The UAE, an island of political stability in a region marked by turmoil, remains one of the world's most reliable producers and exporters of crude oil. As of 2013, it is the Middle East and North Africa region's fourth largest producer, after Saudi Arabia, Iraq and Kuwait.
The UAE has the world's seventh largest proved reserves of both oil and natural gas, estimated at 97.8 million barrels and 215 trillion cubic feet respectively. The world's eighth biggest oil producer, it is the fiftth largest net oil exporter, with only Russia, Saudi Arabia and Iraq exporting substantially more. The UAE's crude oil exports of more than 2 million barrels per day (bpd), including condensate, closely approach those of Kuwait, which has bigger reserves.
In 2012, due to compliance with its commitment to the Organisation of the Petroleum Exporting Countries (OPEC) to help stabilise oil markets amid weak global demand, the UAE's oil output averaged 2.66 million bpd, down slightly from 2.7 million b/d in 2011 and nearly 7 per cent below the country's production capacity of about 2.85 bpd.
Gas production has increased significantly in recent years due to major projects to integrate offshore and onshore production of associated gas from large oil fields and reduce gas flaring. It reached 7.9 billion standard cubic feet per day (scfd) in 2011, of which about 36 per cent was exported under long-term liquefied natural gas (LNG) contracts.
Global oil consumption contracted in both 2008 and 2009, during the worst global recession in decades, but recovered over the ensuing three years to surpass pre-recession levels. However, with continued economic weakness along with energy efficiency efforts in Europe and, to a lesser extent, North America, and slowing economic growth in China, some analysts see global oil demand growth slowing in the short to medium term. Due to stronger than previously expected non-OPEC supply, largely on account of the recent boom in US shale oil production, Bank of America Merrill Lynch predicted in a May 2013 research report that the call on OPEC crude would decline in 2013 and 2014.
The International Energy Agency forecasts 'subdued' global oil demand growth of less than 1 per cent in 2013 to about 90.6 million b/d. Over the long term, however, the IEA still sees total global energy demand rising by over one-third by 2035, underpinned by rising living standards in China, India and the Middle East.
Most energy economists also see the Middle East maintining its status as a major centre of global oil supply due to relatively low production costs in the region and its proximity to expanding Asian economies, although much will depend on whether and how rapidly the US oil shale revolution spreads to other parts of the world. That bodes well for the plans of Abu Dhabi, which accounts for roughly 95 per cent of the UAE's oil and gas output, to boost production capacity by nearly 30 per cent to 3.5 million bpd by 2018. It means the new capacity should be needed and will not sit idle.
The prospect of maintaining costly spare capacity is an issue that has surfaced in the wake of the 2009 global downturn. Crude spiked to a record US$147 per barrel in July 2008, partly because consumers worried that new oil supplies could not be developed fast enough to keep pace with rapidly rising demand. During 2009, however, OPEC spare capacity quadrupled to about 6 million bpd as oil demand slumped. Unusually, about a third of that idle capacity lay outside Saudi Arabia, the traditional OPEC swing producer.
The UAE idled approximately 20 per cent of its oil production capacity in 2009 in response to the deep cuts to OPEC production targets. That focussed the nation’s attention on securing markets for its oil exports through diplomatic efforts to deepen political and trade ties with Asian oil consuming states, and investment in Asian petroleum refining and storage projects. The initiatives were undertaken amid signs that oil demand in the developed world was threatened by economic stagnation, while new international agreements to curb carbon emissions seemed likely to limit growth in global oil demand. Those factors are still in play and shaping UAE energy policy in 2013.
Since the global downturn, the UAE has adapted its oil policies to strike a balance between its national and international responsibilities. At home, it must focus on developing its hydrocarbon resources prudently, with the long-term aim of optimising revenue to fund economic diversification. At the same time, as a member of OPEC, the UAE has a responsibility to the world at large to contribute to secure and reliable oil supplies that meet global demand. Additionally, the nation recognises it must play a part in mitigating climate change by taking action to curb emissions.
