UAE's balanced energy policy will serve it as it embarks on greater transformation

The pivotal years around 1971 marked the creation of a distinctively UAE model of energy industry management

An Abu Dhabi Petroleum Company refinery at Bu Hasa, an oilfield in the Empty Quarter for which a concession was granted in 1939. Photo: Total

The journey of the energy industry, similar to that of a nation, is the interplay of impulse, momentum and terrain. Fifty years have brought the UAE’s energy industry a long way. While some features were set early on, progress has been slowed and hastened by the peaks and valleys of the world economy and politics.

Even before the country’s founding, certain fundamentals were in place. The first oil concession, covering onshore Abu Dhabi, was awarded as far back as 1939 to a multinational consortium of Shell, BP, the forerunners of Total and ExxonMobil, and Partex, the petroleum interests of entrepreneur and art connoisseur Calouste Gulbenkian.

The rapid post-Second World War growth of world oil demand and the huge pre-war discoveries in Iran, Iraq, Kuwait and Saudi Arabia brought attention to the lower Gulf region. The sand dunes and sabkha covering most of Abu Dhabi’s terrain obscured the geology, leading to initial unsuccessful wells until new geophysical methods could map the subsurface structures.

Famous French scuba pioneer Jacques-Yves Cousteau was involved in surveying marine areas – offshore drilling was then moving on from its infancy. In 1958, the first discovery was made, the giant Umm Shaif offshore field, and in the following year, the Murban Number 3 well located the Bab field onshore. The emirate’s first production commenced speedily in 1964. Dubai’s first offshore oil, the Fateh field, was discovered in 1966 and began output in 1969.

By the time of the union, most of Abu Dhabi’s and Dubai’s largest oilfields had been found after a frenetic burst of activity: Bu Hasa in 1962, the massive Zakum in 1964, Asab in 1965, Shah in 1966 and Abu Al Bukhoosh in 1969. Japanese companies, in their search for overseas oil to supply the explosively growing home market, entered an offshore concession in 1967.

In that same year, Abu Dhabi had joined Opec, itself founded in 1960. From nothing, by 1971, the UAE was producing more than 1 million barrels per day. Only ten other countries produced more, and of these, only Nigeria was a comparably new debutant on the world oil stage.

The UAE’s founding came at a pivotal time for the global oil business – the most transformational moment between the Second World War and the present day.

By the early 1970s, oil prices were rising after a decade of decline. Opec had helped the producing countries form a common front and the power of the western "Seven Sisters", big oil companies backed by their host governments, was ebbing. In January 1968, Harold Wilson’s British government announced it would withdraw its military forces from the Gulf, and this was done by December 1971.

Adnoc was founded shortly before the country's establishment, on November 28, 1971. Coming to its oil resources somewhat later than the other leading Opec states, the UAE largely avoided their lengthy tussles over contract terms and nationalisation.

The new state was faced almost immediately with a deluge of wealth undreamt of throughout history – and all the accompanying challenges. The Opec states gained control over pricing and then the October 1973 war and the Arab petroleum embargo brought an enormous surge in prices: $1.80 a barrel in 1970, $3.29 in 1973 and $11.58 in 1974.

In 1980, after the Iranian revolution and outbreak of the Iran-Iraq war, prices would leap even further, to $36.83 a barrel, equal to $116 in today’s money.

In 1974, Adnoc took a 60 per cent stake in the onshore and offshore oil concessions, and has maintained this ever since. But unlike in most Opec countries, foreign partners remained, valued for their technical and oil marketing skills. By maintaining such relationships and avoiding political and military upheavals, the UAE did not suffer the post-1970s slump in oil production capacity that countries such as Venezuela, Libya and Iran have never recovered from.

Rising production brought large volumes of associated gas, far more than the domestic population of less than 300,000 could use. Japan was keen to find substitutes for polluting coal and newly expensive crude oil. Sheikh Zayed, the Founding Father, who had become ruler of Abu Dhabi in 1966, was insistent on using the gas sustainably, and Adnoc LNG began operations in 1977, making the UAE the first Middle Eastern country, and only the fifth in the world, to export liquefied natural gas.

In 1976, the Abu Dhabi Investment Authority (Adia) was established to save oil revenue productively. It is now assessed as the world’s second-largest natural resource-backed sovereign wealth fund.

Meanwhile, Dubai, though a much smaller producer, had laid the foundations of the modern city through such projects as the Jebel Ali port and the World Trade Centre, both opened by Queen Elizabeth in February 1979, Dubai Aluminium (November 1979) and the country’s first mall, Al Ghurair Centre (1981).

The pivotal years around 1971 thus mark the creation of a distinctively UAE model of energy industry management. Enormous and low-cost oil resources were clearly essential but numerous other countries have failed to capitalise on similar advantages.

Key features include balanced partnerships with both western and Asian companies, developing local capabilities but continuing to give international companies a strong stake in the country’s stability and success.

Policy within Opec has been moderate, usually closely aligned with that of Saudi Arabia, not seeking excessive price increases and trying to maintain constructive relations with consumers. Natural resources have been developed at a measured pace but not overly conservatively.

There is an emphasis on using gas productively, both for local industrial development and export. Surpluses from the vast but often volatile revenue bases help to build national infrastructure and overseas savings.

Among peers, national energy policy has an almost unique continuity over half a century. That should serve the country well as the world's oil and gas sector embarks on an even greater transformation than that of the 1970s.

Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis