This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 8/7/2019

Overview

The UAE holds considerable energy reserves.  The UAE is the world's seventh largest crude oil producer and the fourth largest producer of petroleum liquids in the Organization of the Petroleum Exporting Countries (OPEC).  In addition, the UAE holds the seventh largest natural gas reserves globally.  Hydrocarbon production remains critical to the UAE economy, amounting to $65 billion or approximately 20 percent of all export revenue, according to the U.S. Energy Information Administration (EIA).  According to the UAE Central Bank’s latest statistics, UAE’s petroleum exports (hydrocarbons) grew by 13.9 percent to $66.2 billion (AED 243.1 billion) in 2019 compared with $58.1 billion (AED 213.5 billion) in 2017.
  
Individual emirates control their own oil and gas production and resource development. Abu Dhabi holds 94 percent of the UAE's oil reserves, or about 98 billion barrels of proven reserves, which can be found both offshore and onshore.  Additionally, Dubai holds an estimated 4 billion barrels of oil, followed by Sharjah and Ras al-Khaimah with 1.5 billion and 100 million barrels of oil, respectively.  In Abu Dhabi, the Supreme Petroleum Council (SPC) establishes the Emirate’s petroleum-related objectives and policies, effectively functioning as the Abu Dhabi National Oil Company’s (ADNOC) board of directors.  Abu Dhabi's position as a central player in the UAE's oil industry and wider economy means that the SPC is considered the country’s most important entity in regard to energy policy. 

The UAE is a member of the Organization of the Petroleum Exporting Countries (OPEC) coordinating its production levels among its members to support price stability.  In November 2016, the group and several non-members, including Russia, agreed to cut 1.3 million barrels/daily in an effort to remove a global supply glut and stabilize prices.  OPEC production climbed modestly in 2018 but with prices softening towards the end of that year, and the bloc recently extended cuts into mid-2020. 

The UAE produced upwards of 3.4 million barrels per day (b/d) of crude oil in 2018.  The parastatal oil firm ADNOC and its operating companies are in the process of expanding the output of crude oil production capacity to 4 million barrels per day by the end of 2020 and 5 million b/d by 2030.  As proven reserves are expected to remain relatively constant, increased production will therefore rely on Enhanced Oil Recovery (EOR) and Improved Oil Recovery (IOR) complemented with scientifically-minded long-term strategies in producing fields.  Carbon dioxide (CO2) injection projects in Rumaitha and Bab are examples of such initiatives.  In 2018 ADNOC also decided to start expanding the capture, storage and utilization of carbon dioxide (CO2), produced from either the Habshan-Bab gas processing facilities or the Shah gas plant.  This, in turn, will reduce ADNOC’s carbon footprint, increase oil yields, and use natural gas for more valuable purposes rather than the previous oil field injection.  The UAE’s natural gas reserves are estimated at 6.1 trillion cubic meters.  Abu Dhabi holds the majority of the reserves (94 percent), with Sharjah (4 percent), Dubai (1.5 percent) and Ras al-Khaimah (0.5 percent) holding the remaining amount.  The UAE produces 4.65 billion cubic feet (bcf) a day of gas – 3.85 bcf a day in Abu Dhabi and 0.5 bcf a day in Dubai. 

Most of the UAE's natural gas has a relatively high sulfur content (described as sour), which makes the development and processing of the country's vast reserves economically challenging.  Consequently, nearly 30 percent of the UAE's gross production is re-injected into oilfields as part of the nation’s EOR techniques.  Based on this practice and growing domestic energy demand, the UAE is itself a net importer of natural gas.  The UAE trades primarily with Qatar for gas and has two LNG storage terminals, in Dubai and Ruwais. 
In November 2018, the Supreme Petroleum Council (SPC) approved a new five-year gas growth plan strategy to enable the UAE to achieve gas self-sufficiency, with a potentially transition to becoming a net gas exporter.  Under the new strategy, ADNOC will develop the Hail, Ghasha and Dalma gas project, estimated to hold multiple trillions of cubic feet of recoverable gas and which is expected to produce more than 1.5 billion cubic feet of gas per day. 