To bolster the security of its oil export capacity in the face of regional political unrest and intermittent threats by Iran to block shipping through the Strait of Hormuz chokepoint at the mouth of the Gulf, Abu Dhabi's government-owned International Petroleum Investment Company (IPIC) developed a new 370-kilometre crude oil pipeline from Habshan, where Abu Dhabi's biggest onshore oil fields are located, to Fujairah on the Arabian Sea coast. The Abu Dhabi Crude Oil Pipeline was inaugurated in August 2012 with an initial capacity of 1.5 million bpd, with expectations that this would eventually be expanded to 1.8 bpd. The pipeline, which allows the UAE for the first time to export crude from a terminal outside the Gulf, has encountered a series of technical problems during its first year of operation and throughput remains well below capacity. However, it is expected to ramp up during the remainder of 2013 and 2014, with responsibility for operating the pipeline to be assumed by Abu Dhabi National Oil Company (ADNOC).
In the short term, the UAE faces a domestic gas crisis that threatens the reliability of its electricity supply. This has been exacerbated by compliance with OPEC oil cuts, as much gas is produced from the nation's oil fields. Lower crude output means lower produced volumes of associated gas. Compounding the problem, Abu Dhabi, which was the first Gulf state to produce LNG, has long-term contractual commitments to export gas. It also has increasing requirements for natural gas for oil field re-injection to maintain reservoir pressure and oil production capacity from its largest oil fields as they mature. The UAE has also embarked on a major expansion of its petrochemicals and fertiliser sectors in order to capture more of the petroleum downstream value chain. That creates increasing domestic demand for natural gas and natural gas liquids as feedstock.
In the longer term, the UAE is pursuing plans to diversify its domestic energy supply to include nuclear and solar power, waste-to-energy projects and, in Dubai's case, high-efficiency coal-fired power generation. Such initiatives should in time lessen the pressure on the country's gas supplies. However, further gas development, increasingly supplemented by LNG imports, will be essential if population growth and industrial expansion continue as forecast.
The nation's response to the changing energy milieu and its increasingly complex interface with environmental issues has been measured but multifaceted. First, the UAE is pressing ahead with plans to expand oil and gas production capacity giving high priority to gas projects. Second, government and industry have joined forces on initiatives to develop new oil markets. Third, several emirates have launched programmes to bolster energy efficiency and encourage energy conservation, reflecting the growing public awareness of the need to reduce carbon emissions. Fourth, the nation is moving ahead with low carbon and clean energy developments, with close co-operation from oil and gas producers. Fifth, it is fostering international energy partnerships and participating in more overseas energy projects.
The UAE's proved oil and gas reserves are enough to last for more than a century at current production rates. Among other things, that means the Emirates' gas shortage is not due to a lack of gas reserves, but to insufficient development.
Led by Abu Dhabi, several UAE emirates are seeking to develop untapped gas resources, and there are also some shared gas projects. One of those, the offshore Zorah gas field in waters shared between Sharjah and Ajman, is expected to start production in 2014, according to its developers, Sharjah-based Dana Gas and Crescent Petroleum.
Another notable gas-related development in the UAE in recent years has been the start of gas imports, first in late 2007 by undersea pipeline from Qatar and more recently in 2011 with the commencement of summer imports of LNG cargoes at floating regasification facilities in Dubai. As of 2013, Abu Dhabi's state-owned IPIC and Mubadala Development are developing the country's second LNG import facility in Fujairah, on the Arabian Sea coast. This would give the UAE access to global LNG supplies without the need to transport the fuel through the Strait of Hormuz to a Gulf port.
Abu Dhabi is pivotal in boosting the UAE’s overall oil and gas production capacity, as it contains more than 95 per cent of the nation’s oil reserves and about 94 per cent of its gas reserves.
Major projects require planning consent and budgetary approval from the emirate’s Supreme Petroleum Council (SPC). The body is chaired by HH Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE and Supreme Commander of the Armed Forces, indicating the central importance of the emirate’s oil and gas sector to the entire UAE economy. The SPC directs energy policy for Abu Dhabi and functions as a board of directors for ADNOC, which is charged with proposing oil and gas projects to the Council and implementing its directives.
ADNOC’s operating units, which are structured as joint ventures with foreign oil companies, are proceeding with a full slate of major oil and gas projects.
