UAE Oil and Gas Industry: An Overview
UAE Oil and Gas Industry: An Overview
The United Arab Emirates (UAE) is one of the world's ten largest oil producers and a member of both the Organization of the Petroleum Exporting Countries (OPEC) and the Gas Exporting Countries Forum (GECF).
In 1971, Abu Dhabi, Ajman, Al Fujairah, Dubai, Ras Al Khaimah, Sharjah and Umm Al Quwain declared independence from Britain and federated to form the UAE. Since then the country's economic development has rested on its abundant oil and gas resources. The UAE is now the world's sixth-largest oil producer. According to IMF data, oil and gas export revenue reached USD 123 billion in 2013, compared with about USD 75 billion in 2010. Beyond its growing oil economy, the UAE has also become one of the world's major financial centres and the leading trading hub of the Middle East.
Investment in non-energy sectors such as infrastructure and technology, together with a rapidly recovering real-estate market, has helped the UAE sustain its growth momentum despite lower oil prices and global economic stagnation.
1. Overall Assessment of Oil and Gas
Since Abu Dhabi joined OPEC in 1967, the UAE has been one of the world's important oil producers. Although the likelihood of further major oil and gas discoveries is small, the country has applied a range of enhanced oil recovery (EOR) techniques to raise recovery rates in its mature fields.
Natural gas consumption in the UAE keeps rising. Although the country is a GECF member, growing domestic demand requires large-scale imports. The UAE now both imports and exports liquefied natural gas (LNG) and shares international gas pipelines with Qatar and Oman. It is also one of the world's leaders in EOR-based gas production. As gas demand grows, the government plans to expand domestic output through EOR in order to meet rising consumption and export requirements.
Diversification into tourism, trade and manufacturing has made clear progress. In the short term, however, oil, gas and related industries will remain the most important part of economic activity across the seven emirates.
2. Oil Resources
The UAE is a major oil producer and exporter. In 2014 it produced an average of 3.5 million barrels per day of oil and other liquids, ranking sixth in the world.
According to Oil & Gas Journal estimates, as of January 2015 the UAE held 97.8 billion barrels of proven oil reserves, the seventh largest in the world and about 6% of the global total. Most of these reserves lie in Abu Dhabi, which accounts for roughly 94% of the national total. The other six emirates together hold only 6%, with Dubai the largest at about 4 billion barrels.
Exploration in the UAE has seen no significant progress in recent years, but the country has vigorously promoted EOR. Over the past decade, improved recovery from existing fields has nearly doubled proven reserves, extended the life of mature fields and offset the lack of new discoveries.
The UAE supplies several crude grades. Among them is Murban, a light low-sulphur crude that is the country's main export grade. In July 2014 Abu Dhabi began offering a new grade, Das, a blend of the existing Umm Shaif and Lower Zakum crudes.
3. Exploration and Development
In 2014 the UAE was OPEC's second-largest producer of oil and other liquids. Despite the fall in oil prices, it retains the ambitious target of raising crude output by 30% by 2020. Total output of oil and other liquids was 3.5 million barrels per day, second in OPEC after Saudi Arabia; crude accounted for 2.7 million barrels per day, making the UAE OPEC's fourth-largest crude producer after Saudi Arabia, Iraq and Iran. The remainder consists of non-crude liquids such as condensate, gas-plant liquids and refinery processing gains. By 2020 the UAE plans to add 800,000 barrels per day of crude capacity, lifting crude output to 3.5 million barrels per day. Because major new reservoirs are hard to find, this growth is expected to come mainly from EOR in existing Abu Dhabi fields. EOR projects are generally designed around a USD 100 per barrel oil price, so their economics are questionable at current price levels.
One block that can support higher output is the Zakum complex. Upper Zakum is operated by ZADCO, a joint venture of ADNOC, ExxonMobil and the Japan Oil Development Company, and currently produces about 590,000 barrels per day. In July 2012 ZADCO awarded an USD 800 million EPC contract to Abu Dhabi's National Petroleum Construction Company and France's Technip with the aim of raising output to 750,000 barrels per day by 2016. Lower Zakum, operated by Abu Dhabi Marine Operating Company, is expected to rise from 345,000 to 425,000 barrels per day.
