq. As the deadline approached this week,
there was alarm in Baghdad that Maleki’s government could face more serious trouble despite
massive spending made to improve services.
The killing of Usama bin Laden in Pakistan on May 2 by US commandos has caused his
Sunni/Neo-Salafi movement to wage a revenge war in Iraq and elsewhere. With bin Laden’s alQaeda Central (AQC) now busy finding the man to succeed him as leader, al-Qaeda in
Mesopotamia (AQM) has staged suicide bombings in Iraq which exposed the still poor state ofcombat readiness of Maleki’s security forces and regular army.
The Arab Gulf Co-operation Council (GCC), now consisting of three monarchies (Bahrain,
Oman & Saudi Arabia) and four shaikhdoms (Kuwait, Qatar and the UAE), could be turning
itself into the club of Arab monarchies as it considers bringing Jordan and Morocco into its fold,a move which would strengthen the political and economic capacity of the latter two countries’
leaders to fend off any popular challenge as a result of the Arab spring.
In a surprise announcement at the close of a GCC summit meeting in Riyadh late on May 11, the
GCC said it was considering a request by Morocco and Jordan to join the bloc, even though thetwo poorer countries have little in common with existing members. GCC Secretary-General‘Abdul-Latif al-Zayani of Bahrain said foreign ministers of the six member-states would beholding talks with the two non-GCC countries to complete the procedures required formembership. It is not yet clear if membership will be granted or in what form.

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IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

The GCC was formed in 1981 in the wake of the Iranian revolution as an alliance of oilproducing states. Efforts at economic integration have been only partly successful, underminedby rivalries and political divisions. As republics dominated by family rule have proved mostvulnerable to popular revolts this year, however, the GCC has been asserting itself, closing ranks
to protect its members from the changes sweeping the region.
GCC troops were sent to Bahrain to support the Sunni royal family, helping it crush an Iranguided Shi’ite uprising. Meanwhile, the GCC pledged $10 billion in financial aid to each of
Bahrain and Oman, another monarchy that was hit by protests.
Saudi Arabia, leader of the GCC and head of the Sunni front in the Muslim world, has also been
dismayed by the willingness of the US to abandon long-time allies such as Egypt’s Mubarak andto criticise a Bahraini intervention, which Riyadh insists was needed to counter Iranian meddling.
The GCC states have been sending the message to Tehran that no GCC ruling family will beallowed to fall – nor will Iran, which is seen as the biggest regional threat, be permitted to takeadvantage of the Arab Sprint in the region. Khaled al-Khalifa, Bahrain’s foreign minister, saidon Twitter that Jordan and Morocco were “clear examples of good, wise governance and realpolitical development”. The GCC, he added, had “a vital interest in joining together with them”.
Mustafa Hamarneh, a Jordanian political analyst, said the GCC move was a sign that Jordan
belonged to the “conservative monarchy club”. What all the countries had in common, he said,
was that “they see eye to eye on all the main issue: on Iran, on Bahrain and on the question ofpolitical reforms”.
Membership in the GCC would be a boost for the Jordanian monarchy, if it went ahead, butwould prove a setback for groups seeking reform. Hassan al-Mustafa, a Saudi analyst, says thepossible integration of the two countries into the GCC was an attempt to “reshape the region” bycreating new alliances at a time when a democratically elected Egyptian government was likely
to follow a more independent foreign policy, possibly becoming friendlier with Tehran.
Mustafa says: “The GCC will also help Jordan and Morocco to avoid pressure or collapse of
these regimes. But Moroccans and Jordanians are more politically active and won’t accept the
GCC dictating foreign policy”.
Dris Ben ‘Ali, a Moroccan economist who has been advocating political reforms, said he wasconcerned about the political rationale behind a potential membership in the GCC, which might
be aimed at halting Morocco’s move towards a “democratic, parliamentary monarchy” that could
become a model for others in the region.

The Global Perspective & New Middle East Energy Resources
Now allow me to review the global situation and make a brief conclusion: There must be a coordinated policy within the Group of 20 powers (G-20) to end the global economic
imbalance of which many nations suffer.
Although the world remains divided into a paper economy, a dangerous element of casino
capitalism and a real economy, a division which I explained in my presentation to thisprestigious Institute in May 2009. The global trend now is a shift to lower carbon energy, which
I explained in my IEEJ presentation in May 2010. Many countries in the Middle East are shifting
to cleaner energy for domestic use and it will not take too long for them to export cleaner sourcesof fuel and electricity in large volumes. My presentation here last year explained this shift and I
gave examples – namely models adopted by some Middle East energy exporting states - which I
am willing to repeat during the Q&A part of this meeting. I believe the IEEJ has kept a record of
my 2009 and 2010 presentations and, to my knowledge, has published them in its website.
In the futures markets, paper WTI and Brent prices can rise to $150/barrel or above in the
coming months or 2012, or fall below $100/barrel. To a large extent, what moves paper oil prices
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IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

up or down is more or a financial matter of speculation than the real balance of supply anddemand of physical crude oil.
Goldman Sachs, which in April predicted the recent major correction in paper crude oil prices,
on May 6 said paper crudes could surpass its recent highs by 2012 as global oil supplies continue
to tighten. The Wall Street bank, seen as one of the most influential in commodity markets, said
it did not rule out a further short-term fall after the May 5 near record drop, especially if
economic data continued to disappoint. But the bank reaffirmed its traditional long-term bullish
view of paper oil.
JP Morgan took the bold step of raising its paper crude oil price forecasts for this year by$10/barrel, becoming the most bullish of 27 forecasts in a Reuters poll. JP Morgan analysts,
including Lawrence Eagles, said in a note late on May 6: "While financial bushfires or perhaps arapid resolution to the Libyan civil war could radically alter market dynamics, the balance ofboth risks and fundamentals still points to a supply-constrained world".. They said paper oil
would rise to $130 in the third quarter to check demand.
Goldman, meanwhile, stuck largely to the same view it first aired three weeks earlier — amedium-term correction followed by a renewed ascent. In a research note, Goldman Sachs'
analysts said: "It is important to emphasise that even as oil prices are pulling back from theirrecent highs, we expect them to return to or surpass the recent highs by next year. We continue tobelieve that the oil supply-demand fundamentals will tighten further over the course of this year,
and likely reach critically tight levels by early next year should Libyan oil supplies remain off
the market".

Unconventional Arab Petroleum Resources
US geologists and energy economists are advising their counterparts in Baghdad that, apart fromproven and potential conventional oil and natural gas reserves, Iraq may be sitting on hundredsof trillions of cubic feet (TCF) of untapped gas deposits. These are not conventional. The
challenge is that these deposits are inaccessible through normal techniques.
In neighbouring Saudi Arabia, for example, there are believed to be 447 TCF of unconventionalgas resources yet to be discovered. The state-owned Saudi Aramco already has begun work on
tapping such resources, using new E&P techniques developed in North America. There are shale
oil deposits being developed in Jordan not far from Iraq’s western borders.
The Iraqi Oil Ministry on Oct. 4, 2010, said the country had around 143 billin barrels of provenconventional oil reserves, about 24% more than previous estimates. These reserves are mostly
located in 66 oilfields in southern Iraq. The official estimate of Iraq’s proven conventional
reserves of natural gas has been put at 117.6 TCF (3.36 TCM).
Of the 117.6 TCF of conventional Iraqi gas reserves discovered so far, 10% are in gas caps. Mostof the gas reserves found are in Tertiary reservoirs - in seven gas fields located in the north-eastof the country. Some of the gas found in western Iraq lies in Ordovician Khabour sandstones.
One of the fields found there, ‘Akkas said to contain 7 TCF, lies in the Rutbah Platform above
the Ordovician, where a well in 1993 tested light oil and condensate from sandstones with the
Silurian formation from the Upper Khabour.
The increasing international isolation of Iran’s militarised theocracy, coupled with its expensive
nuclear and regional ambitions, will make it harder for Tehran to halt a steady decline in its
crude oil production capacity. This poses a major challenge to Baghdad, as Tehran will neveraccept that Iran is over-taken by Iraq as OPEC’s second largest oil producer. So, Iraqi politicalleaders fear, Iran will always try to undermine Baghdad’s efforts to boost its oil production
capacity, which is projected to reach 12 million b/d, plus 1.5 million b/d in Iraqi Kurdistan, by
2017.