As far as oil is concerned, since 2009 the Abu Dhabi Company for Onshore Operations (Adco) has been developing an integrated project to increase crude output from Abu Dhabi's Sahil, Asab and Shah oil fields by a combined 60,000 bpd to 455,000 bpd by 2016. It is also seeking to raise production from the Bab oil field, which was the first onshore oil deposit developed in the emirate. In total, Adco plans to increase oil production capacity by 400,000 bpd to 1.8 million bpd by 2017.
Offshore, the Abu Dhabi Marine Operations Company (Adma-Opco) is moving ahead with a ten-year plan to increase output from two major Gulf fields, Umm Shaif and Lower Zakum, to 1 million bpd by 2019 from about 600,000 bpd in 2009. The unit also plans to develop several smaller untapped fields that are expected to yield another 76,000 bpd of crude oil.
The Zakum Development Company (Zadco), another ADNOC offshore oil subsidiary, is developing a project to increase output from the Upper Zakum field by about 50 per cent to 750,000 bpd following the 2009 completion of a reservoir study. It plans to replace drilling platforms with artificial islands capable of supporting extended-reach drilling operations to tap the field's reserves more efficiently with long, horizontal well bores. ADNOC's partner in the development is the US oil major ExxonMobil, a specialist in extended-reach oil and gas exploitation.
As of mid-2013, these aspirations are deeply engaging Abu Dhabi's SPC, as it considers how to redesign and award one or more concessions covering the emirate's major onshore oil fields. The current contract held by Adco covers six major oil fields: the 600,000 bpd Bu Hassa field, the 320,000 bpd Murban Bab field, the 300,000 bpd Ghasha-Butini field, and the smaller Sahil, Asab and Shah fields, which between them produce 385,000 bpd.
At mid-2013, ADNOC is understood to have pre-qualified 11 international oil companies to bid on one or more new concessions that will replace the old Adco concession, but neither details of how or whether the license area will be restructured nor general terms of the new contracts have been announced. Four of Adco's existing international partners – BP, ExxonMobil, Shell and Total – are understood to be among the companies invited to bid, but the fifth and smallest partner, Portugal's Partex, has not received an invitation. Several other smaller US and European-based companies have also been invited, including Occidental, Italy's Eni, Norway's Statoil and Denmark's Maersk. Additional prequalified companies reportedly include Russia's Rosneft, Korea National Oil Corporation, Japan's Inpex and China National Petroleum Company.
The SPC's decision on the Adco concession promises to be the council's most far-reaching in decades. It will not only determine the future of Abu Dhabi's major onshore oil resources but will also set the tone for renewal or restructuring of the offshore concession held by ADNOC's Adma-Opco operating subsidiary, which expires at the beginning of 2018. Adma-Opco is a joint venture between ADNOC, BP, Total and Japan Oil Development Company.
The 75-year-old concession expired on 10 January 2014 without any decision being made. Adco will continue to operate and for the time being the oil being pumped from its 11 fields and the reserves will belong wholly to the government.
(Click here for information on the background to the original oil concession agreement.)
Notable ongoing projects to deliver further increases in gas production include expansion of Abu Dhabi's Asab and Sahil oil and gas fields, which are expected to boost associated gas output to 450 million scfd from 300 million scfd in 2008. Meanwhile, the emirate's Integrated Gas Development project, led by ADNOC and its Adgas and Gasco gas subsidiaries, in collaboration with Royal Dutch, Shell, France's Total and Portugal's Partex, is developing the Habshan-5 gas processing facility, which will initially process 1 billion scfd of associated gas from the giant Umm Shaif onshore field and another 1 billion scfd from the nearby Habshan fields. The US$9 billion project will eventually have a capacity to process 7 billion scfd of gas, including sour gas, and produce about 125,000 bpd of natural gas liquids. Completion is expected shortly, as the project is reportedly running well ahead of schedule.
Despite a setback in 2010 when ConocoPhilips backed out of a joint venture with ADNOC to develop Abu Dhabi's Shah sour gas field, ADNOC is continuing to press ahead with development of its technically challenging deep sour gas deposits. In 2011, it brought Occidental Petroleum into the project to replace ConocoPhilips. The resulting Al Hosn joint venture is on track to start producing 540 million scfd of sales gas plus an estimated 35,000 bpd of condensates from a Bcfd of raw gas in 2014.