As part of its '2030 Strategy', ADNOC is also exploring and appraising tight gas reservoirs in the emirate. Unconventional resources are harder to monetize, requiring hydraulic fracturing to stimulate reservoirs and support flow.  This is both higher cost and more technically challenging and requires access to large volumes of water.  In other markets it has taken more than a decade to move from exploration and appraisal to commercial production on any significant scale.  Currently, ADNOC is targeting 10bcm of production by 2030. Prospects for unconventional developments in the emirate have also recently improved, following Total's decision to partner on the Ruwais Diyab Unconventional Gas Concession with a 40 percent stake. 

The UAE has a well-developed infrastructure and a domestic pipeline network that links oil fields with processing plants and export terminals.  The newest export pipeline, the Abu Dhabi Crude Oil Pipeline (ADCOP), runs 220 miles from Habshan to Fujairah and began operations in June 2012.  This pipeline gives the UAE a direct link from the rich fields of its western desert to the Gulf of Oman as a conduit to global markets.  With a capacity of 1.5 million b/d—and a potential capacity of 1.8 million b/d—this pipeline allows the UAE to export a significant portion of its daily production without passing through the Strait of Hormuz.  The Strait of Hormuz is the world’s busiest energy chokepoint accounting for 30 percent of all seaborne-traded oil. 

Already one of the world’s largest bunkering ports, the export terminal in Fujairah will expand its storage capabilities significantly over the coming years.  Plans to expand the terminal include several new private tank storage units, with an anticipated capacity of 88 million barrels by 2020.  The Fujairah port also opened the country’s first very large crude carrier in September 2016, bringing total port loading and unloading capacity to 2 million b/d.  Refining and storage capacity are growing as a result of ongoing expansion projects, and Fujairah is quickly becoming a critical node in the region’s well-developed refining and export network. 

ADNOC has about 900,000 barrels a day of refining capacity at home, mainly at Ruwais on the Gulf.  By 2022, it plans to double gasoline production to 10 million tons a year and triple petrochemicals capacity to 11.4 million tons a year. ADNOC is planning to spend $45 billion over the next five years to expand its refining and petrochemicals operations at Ruwais, a city in western Abu Dhabi, which could position UAE as a global refining powerhouse.  The Ruwais site is being developed in the world’s largest integrated refining and chemical site.  ADNOC’s strategy seeks to triple petrochemical production to 14.4m tones a year by 2025, through refining nearly half of the crude oil the emirate procures and raising the proportion of refined products supplied to the petrochemicals industry to 20 percent. 

ADNOC continues to face pressure to cut costsand streamline operations. The company cut up to 5,000 jobs in 2016, according to MEED reports, and major changes have swept across ADNOC and its associated companies.  These changes include the appointment of a new Director General and the replacement of six CEOs across the group of companies.  The Minister of Energy further noted that mergers between these companies will continue to be used as a tool to cut costs and raise efficiency through consolidation. 

All business partnerships with ADNOC now include an In-Country Value (ICV) assessment integrated into the tender evaluation and award process.  ADNOC’s ICV strategy is central to the government’s overall aim of encouraging the growth of the private sector and strengthening its contribution to the UAE’s economic development and diversification.  It aims to ensure that local businesses benefit from the large-scale investments being made in transforming the oil and gas sector. Since April 2018 ADNOC’s goods and services suppliers have been obliged to evaluate and declare their certified ICV scores for the previous fiscal year.  Companies without ICV certification are still permitted to participate in tenders but may be disadvantaged. Evaluation will be carried out annually.  A company’s ICV score is calculated on a range of factors.  Some 50 percent is determined by procurement behavior in the supply of goods and services through the manufacturing cost incurred within the UAE or the value of goods and services procured from vendors and subcontractors and their own ICV.  A further 25 percent is determined by a company’s investment in the UAE; 15 percent based on the level of compensation employees receive; 10 percent is determine according to the number of expatriates employed.  The UAE government recently signaled its intent to allow foreign investors 100 percent ownership in select industries and grant 10-year visas to highly skilled expatriates.  This has the potential to significantly boost foreign direct investment to the country.  Under nascent plans announced by the government, foreign investors will be able to fully own a company in the UAE, a significant departure from the current policy that restricts foreigners to a 49 percent stake in entities based outside of designated free zones.  The UAE recorded $10.3 billion of inward FDI in 2017, up 6.7 percent from $9.6 billion in 2016, according to the Federal Competitiveness and Statistics Authority. 

