TOWARDS A BRIGHTER TOMORROW: EXCLUSIVE INTERVIEW

Majid Jafar is CEO of Sharjah-based Crescent Petroleum. In this interview with Pat Lancaster he explains his vision of a more prosperous, innovative regional future and how, he believes, it might be achieved

As an Emirati citizen of Iraqi heritage with an international education gained at some of the world’s finest educational establishments your insight into regional affairs – political, economic and social – can have few parallels. Your grandfather was an eminent politician and your father a successful businessman. You seem to have taken elements from both. Can you tell us something about your chosen career path to date?

I have followed in the footsteps of my father in studying engineering and pursuing a career in the energy sector, though starting outside the family business in Shell International to gain valuable experience and insight in one of the world’s leading companies. But in addition to that industry path, I have also studied international relations and completed my MBA. In my business there is often interplay between the elements of the technical, commercial and political considerations.

Aside from the oil and gas business, I have always had a keen interest in policy issues around economic development and in the history of the Middle East. These perhaps trace back to my grandfather serving as Iraq’s Minister of Development and Secretary-General of the Iraqi Development Board during the last decade of the monarchy. In addition to responsibility for overseeing the oil and gas sector and reform of its regulatory framework, he oversaw major investments in infrastructure projects such as roads, bridges, ports and power stations which transformed the country’s economic development, some of which are still in use today.

Q: You have been outspoken and sometimes controversial about regional energy matters, would you care to elaborate?

The Middle East is blessed with at least half of the world’s oil and gas reserves, yet I feel we are not maximising our potential. Other parts of the world such as North America and even Africa are now leading the way when it comes to enhancing the role of private sector investment and management and in deploying the latest technology. In many countries in the Middle East we are still largely in the mindset of the 1970s where the state and national companies should manage all the operations, and this has led to insufficient investment in exploration, in the downstream, and in the natural gas sector. I think there is a greater role to be played by the private sector, both in international oil companies and in encouraging more regional private companies to be active in all aspects of our important industry, in partnership with governments and the national oil companies. We also badly need to tackle the issue of energy subsidy reform, which is bleeding $220bn plus from government coffers in the region annually, according to the IMF – half the energy subsidies of the entire world. This reduces export revenue potential in energy exporting countries like Saudi Arabia and Iran, and causes serious budget problems for energy importers like Egypt and Jordan.

Q: You have frequently spoken of the region’s gas potential, is this where the future of the hydrocarbons industry lies?

If coal was the 19th century fuel and oil the 20th century fuel, then natural gas is truly the fuel of the 21st century in my view. Our region holds 40% of the world’s proven gas reserves, and the real figure is probably much higher than that as most of that 40% figure was discovered by accident when looking for oil in decades past; exploration for gas has only really received attention relatively recently in the Middle East. It is cleaner burning than oil or coal and the preferred fuel for power generation and industry, both of which have a rapidly growing demand in our region, making it among the world’s fastest growing markets for gas and energy. In fact the irony is that despite the high headline reserves, practically every country in our region other than Qatar actually has a gas deficit at the moment. This shows we need to encourage more investment in natural gas exploration, production and supporting infrastructure, and this will take incentives which recognise that gas investments are more capital intensive and long-term than oil, they will also require price reform.

Q: Much has been said and written about the impact large scale oil discoveries in the United States will have on the region’s oil industry. What are your thoughts on this?

In my view the shale revolution in US oil and gas is positive for the global energy industry and for climate change. The oil and gas sector is now seen as a growth sector and a high-tech industry, and the old myth about peak oil has disappeared for most people. Plus, thanks to displacing coal with gas in the power sector, US carbon emissions are the lowest in 20 years. There has been a lot of talk about US “energy independence” and that this may make them turn their back on the region or weaken OPEC. Firstly, even though North America as a continent may achieve energy “self-sufficiency”, energy independence is no more attainable than economic independence – every country exports and imports energy in some form. And the Middle East will still be the largest resource holder, the low cost producer, and above all where the price gets set. It has been fortunate that with all the turmoil in the region causing a fall in production by millions of barrels per day in countries like Libya and Yemen, the increase from North America has enabled stable oil prices of around $110 per barrel for the past three years.

Q: Where do you stand on the fracking debate?

There has been a bit too much focus on fracking and shale oil and gas, as if they are somehow different or separate from the oil and gas sector overall. Fracking is not a new technique, but the combination with the latest drilling technology, combined with high energy prices, has enabled these shale reserves to be produced economically. Like any new technology it needs to be deployed responsibly and with concern for the local environment and communities, but there has been a lot of uninformed scare-mongering in some countries and moves to ban the use of the technology that doesn’t make sense to me.

Q: Iraq and its vast oil potential has been the subject of much discussion in recent months. Can you tell us how, despite the upheaval of conflict and civil strife Crescent Petroleum has managed to maintain its position as an international operator there for the past 20 years?

At Crescent we are proud to have maintained a presence in the country through all the turmoil and change. We have carried out detailed exploration studies and training programmes for the Oil Ministry. And of course since 2007, we are proud, with our partners, to be the largest investors and producers in the Kurdistan Region’s oil and gas sector, with one billion dollars invested so far in the two major gas fields.