Beyond the Shah field, ADNOC also intends to develop the Bab sour gas field, 130 kilometres south-west of the UAE capital. In late April 2013, it selected Shell as its partner in a 30-year joint venture to develop the field. In June 2012, ADNOC had previously signed a technical evaluation agreement with Germany's Wintershall and Austria's OMV to appraise a sour gas and condensate field at Shuweihat in the western region of Abu Dhabi emirate.
These reservoirs contain ultra-sour gas containing high concentrations of hydrogen sulphide, a gas which is both highly corrosive and deadly if inhaled at even low concentrations. Gas fields with similar hydrogen sulphide concentrations have been developed elsewhere in the world, but not often, which is why ADNOC has joint ventured with leading international oil companies to develop Shah and Bab. Shell, in particular, is renowned for its worldwide experience with sour gas projects.
As a spin-off from the Shah project, Abu Dhabi will become the leading regional exporter of sulphur, which is used to make fertilisers, rubber and sulphuric acid. The emirate is developing a dedicated spur of the UAE national railway system – a major federal infrastructure project currently under development – to transport sulphur from the Shah gas field.
In the downstream petroleum sector, IPIC and ADNOC's oil refining company, Takreer, has for several years been pursuing refinery upgrades designed to expand Abu Dhabi's petroleum processing capacity to 885,000 bpd from 485,000 bpd. Takreer in 2013 was nearing the completion of a US$10 billion (Dh37 billion) project, with South Korea's SK Engineering and Construction and Samsung Engineering as the main contractors, to add 417,000 bpd of new processing capacity at the existing Ruwais refinery, located about 200 kilometres west of the UAE capital on Abu Dhabi's coast. An in-service date of February or March 2014 has been predicted. In June 2012 IPIC declared that it was moving ahead with a US$3 billion project to build a new 200,000 bpd refinery in Fujairah for Abu Dhabi crude.
Related to the Ruwais refinery expansion, ADNOC's fertiliser arm, Fertil, is developing a new US$1.2 billion nitrogen fertiliser plant at the location. Bourouge, a joint venture between ADNOC and the Austrian oil company OMV, and Tacaamol, a joint venture between state-owned Abu Dhabi Chemical Company (Chemaweyaat) and IPIC, are expanding existing and developing new petrochemicals facilities at Ruwais.
Dubai’s oil production, which once accounted for about half the emirate’s GDP, has fallen dramatically from its 1991 peak of 410,000 bpd to less than 70,000 bpd. As a result, the second largest UAE emirate has swung from being a net oil exporter to importing most of its petroleum requirements.
While it continues to pump gas from offshore fields, Dubai also consumes more of that fuel than it produces, and is increasingly dependent on imports to make up the difference. The emirate already purchases several hundred cubic feet per day of gas from Dolphin Energy, the Abu Dhabi company that imports gas by pipeline from Qatar. In 2011, after completing the construction of a receiving terminal, Dubai started importing 650,000 tonnes per year of LNG under a contract with Qatar Petroleum and Shell.
However, Dubai remains deeply involved in the petroleum sector as a hub for oil trading and energy services. The port of Jebel Ali, located about 35 kilometres south-west of the city of Dubai, handles a large part of the UAE’s trade in refined petroleum products and can accommodate tankers of up to 80,000 tonnes capacity.
In April 2013, Horizon Terminals, a unit of Dubai's government-owned Emirates National Oil Company (ENOC), announced that it would soon start up a new US$142 million oil storage terminal at Jebel Ali. The project includes a 60 kilometre pipeline link to supply jet fuel to Dubai's new Al Maktoum International Airport. It will be supplied by ENOC's existing 120,000 bpd Jebel Ali condensate refinery, which processes feedstock imported mainly from Qatar and Abu Dhabi, and by marine tankers calling at the new facility's jetties.
The Dubai Mercantile Exchange (DME), launched in 2006, was the first commodities exchange to offer a futures contract for a benchmark Middle Eastern crude. In February 2013, the DME announced that 4 million contracts, equivalent to 4 billion barrels, had traded on the exchange, only ten months after it had passed the 3 billion barrel mark. Since February 2009, DME crude oil futures contracts have also been traded on the CME commodities exchange in th US. Both the DME and the DMCC also offer futures trading in fuel oil. The DME aspires to providing an appropriate benchmark for the East of Suez crude oil corridor.