Opportunities

The International Trade Administration’s (ITA) 2016 Upstream Oil and Gas Equipment Top Markets Report ranked the UAE first among 74 markets based on export potential for U.S. oil and gas equipment in 2019.  The UAE’s biggest imports of oil and gas equipment are boring and sinking machinery, line pipe for oil and gas lines, sub-sea line pipe and casing and tubing for oil and gas drilling.  The UAE’s oil and gas sector is recognized as a low-risk, high-reward investment destination. 
ADNOC’s expansion of production in oil and gas fields, both onshore and offshore, provide opportunities across a wide range of technologies and services.  As costs of field exploitation rise, technologies that improve yield and drive costs down will be particularly attractive.  Several major contracts have been let in the past months, but there are still opportunities for investors and contractors.

  • In 2018, ADNOC formed partnerships for the three new concessions, which were formed from the areas once operated by Abu Dhabi Marine Operating Company (ADMA-OPCO).  By restructuring the blocks, ADNOC aims to broaden its partner base, expand upstream technical expertise, and widen Abu Dhabi’s market access to hydrocarbons and derivatives.  ADNOC retains a 60 percent stake in each concession.  ADNOC has awarded the remaining 4 percent of the Lower Zakum concession to a consortium from India led by ONGC Videsh (10 percent), Japan’s Impex (10 percent) , PetroChina (10 percent), Total, and Eni, both with a five percent interest

  • PetroChina and Eni were each awarded 10 percent of the Umm Shaif and Nasr concession, with Total taking 20 percent.  ADNOC awarded the third concession area of Sateh Al Razboot and Umm Lulu to Austria’s OMV and Cepsa, both of which took 20 percent.  Cepsa is a wholly owned subsidiary of Mubadala, an Abu Dhabi sovereign wealth fund

  • A number of the companies with shares in the concessions are long term partners of Abu Dhabi while others are new entrants.  The ONGC Videsh consortium is the first Indian enterprise to be awarded a stake in the UAE’s hydrocarbons resources, and Eni is the first Italian company to win concession rights in the sector.  The China National Petroleum Corporation (CNPC)’s participation in the offshore partnerships represents a further deepening of energy ties between the UAE and China.  The company already has eight percent interest in the Abu Dhabi onshore concession and a 40 percent stake in the Al Yasat concession which consists of two blocks one offshore and one mixed onshore-offshore.  Total and Impex, meanwhile have been operating in Abu Dhabi for many decades

  • A clear sign of the changes to the oil and gas industry came in October 2018, when Baker HughesGE became the first foreign player to be awarded a share in one of the ADNOC’s services companies. Baker HughesGE acquired a 5 percent interest in ADNOC Drilling, which supplies oil rigs to other ADNOC businesses and is the Middle East’s largest drilling company for $550 million.  The agreement which valued ADNOC drilling at $11 billion is indicative of the scale of Abu Dhabi’s oil industry and the scope for expansion.  The companies said in a statement that deal would help ADNOC increase drilling activity by 40 percent by 2025 while also raising the number of unconventional wells and support the company to meet its target of reducing drilling time around 30 percent by the end of 2019

  • Another key development for ADNOC is a recent long-term agreement with China for base oil sales.  In April, 2019 ADNOC announced that it has concluded a long-term sales agreement with Xiamen Sinolook Oil Co., of China, for its high-quality base oil, ADbase.  The signing of this agreement follows the signings in 2017 and 2018 of agreements with Penthol C.V. and Chemlube for the supply of ADbase into the United States and Europe