4. Exports, Imports and Consumption
The UAE is both a large exporter and a large consumer of oil and other liquids, with the world's highest per-capita oil consumption. The US Energy Information Administration estimates that the UAE exported more than 2.5 million barrels per day of crude in 2014, most of it to Asian markets. Although a leading global oil exporter, the UAE still relies heavily on imported refined products to meet domestic energy demand. Most of these imports are residual fuel oil, together with small volumes of gasoline and diesel.
The UAE has an extensive domestic pipeline network linking processing plants and export terminals. The newest export line, the Abu Dhabi Crude Oil Pipeline (ADCOP), runs 236 miles from Habshan to Fujairah and entered service in June 2012. It connects the oil-rich western desert directly to the Gulf of Oman and hence to global markets. Capacity is 1.5 million barrels per day, with 1.8 million barrels per day expected in the near future. The line allows the UAE to ship most of its daily crude output without passing through the Strait of Hormuz, the world's busiest energy chokepoint, which carries about 30% of seaborne oil trade.
The Fujairah export terminal is already one of the world's largest offshore bunkering ports, and its storage capacity will grow substantially in the coming years. A new Fujairah storage terminal came into service in March 2015, with capacity set to reach 16 million barrels of crude and products by 2016. The terminal expansion programme includes three new subsea loading lines, an intermediate pump station and three offshore buoys for deepwater tanker loading. A 200,000 barrel per day refinery is also planned, expected to supply domestic and export markets after 2020. With so much capacity under construction, Fujairah is rapidly becoming a key node in the region's refining and export network.
5. Refining
The UAE has five refineries. The largest, Ruwais, has just been expanded from 400,000 to 817,000 barrels per day and was fully commissioned in 2015. With the new plants, total UAE refining capacity will approach 1.1 million barrels per day, making the country the fourth-largest refiner in the Persian Gulf. A new integrated refinery is planned at Fujairah with 200,000 barrels per day of capacity by 2020.
The UAE and neighbouring Oman plan a joint-venture refinery in the Duqm Special Economic Zone with 230,000 barrels per day of capacity by 2018. Dubai's Supreme Council of Energy has also signed a memorandum of understanding with China's Anzhong Petroleum for a refinery in Dubai, although capacity targets and the project timetable have not been disclosed.
6. Natural Gas Resources
The UAE holds the world's seventh-largest proven gas reserves, exceeding 215 trillion cubic feet (Tcf). Despite this abundance, the country became a net gas importer in 2008 for two main reasons: about 30% of its gas was reinjected for enhanced oil recovery in 2012, and its inefficient, fast-expanding power grid depends on gas-fired generation, with rapid economic and population growth placing ever greater strain on that grid.
To meet growing gas demand, the UAE has imported Qatari gas through the Dolphin pipeline project in recent years. The line runs mainly from Qatar to Oman through the UAE and is the country's main import route. In addition to Qatari imports, Dubai and Abu Dhabi trade LNG with each other, with Dubai mainly an importer and Abu Dhabi mainly an exporter.
UAE gas is generally high in sulphur and therefore corrosive and difficult to process. For decades the country flared gas produced alongside oil rather than pay for costly sulphur removal. Technical difficulties in developing sour gas held back reserve growth, but advances in technology and rising domestic demand have now stimulated development of these reservoirs.
7. Gas Exploration and Production
UAE dry gas output rose to 1.9 Tcf in 2013, continuing a growth trend that dates back to the 1970s. Even though domestic production is challenging, the UAE intends to meet demand by further raising recovery rates.
Several projects now under way may add output: onshore gas development (OGD), integrated gas development (IGD) and offshore associated gas (OAG), all of which help meet rapidly growing domestic demand. ADNOC is pursuing large-scale sour gas development at the Shah field. One major difficulty is that ultra-sour fields yield only a small proportion of saleable gas: of every 1,000 cubic feet produced, only about 504 cubic feet remains saleable after processing.
8. Gas Imports
The UAE became a net gas importer in 2008. Imports grew from 7 billion cubic feet in 2003 to 685 billion cubic feet in 2013, mostly from Qatar through the Dolphin project. Dolphin was the first cross-border pipeline in the Persian Gulf, delivering gas from Qatar's North field through a 226-mile subsea line to the Taweelah power station in Abu Dhabi, other emirates and Oman.
