Abu Dhabi’s energy plans will help ensure future wealth, Oxford Business Group says

Hydrocarbons sector is diversifying towards downstream

The UAE, Opec’s third-largest producer, plans to increase its output capacity to 5 million barrels per day by 2030 Bloomberg

Abu Dhabi’s push to diversify its oil and gas sector has resulted in a heavier focus on non-conventional hydrocarbons and downstream capacity, as well as increased participation from global partners that is likely to continue, according to a report.

“The emirate has made important strides towards securing its growth plans amid global and regional risks, and ensuring wealth for future generations,” the report by think tank Oxford Business Group (OBG) said.

OBG’s Abu Dhabi 2019 report noted that following decades of steady growth and development, the emirate’s oil and gas sector is “undertaking a shift”.

Although the industry is profitable – especially with oil prices averaging $70 per barrel over the first 10 months of 2018 – Abu Dhabi’s most accessible reserves are “starting to decline after decades of extraction, and the sector’s attention is now beginning to shift towards more technically difficult operations”, the report said.

These include newly explored fields, brownfield development (extending the lifespan of mature fields through cost-effective technologies), and enhanced oil recovery.

“These activities may be more capital-intensive, but they are commercially viable thanks to higher and more stable oil prices,” OBG’s report said. “What is more, Abu Dhabi is prepared to make substantial investments to increase its oil and gas production, with a view to supplying expanding downstream activities, which are designed to increase the value obtained from each barrel extracted.”

To do this, state oil producer Adnoc (Abu Dhabi National Oil Company) is reorganising internally and restructuring its activities to ensure they are more commercially driven and competitive, the report noted. Forming new partnerships with global industry partners is a key strand of this.

Last October, US-based Baker Hughes, the world’s second-largest oil services company, announced it would take a 5 per cent stake in Adnoc’s drilling unit for $550 million under a joint venture between the two.

Adnoc Drilling said on Monday it is now targeting an increase in capacity, in part by starting to drill outside of the UAE.

“Partners are able to play an ever greater role in developing all parts of the value chain, with billions of dollars of contracts made available,” OBG’s report said. “In return, the emirate expects concrete contributions … developing added value, and building the domestic knowledge and technology base.”

Approximately 95 per cent of the UAE’s estimated 97.8 billion barrels of oil reserves are located in Abu Dhabi – equal to about 5.8 per cent of global reserves – and at present levels the UAE could continue to produce oil for seven more decades, subject to global demand and pricing patterns and developments in extraction technology, according to BP’s 2018 Statistical Review of World Energy.

In 2017, Abu Dhabi produced approximately 1.08bn barrels of crude oil, with strong global demand buoyed by large markets such as China and India, which are heavily reliant on imports.

The single biggest export market for Abu Dhabi crude oil in 2017 was Japan, which purchased approximately 31.4 per cent of the total volume, followed by Indian and Singapore, OBG’s report noted.

However, growing competition from unconventional hydrocarbons and alternative energy sources, such as those used in electric and hybrid vehicles, is exerting downwards pressure on energy prices.

Uncertainty over the sustainability of global growth as well as ongoing trade tensions could also serve to mute prices at times, according to the report.