  • In February 2019, ADNOC announced an agreement awarding an onshore block – known as Onshore Block 3 – to U.S. based Occidental Petroleum.  The award has been endorsed by Abu Dhabi’s Supreme Petroleum Council (SPC).  Onshore Block 3 covers an area of 5,782 km2 located in the Al Dhafra region.  Existing 3D seismic data already covers a large part of the Block, which combined with its proximity to the Shah, Asab, Haliba and Sahl fields, suggests the concession area has very promising potential.  Under the terms of the agreement, Occidental will hold a 100 percent stake in the exploration phase, investing as much as $244 million (AED 893 million) to explore for oil and gas in Onshore Block 3.  Upon successful exploration – and having established the commerciality of the discovered resources – Occidental will be granted the opportunity to negotiate production terms.  ADNOC has the option to hold a 60 percent stake in the production phase of the concession, which has a term of 35 years.  Based on existing data from detailed petroleum system studies, seismic surveys, log files and core samples from hundreds of appraisal wells, estimates suggest these new blocks hold multiple billion barrels of oil and multiple trillion cubic feet of natural gas.  Some of the blocks already have discoveries, and within the combined area there are 310 targeted reservoirs from 110 prospects and leads. In addition to the country’s conventional oil and gas accumulations, some of the offered blocks also contain significant unconventional resource potential

  • ADNOC is also focusing on Upper Zakum field, operated in conjunction with ExxonMobil.  ADNOC awarded Japan’s Inpex a front-end engineering design contract last year to raise the production capacity on the field to 1 million bpd by 2024.  Upper Zakum, the world’s second-largest offshore field and fourth-largest oilfield globally, currently produces 650,000 b/d, with efforts underway to raise production capacity to 750,000 b/d – and eventually one million b/d. In order to handle this increase, the partners are building four new artificial islands to accommodate drilling rigs, processing facilities, and associated infrastructure at a cost of around $21.8 billion. Exxon and ADNOC are also keen to explore downstream investments, as well as opportunities in gas and liquefied natural gas. The US major also expressed interest in ADNOC’s second bidding round, which is expected to close in November 2019, with the first contracts announced in the first quarter of 2020. The concession requires technical expertise in practices such as long-range horizontal drilling, water flooding and even artificial island development

  • According to different sources, ADNOC is considering a secondary listing of 10-20 percent for its subsidiary, ADNOC Distribution, overseas after the initial 10 percent of ADNOC Distribution yielded $851 million in 2017.  If the sale of more shares in ADNOC Distribution materializes, it would be the latest sign that the Gulf's giant oil companies are increasingly turning to international capital markets to fund expansion

  • ADNOC is focusing on strengthening its ties with India. On March 2019, ADNOC awarded the exploration rights for “Abu Dhabi Onshore Block 1” to a consortium of two Indian oil companies, Bharat Petroleum Corporation Limited and Indian Oil Corporation Limited. This represents strengthening of UAE - India energy relations as well as ADNOC’s strategic expansion partnerships with key growth markets for ADNOC’s crude oil and products.  ADNOC is overall seeking to invest in more downstream assets with India, mainly in refining and petrochemicals to find a stable outlet for its oil

Leading Sub-Sectors

Although the global average for oil recovery stands at about 35 percent, ADNOC is looking to increase recovery rates to 70 percent at its fields.  Given this, there are excellent prospects for U.S. firms that offer:

  • New EOR technologies that will help lower operational expenditure and extend the lifespan of producing fields

  • Advanced technologies that provide alternatives to using gas to maintain oil well pressure

  • Technologies for more economical development of sour gas fields

  • Drilling equipment and chemicals

  • Natural gas processing facilities needed to meet growing domestic electricity demand

  • U.S. firms are highly regarded for their high levels of research and new technology development. In general, companies are urged to establish a presence in Abu Dhabi

Trade Shows and Exhibitions

World Energy Congress
Date:  September 9-12, 2019
Venue:  Abu Dhabi International Petroleum Exhibition & Conference ADNEC -  Abu Dhabi, UAE
Website:  www.wec24.org

Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC 2019)
Date:  November 11-14, 2019
Venue:  Abu Dhabi International Petroleum Exhibition & Conference ADNEC - Abu Dhabi, UAE
Website:  www.adipec.com
 

Web Resources

Abu Dhabi International petroleum Exhibition & Conference
Middle East Business Intelligence (MEED)
Organization of the Petroleum Exporting Countries
Oxford Business Group
The National Newspaper
U.S. Energy Information Administration

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