Aramco and Adnoc, two of the largest NOCs, have named new CEOs over the last 24 months

The environment of low oil prices continues to disturb many of the world’s top producers – even Shell talked of ‘lower forever’ following the results of this year’s second quarter. NOCs in the Gulf are no longer exempt from this new reality. Moving forwards, the future of the energy market looks to be one of increasingly mixed supply, and strategic adjustments are needed, says Alejandro Demichelis, Director of Oil and Gas Research at Hannam and Partners.

For decades, patterns of collaborative price-setting and a lack of alternatives allowed NOCs to cultivate a culture of indulgence unique to organisations with huge profit margins, near-zero risk of bankruptcy and a directive to generate jobs. If this was permissible before the near halving of the oil price in mid-2014, it certainly is not three years on. Opec can still exercise a degree of control, but it increasingly sees that its resolutions to constrain production has lost market share to North America.

Further to this, the effects of technological innovation should not be discounted. Though dawn of the electric car is unlikely to have tangible effect on the demand for oil within the next three to five years, the rapid advance of battery technology will. Peak oil demand is within sight.

Recently, however, there have been signs of structural improvement in many of the Gulf’s largest national oil companies. Saudi Aramco and Adnoc, two of the largest NOCs in the region, have appointed new CEOs over the last 24 months, and have since showed promising signs of change. In a welcome move, Saudi Aramco has explored various cost saving measures, from renegotiating its phone bills to pre-emptively terminating uncompetitive supply deals. With the recent move to launch a partial IPO of the business, more competitive practises are likely to seep in via the new shareholders. Adnoc has arguably undertaken a greater cost-cutting programme since 2015, including reducing its staff by 8 per cent.