Q: Has the dispute between Dana Gas and the Kurdish regional government been solved to your satisfaction? How do you think the issue will impact upon foreign investment in the region?

Crescent Petroleum and its affiliate Dana Gas, along with our partners OMV and MOL, are proud to be the largest cumulative producers in the Kurdistan Region’s oil and gas sector. We have been producing continuously for over five years, and the 80,000 barrels of oil equivalent we currently produce includes 340 million cubic feet of gas per day, which enables electricity provision that has transformed the development of the Kurdistan region and the lives of millions of Iraqis. We are

proud of these achievements, as regional private sector players from the Middle East. In October last year we commenced arbitration proceedings at the London Court of International Arbitration (LCIA), in order to confirm our contractual rights under the Agreement with the Kurdistan Regional Government (KRG), which was signed in April 2007 and is governed by English Law. We very much hope that all outstanding matters can be resolved, amicably and in good faith, in the shortest possible time, in order to enable full and proper development of the fields for the benefit of the people of the Kurdistan region and all of Iraq. Speaking in general terms, respect for agreement and contractual stability are of course critical elements to building a credible investment climate anywhere in the world, and especially in the oil and gas sector.

Q: How do you regard the future of renewable energy? Has Dana Gas or Crescent Petroleum any involvement in renewables schemes?

It’s important that our region, as the leader in energy production, looks ahead to the future and the transition to renewables, and there have been some admirable government-led initiatives to complement conventional energy, such as the Masdar City in Abu Dhabi. But of course the transition takes time – worldwide just over 2% of energy production today is from renewables, and over 80% is still from fossil fuels. In the meantime there is still a lot of oil and gas to be developed and produced in our region, but it needs to be done in a smarter way in terms of efficiency and our own consumption management. The real wins worldwide, when it comes to reducing carbon emissions to combat climate change, are in three areas: stopping the decimation of the rainforests, switching from coal to gas for electricity in economies like China and India, and improving efficiency, which is the only true clean energy – using less.

Q: Despite the high oil revenues earned in the region, a key challenge is to create jobs and you have been a keen advocate of new initiatives. How do you envisage the future of the energy industry in relation to job creation?

The priority for governments worldwide has switched from just economic growth to ensuring employment, especially for the new generation. When it comes to oil and gas, the old focus on just exporting to maximise revenues is no longer sufficient. Governments are looking to see how they can use their resources to create more internal investment in related sectors such as refining, petrochemicals, heavy industry and also infrastructure, that can both create jobs and enhance long term competitiveness for the country. Adopting such an approach, Crescent Petroleum and Dana Gas have pioneered the concept of the “Gas Cities”, where gas supply can create economic hubs of related and complementary industries, thereby enhancing economic value and employment generation.

Q: You have been quoted as saying that the Arab Spring scenarios were sparked because of unemployment rather than a deep desire for democracy. How can further social conflict be averted?

All the international polls taken before, during and after the upheavals show that jobs were the number one issue by far in almost all the countries in the region. In Egypt this was especially the case, and democracy was in fact number 9 – below the Palestinian/Israeli conflict in terms of people’s priority. And yet all the focus has been on the politics, with almost nothing done to address people’s expectations, and now with an even worse economic outlook. I’m not saying the political process is not important, but being able to vote is not going to satisfy young people when they have no job prospects and no hope for the future. We forget it all started when a young man was prohibited from selling vegetables in Tunisia, to earn a decent living. That need is at the core of the dignity that people are seeking and it needs to be urgently addressed.

Q: Do you believe the upcoming elections in Iraq will impact on the situation of the country’s oil industry? If so, could you outline the most probable scenario?

There has been progress in all parts of Iraq in the energy sector, but it has not moved as quickly as some had hoped. There was a target set of six million barrels by 2012 originally, but we are now in 2014 and production is barely half of that, with exports lower still. Of course it is not easy with security issues and terrorism and regional turmoil, but there has also been an absence of political unity and consensus when it comes to oil policy. The necessary legislation in terms of the revenue-sharing law and the oil investment law, which have still not been passed, have been caught in a political logjam for seven years now. There are also fundamental differences of opinion over the federal constitution and its implications, and for investment policy in this sector in terms of the respective roles of the private sector and the state. How the upcoming April elections might improve the situation is not yet known, but it is hoped that the new government, however it is formed, might be able to show unity and address some of these critical long-standing policy issues, which could then give a new impetus to the development of additional production capacity.

Q: If you had one wish to improve the region in which your children will grow up, what would that wish be?

I would wish for more tolerance. It was the essence of Islam and the culture of our region for centuries – to tolerate, accept and celebrate our differences and live in peace and harmony. But the past century has been turbulent for the Middle East, and the last few years even more so. In a country like the UAE you can see how different religions and races can co-exist peacefully and also create an economic powerhouse, based on tolerance and respect for all people. I would hope that this ethos can take root across the region – there is more that should unite us than divide us, and the potential of our region is huge, especially in the promise of the young generation. We need to build the right environment for peace and prosperity to realise that promise.

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