9. Gas Exports
In 1977 the UAE became the first LNG exporter in the Middle East, under a long-term supply agreement with Tokyo Electric Power Company (TEPCO). A second LNG export contract with Japan followed in 1990, and a third contract, for LNG from Das Island, took effect in 1994. UAE gas exports have remained relatively flat, rising by 20 billion cubic feet between 2003 and 2013 to 284 billion cubic feet, dominated by LNG (more than 90%). All of the country's LNG exports, 260 billion cubic feet, go to Japan. With expansion of the Das Island terminal and higher domestic gas production, exports are expected to grow in the short to medium term.
10. Gas Consumption
UAE gas consumption has grown at an average annual rate of 6%, from 1.4 Tcf in 2004 to 2.4 Tcf in 2013.
Solid economic growth and rising energy demand in recent years have placed domestic gas supply under pressure. The UAE needs large volumes of gas for enhanced oil recovery and to keep numerous power stations and desalination plants running. Further imports will be required to meet domestic demand, although improved EOR and carbon capture and storage (CCS) will partly offset consumption.
11. Key Organizations and Bodies
Oil sector
(1) Supreme Petroleum Council (SPC): sets oil-related objectives and policies for Abu Dhabi. Given Abu Dhabi's central role in the UAE oil industry, the SPC is the most important institution in national oil policy-making.
(2) Abu Dhabi National Oil Company (ADNOC): operates 16 subsidiaries across oil, gas and petrochemicals. It leads the day-to-day implementation of SPC policy and is the major shareholder in almost all upstream oil activity in Abu Dhabi. Its subsidiaries are also engaged in exploration, processing and distribution of oil and gas. Among the best known are Abu Dhabi Company for Onshore Petroleum Operations (ADCO), Abu Dhabi Marine Operating Company (ADMA-OPCO), Zakum Development Company (ZADCO) and Abu Dhabi National Tanker Company (ADNATCO), the last of which is managed together with the National Gas Shipping Company (NGSCO).
(3) Dubai Supreme Council of Energy (DSCE): oversees and coordinates energy policy-making in Dubai. Its members include representatives of key organizations such as Emirates National Oil Company (ENOC), Dubai Petroleum Establishment (DPE) and the Dubai Nuclear Energy Committee (DNEC). The council aims to ensure that Dubai's economic development has access to adequate, sustainable energy resources. The other emirates have smaller oil and gas departments, which are not described here.
Gas sector
Gas production and regulation are handled by each emirate, usually through its petroleum department. ADNOC leads Abu Dhabi's gas sector through its subsidiaries; as with oil, ADCO and ADMA-OPCO handle exploration and production of gas. Abu Dhabi Gas Industries Ltd (GASCO), a joint venture of ADNOC, Shell, Total and Partex, manages onshore gas and the processing of associated gas from onshore oil production.
The second major company in Abu Dhabi's gas sector is Abu Dhabi Gas Liquefaction Company (ADGAS), which controls the production and export of LNG and liquefied petroleum gas (LPG).
The third is Abu Dhabi Gas Development Company (Al Hosn Gas), which develops the sour gas reservoirs of the large Shah field. Al Hosn Gas is a joint venture of ADNOC and Occidental Petroleum.
The DSCE is also the core body for Dubai's gas sector. Led by the state-owned ENOC group with its many subsidiaries, Dubai's gas industry operates in a way similar to Abu Dhabi's.
Dubai Gas Company (DUGAS) is responsible for the engineering design, construction, management and operation of Dubai's gas infrastructure.
12. Contract Model
The contract structure used in Abu Dhabi is based mainly on long-term production sharing agreements between the state-owned ADNOC and private organizations, primarily the major international oil companies (IOCs), with the state holding a majority stake in all projects. Apart from Dubai and Sharjah, which introduced service contracts in response to declining reserves, the smaller emirates use production sharing agreements similar to Abu Dhabi's.
The main IOCs active in UAE oil and gas are BP, Shell, Total, ExxonMobil and Occidental Petroleum, which in 2008 obtained the country's first new concessions in more than 20 years. Under the old ADCO concession, which had been in force for decades, international companies earned only USD 1 per barrel produced. After that agreement expired in January 2014, the new 40-year terms allowed nine companies to bid for 5% to 10% stakes with a margin of USD 3 per barrel, and bidders could also book reservoir blocks. In January 2015 Total was the first to sign the new contract, taking a 10% interest for 40 years, and in April 2015 Japan's Inpex obtained a 5% interest.