A number of international oil companies maintain regional offices in Dubai, as do major companies providing services to the energy sector. In 2007, the US oil field services company Halliburton established its regional headquarters in Dubai. The following year, Mubadala Development, the Abu Dhabi government-owned industrial conglomerate, and the British energy services firm Petrofac set up a joint venture headquartered in Dubai.
Recognising the emirate’s challenges as it seeks to meet rising energy demand with diminished resources, HH Sheikh Mohammed bin Rashid Al Maktoum, the Vice President of the UAE and Ruler of Dubai, in August 2009 created the Dubai Supreme Council of Energy to oversee the effective planning of Dubai's energy sector with a primary focus on energy sustainability. Chaired by Sheikh Mohammed, it is currently the emirate's highest energy policy and planning authority, equivalent in some respects to Abu Dhabi's SPC but with a mandate that extends across the petroleum and power sectors.
In 2010, Dubai announced the discovery of a new offshore oil field but has not provided any estimates of its reserves. The field is understood to be small and development has yet to commence. The emirate has also recently found deep shale gas resources beneath its territory and is evaluating their potential.
Four of the UAE’s other five emirates also have minor amounts of oil and gas production.
Crescent Petroleum, a private Sharjah company, produced oil from the Mubarak field in the Gulf, near Abu Musa Island until the end of 2009, when it determined that the field had reached the end of its productive life and returned the concession to the Government of Sharjah.
Crescent and Dana Gas, a Sharjah affiliate, are also developing the Zorah gas field, located in territorial waters shared by Sharjah and Ajman. Production of 50 million to 60 million scfd is expected to start in 2014. Dana and Emarat, a Dubai marketer of petroleum products, have jointly developed a common-user gas pipeline to serve Sharjah customers.
In June 2010, Cresent announced an agreement with the Russian state-controlled Rosneft to explore for gas under a new Sharjah concession covering the emirate’s onshore area. The companies in 2013 were drilling their second well after their first well at Al Madam yielded results that Crescent indicated a need to gather further seismic exploration data.
On 9 November 2010, HH Sheikh Sultan Bin Mohammed Al Qasimi, the Ruler of Sharjah, established the Sharjah National Oil Company to operate the emirate's hydrocarbon interests on a commercial basis and invest in firms and facilities operating in the oil and gas sector.
Gas production from the Atlantis field offshore Umm al-Qaiwan began in 2008. A unit of China’s Sinochem is developing the deposit and sending as much as 92 million scfd of liquids-rich gas through an undersea pipeline to a Ra’s al-Khaimah processing plant operated by the Government-owned Ras Al Khaimah Gas Commission, or RAK Gas.
RAK Petroleum, a private-sector Ra’s al-Khaimah company with international operations, holds domestic interests in oil and gas concessions in Sharjah and its home emirate. It's 42 per cent owned affiliate DNO Internaional produces about 35 million scfd of gas from two fields in Oman's territorial water off the Musandam peninsula, adjacent to Ra's al-Khaimah, from which the UAE emirate sources gas.
Fujairah does not produce oil or gas, but the world’s second largest bunkering port is located on its coast. The port of Fujairah, on the Arabian Sea, handles about 1 million tonnes per month of marine transportation fuel and other oil products. The arrival in 2008 of gas imports through the Dolphin Energy pipeline from Qatar has facilitated power and water development in the emirate and stimulated local industry.
With the recent completion of the strategic crude oil pipeline from Abu Dhabi, Fujairah is expected to undergo further expansion, including the planned development of the UAE's second largest refinery. Sharjah-based Gulf Petrochem, a private company, in early 2013 commissioned a new oil products storage terminal at Fujairah with a capacity of 412,000 cubic metres. In May 2012, Vopak Horizon Fujairah, a joint venture between the Netherlands' Royal Vopak, Dubai's ENOC, the Government of Fujairah and Kuwait's Independent Petroleum Group, expanded its Fujairah oil storage facility by 600,000 cubic metres to 2.1 million cubic metres.