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IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

An Iraqi crude oil output increase is proceeding. But a shortage of infrastructure and security
challenges remain an enormous problem, with the country suffering a variety of attacks including
suicide bombings by AQM. Oil Ministry officials and international oil companies (IOCs)
complain this situation cannot continue and say the government must take drastic action toresolve this combination of problems.
The Oil Ministry, however, has lined up projects to raise its crude oil export capacity to about
12.4 million b/d by 2017. If Saudi Arabia agrees to revive an Iraqi pipeline to the Red Sea, thiscapacity could reach 14.05 million b/d.
American geologists suggest that deep within the lower Paleozoic zone in Iraq could holdhundreds of TCF of shale gas and say this country could also prove to be rich in otherunconventional gas resources. Shale gas is gas deposits trapped within shale rocks, particularly
in western Iraqi areas adjacent to Jordan, a country where shale oil is being explored anddeveloped in the initial phase of a programme which will ultimately lead to shale gas. In the US,
the rapid development of shale resources has led to a massive rise in gas production, which isplaying a key role in suppressing global gas prices at present.
Iraq is also said to be potentially rich in tight gas. Such deposits are found in low-permeability
rock formations which require fracturing to release them for production. The IEA suggests a
definition based on a gas reservoir which cannot be developed commercially by vertical drilling
because of the lack of natural flow. Even with horizontal drilling, hydraulic fracturing is required
to produce commercial quantities of tight gas – of which Oman is one of the rich countries.
Saudi Aramco has already begun exploring for unconventional gas in the kingdom. Saudi
Aramco’s CEO Khaled al-Faleh told a World Energy Council meeting in Montreal on Sept. 13,
2010, that shale gas could significantly boost the kingdom’s gas reserves. Although the potential
for Saudi shale gas has been known for more than a decade, it had never been viewed as a
strategic priority for the Saudi authorities.
A study from the US Geological Survey in 2001 estimated a 50% chance of there being 447 TCF
of unconventional gas resources in Saudi Arabia yet to be discovered in the Qusaiba Paleozoic
reservoirs in the Rub’ al-Khali (empty quarter) desert and around the giant Ghawar axis ofoilfields in the Eastern Province.
Faleh’s statement suggested that the need to secure more gas feedstock for Saudi power
generation and industrial consumers, and meet a self-imposed target of adding 5 TCF/day to
Saudi gas production within five years, means Saudi Aramco will have to drill deeper into its
geological inheritance to ensure sufficient supply.
Justin Dargin of Harvard University’s Belfer Centre says: “A lot of people are excitedabout…Saudi Arabia’s shale gas reserves, but the devil is in the detail”. The Saudis may struggle
to match the rapid expansion of the US shale gas industry. Since 2000, shale gas production
has risen from 1% of total US output to 20% in 2009. In 2008, US-based shale gas produced
some 50 BCM, according to the IEA.
Experts say both Iraq and Saudi Arabia have some of the features which could create asuccessful shale gas industry. Saudi Arabia boasts shale gas formations with mature gas
resources, shale gas formations being the source for Khuff gas reservoirs in the Saudi kingdom.
In any case, the presence of massive hydrocarbon deposits in the Saudi kingdom is anotherindicator of the likelihood of strong unconventional resources, since most shale deposits arelocated in systems where conventional reserves are already significant. Saudi Arabia is clearly ina strong position with conventional natural gas reserves estimated at 267 TCF.
The dominant shale deposit in Saudi Arabia is Qusaiba’s in the Eastern Province. The organicrich shales in the Lower Qusaiba constitute the main source rock for the kingdoms’ Paleozoic
petroleum system. Though assessments of the prospectivity of the Saudi shale are still in theirinfancy, analysts see positive indicators.
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IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

The Saudi kingdom’s major gas rich shale formations tend to be very thick layers with trappedhydrocarbons in continuous shale layers. This leaves a weaker proximity to brittle rock layers,
such as limestones or dolomites, which can be fractured, propped and serve as drainage pathways
for the gas entrapped in the shales.

