Oil Prices Stabilise
Increased stability in international crude oil prices has impacted favourably on the UAE's oil and gas industry in 2010. During the first half of the year, oil prices have mostly stayed in the band between US$75 and US$85 per barrel, the preferred range for most OPEC nations. Oilfield costs have remained at lower levels than the peaks they reached two years ago, producing favourable conditions for negotiating and awarding contracts for oil and gas development.
As a result, plans by the UAE's main oil producing emirate, Abu Dhabi, to increase the country's crude oil output capacity to 3.5 million barrels per day by 2019 from about 2.85 million barrels per day are firmly on track. In June, the International Energy Agency predicted that the Emirates' production capacity would reach 3.1 million barrels per day in 2015.
The nation's actual oil output, however, is likely to remain at no more than 2.3 million barrels per day for the time being, in compliance with the OPEC quota that has been in place since the end of 2008.
To date, the Abu Dhabi Company for Onshore Oil Operations (Adco), a unit of Abu Dhabi National Oil Company (ADNOC), has awarded contracts amounting to US$5.3 billion (Dh19.45 billion) for projects to increase oil output from some of Abu Dhabi's large onshore oil fields, including Shah, Asab, Sahel and Bab. The latest deal, a US$700 million contract for developing the Bab field, was announced in February.
In May, another ADNOC subsidiary, the Abu Dhabi Marine Operating Company (Adma-Opco) awarded a US$350 million contract to Abu Dhabi's National Petroleum Construction Company to refurbish a disused oil platform. The work is part of Adma-Opco's programme to raise production from the Lower Zakum offshore oil field.
In late April, the US firm ConocoPhillips pulled out of its joint venture with ADNOC to develop the Shah sour gas field. ConocoPhillips gave no reason for its decision to quit the US$10 billion strategic development, but had been struggling with high debt levels. The company also withdrew in April from a major refinery project in Saudi Arabia.
Abu Dhabi Gas Development, the ADNOC unit in charge of Shah, has said it is seeking a new international partner for the technically challenging project. In the meantime, it has pressed ahead with awarding contracts for preliminary work on facilities and infrastructure, more than US$5 billion of which were announced in late April.
The Shah project is now set for full integration with the UAE's initiative to build a national railway. A spur from the project site south of Liwa to the coast, the first part of the rail system to be built, will transport the roughly 10,000 tonnes per day of sulphur to be produced as a byproduct of the gas development, commencing in 2013.
In Abu Dhabi's downstream petroleum sector, plans for a major petrochemicals expansion at Ruwais have advanced. In May, Borouge, the petrochemicals joint venture between ADNOC and Austria's Borealis, awarded a US$1.07 billion contract to the German firm Linde to build an ethane cracker – a crucial piece of equipment involved in turning natural gas feedstock into plastics such as polythene. The deal was announced during the first official visit of the German Chancellor Angela Merkel to the capital.
In April, Borouge inaugurated its first factory in China to manufacture plastic products. A month later, it announced plans for a second Chinese factory.
The local firm Emirates Conversion Industries, or Senaat, also announced plans in April for plastics fabrication. The company said it would set up five or six production and marketing businesses in Abu Dhabi.
In petroleum retailing, the Federal Government raised the price of petrol sold at stations across the UAE by about 11 per cent, to bring them more in line with world prices.
In February, Dubai announced the discovery of a new offshore oilfield, which it has called Al Jalila. Several international and local oil field services firms have submitted bids for a development contract with an estimated value of US$50 million to US$100 million. Oil production from the field is expected to begin in 2011.
To combat summer shortages of domestic fuel for power generation, Dubai has contracted with Qatar Petroleum and Royal Dutch Shell to import liquefied natural gas (LNG) at floating facilities that are under construction. The imports are expected to begin in September.
The emirate's Supreme Energy Council met in June to discuss long-term energy supply options for Dubai. Nuclear power and renewable energy are under consideration, to break the current dependence on oil and gas for generating electricity.
In June, Crescent Petroleum, the Sharjah private oil company, announced an agreement with the Russian state-controlled Rosneft to explore for gas under a new concession covering part of Sharjah's onshore areas. The companies have started drilling their first well at Al Madam.
Other UAE Developments
Abu Dhabi's Dolphin Energy consortium and the Abu Dhabi Government-owned International Petroleum Investment Company (IPIC) have made significant progress towards completion of their respective cross-country gas and oil pipeline projects.
The Dolphin line, which will move imported gas from Qatar from Taweelah in Abu Dhabi to Qidfa in Fujairah, is scheduled for completion later in 2010.
IPIC's oil pipeline, to transport up to 1.5 million barrels per day of crude from Abu Dhabi's Habshan oil field to the port of Fujairah on the Arabian Sea, should be finished early in 2011. The oil line will diversify the UAE's oil export options away from the Gulf.
In January, IPIC signed an agreement with Pakistan that will allow a stalled US$5 billion refinery project near Karachi to proceed, with the possible addition of a petrochemicals plant. IPIC is in a joint venture with Pakistan's Pak-Arab Refinery (Parco) for the development.
Abu Dhabi National Energy Company, or Taqa, named Abdulla al Nuaimi as its chief executive in April, following the departure of the company's previous CEO in October of 2009. The company has slowed its overseas acquisitions programme to focus on organic growth, but in June acquired additional Canadian gas properties in a US$285 million transaction.
Crescent and its Sharjah-affiliate Dana Gas have reported progress on their Pearl gas development in Iraqi Kurdistan with Austria's OMV and Hungary's MOL. The group is now producing natural gas liquids from the project in addition to gas. Separately, Dana has announced more oil and gas discoveries in Egypt.
Mubadala, the Abu Dhabi strategic development company, has formed an alliance with ConocoPhillips to explore for oil and gas in the Caspian Sea off the cost of Turkmenistan, complementing a similar agreement in Kazakhstan.
Future Energy Development
In January, the Masdar Institute launched a major biofuels research project in Abu Dhabi with Boeing, Etihad Airways and Honeywell as industry partners. The initiative will seek to develop the world's first ‘integrated biofuels refinery’. It will take an ecosystems approach incorporating the cultivation of a salt-tolerant plant bearing oily seeds, fish farming and mangrove propagation.
Lamprell, a UAE oil field services firm, has entered the renewable energy sector with nearly US$450 million of contracts from Norwegian and British companies to supply specialised vessels for installing offshore wind turbines. Lamprell's UAE yards are at Jebel Ali in Dubai, and in Sharjah.