In October 2010, HH Sheikh Hamad Bin Mohammed Al Sharqi, the Ruler of Fujairah, opened a naval base on the emirate’s coast to protect the new oil route.
In November 2010, Abu Dhabi’s Dolphin Energy consortium completed the construction of a gas pipeline from Taweelah on Abu Dhabi’s Gulf coast to Fujairah, where it will deliver gas to two large power plants in the northern emirate operated by Dolphin’s largest customer, the Abu Dhabi Water and Electricity Company.
As the UAE’s oil and gas sector has developed sophistication, it has spawned a number of public and private sector companies that pursue energy development abroad.
In Abu Dhabi, three government-controlled entities, Mubadala Development, the Abu Dhabi National Energy Company, or Taqa, and IPIC, are the main vehicles for such enterprise. March 2013, Mubadala’s oil and gas output stood at roughly 400,000 barrels of oil equivalent per day (boepd), while Taqa's first quarter 2013 output averaged 127,000 boepd. IPIC’s investments have been mainly in petroleum refining and petrochemicals.
Mubadala produces oil in Oman and gas in several Southeast Asian countries. As the controlling shareholder of Dolphin Energy, a joint venture with Occidental Petroleum and the French energy group Total, Mubadala also produces gas and condensates in Qatar. Since 2008, Dolphin has been sending up to 2 billion cubic feet per day of gas through an undersea pipeline to Taweelah in Abu Dhabi for distribution through an overland pipeline system to customers in the UAE and Oman. Mubadala is in another joint venture with ConocoPhillips to explore for oil and gas in the Caspian Sea off the coast of Kazakhstan. In November of 2009, Mubadala and Occidental Petroleum finalised an agreement with the National Oil and Gas Authority of Bahrain to raise output from the Kingdom of Bahrain’s only onshore oil field.
Taqa produces most of its oil from the UK North Sea, while its gas production is concentrated in Western Canada and the Dutch North Sea. It also owns interests in pipelines, production platforms and gas storage facilities in those areas, and is leading a project in the Netherlands to develop a major gas storage and marketing hub for western Europe. In addition, Taqa has a substantial international and domestic portfolio of power generation assets. In January 2013, Taqa acquired a 53.2 per cent operating interest in the Atrush Block of Iraqi Kurdistan, where it has subsequently made a commercial oil discovery.
IPIC has acquired a wide portfolio of oil and petrochemicals interests in North America, Europe and Asia. It is a major shareholder and strategic partner of Austria’s OM;, owns 100 per cent of the second largest Spanish oil company, Compania Espanola de Petroleos; and holds an indirect interest in a large LNG development in Papua New Guinea.
The Dubai Government’s ENOC also invests overseas, mainly through its 52 per cent interest in Dragon Oil, which produces oil and gas in Turkmenistan. Al Thani Corporation, a private-sector Dubai company, is exploring for oil and gas in several African countries including Sudan, Egypt and Libya.
The Sharjah affiliates Crescent Petroleum and Dana Gas have a gas joint venture in Iraqi Kurdistan with OMV and Hungary's MOL as junior partners. Dana also produces oil and gas in Egypt.
RAK Petroleum is involved in oil and gas exploration and production in Iraqi Kurdistan, Oman, Yemen and Somaliland. In May 2013, it acquired Mondoil Enterprises, which produces oil and gas in Cotê d'Ivoire.
Environmental mitigation, especially amid heightened international concern over global warming, presents a substantial challenge to the global oil and gas industry, which is under pressure to find ways to cut its carbon emissions. The UAE’s oil and gas sector has accepted the challenge, and is already making progress with a number of initiatives.
As an example, ADNOC is well on the way to eliminating gas flaring. By reducing the wasteful burning of gas at production facilities and oil refineries through better management, the company is not only cutting carbon dioxide emissions, but is also conserving a valuable energy resource.
ADNOC is also a partner in an ambitious scheme to develop a carbon capture and storage network for the UAE. The plan is to capture carbon dioxide emissions from major Abu Dhabi industrial installations and pipe the gas to oil fields for use in enhanced oil recovery projects. Eventually, the carbon dioxide would be permanently stored underground in the depleted reservoirs.