Iraq’s 1st Shale Gas Tests
Preliminary tests of relatively shallow shale gas in Iraq in 1993 were conducted at the ‘Akkas gas
field in the province of Anbar which borders with Syria, Jordan and Saudi Arabia. But those tests
were limited in both scale and purpose. The real purpose was to look for conventional gas at thefield.
Under shale gas extraction techniques, hydraulic fracturing – the high-pressure injection of water,
chemicals and sand – breaks up the rock structure and allows the gas to flow more easily. In themain Paleozoic shale zone, the gas-rich zone lies at the bottom of the shale formation at
thousands of feet deep, into which it is particularly difficult to tap.
While thinner layers of organically rich shales are available in other areas of Iraq, these havebeen largely ignored due to their limited commercial value. There are still formidable technicaland financial obstacles to be overcome. Fracturing would force development costs to rise to tensof millions of dollars for each well. Building infrastructure for shale gas, including gas-gatheringand distribution facilities, covering vast distances, will add significantly to costs.
Cost is a key issue in the context of a subsidised gas market in Iraq. The same is true in the caseof Saudi Arabia, where the sales price of gas is capped at $0.75 a million BTUs. The best North
American shale play in terms of the breakeven cost is $3.50 a million BTUs. That shows how
hard it will be to make it work commercially. Kidan, the massive Rub’ al-Khali-based sour gas
field of Saudi Aramco and Shell, is reported to require a gas price of $6/million BTUs to make it
commercially feasible.
Developing shale gas will require relatively advanced technology, and in this respect Iraq is far
behind Saudi Aramco. But even Saudi Aramco, which has built up a strong reputation in theapplication of technology, it will need to develop different technical skills needed to capture such
unconventional gas resources.
The cutting edge technology for shale gas is largely in the hands of specialist US companies suchas XTO, which was acquired by ExxonMobil two years ago. Another technical challenge ispresented by the amount of water needed in the hydro-fracturing process. The water has to berelatively unpolluted when used in hydro-fracturing, since it must not push pollutants into natural
reservoirs.
While desalinated water could be used for this purpose, this is an expensive option. Many of thefavourable factors connected with the US – the geology, tax breaks and the existence of a vibrantservice industry — are generally not replicated outside the North America.
Some of the technologies which make development of commercial-scale shale gas possible –such as horizontal drilling and hydraulic fracturing – are coming in for growing criticism overtheir environmental impacts. Another drawback is that their depletion rates are estimated to be
five times that of conventional gas.
Tight gas deposits found in low-permeability rock formations require fracturing to release themfor production. They cannot be developed commercially by vertical drilling because of the lackof natural flow. Even with horizontal drilling, hydraulic fracturing is required to produce
commercial quantities.
Saudi Aramco’s tight gas effort is focused on the lower Paleozoic silica-clastic succession. These
are found in various parts of the Eastern Province and elsewhere in the kingdom. They are said toexist in Iraq.
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IEEJ：2011 年 5 月掲載
IEEJ Presentation By P. Shammas, 18 May 2011

Oman has some of the largest tight gas reserves. BP in 2010 began production from the
Khazzan and Makarem fields, part of a 2,800 sq km area, and is looking to raise output in 2011
up to 300 MCF/day. State-owned Oman Oil Co. is developing the Abu Butabul tight gas field ina project to cover over U$1 billion.

Conclusion
There will be a great deal of political turbulence in the GME – which, however, will end up witha type of stability to which we will all have to adjust. But this area will remain by far the largest
reservoir of energy resources in the world. Combined with a rapid and massive shift towards low
carbon energy and renewable sources of energy around the world, I see a potentially constructivebalance between world energy supply and demand in the future.
Thank you.

お問合せ：report@tky.ieej.or.jp

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