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Abu Dhabi oil, gas and UAE economic miracle

Even through successive rulers of Abu Dhabi granted onshore and offshore concessions to various international oil consortia as far back as 1939, the establishment of Adnoc in 1971, the year the UAE Federation was also born, inaugurated the modern oil and gas development era in the emirate.

Total, BP, Shell and Exxon Mobil were the global oil super majors who partnered with Adnoc local offshore operating companies ADMA and OPCO in the upstream development of Abu Dhabi’s coastal oilfields. Later, Japan Oil Development Company (JODCO) was awarded a concession in the Upper Zakum oilfield. In the 1970s, Adnoc established subsidiaries for the development of major gas projects with global super majors, primarily to liquefy offshore gas and export it as LNG.

Adnoc operates under the oversight of the Abu Dhabi Government’s Supreme Petroleum Council, which also governs energy policy in Abu Dhabi and the UAE’s role in Opec. In recent years, Occidental Petroleum and Conoco Philips were awarded concessions to operate the Shah sour gas field in Abu Dhabi. Abu Dhabi even awarded South Korea’s National Oil Corporation (KNOC) an equity stake in onshore oilfields, Abu Dhabi’s long term oil and gas exports to Japan, China and South Korea were a major factor in the energy intensive industrialisation of the three Asian tiger economies.

Abu Dhabi is considered the most attractive, low risk upstream market in the Middle East by international oil companies, the reason the world’s biggest oil and gas companies compete to bid for new concessions in the emirate — Abu Dhabi award of concessions is also related to its international banking and foreign policy interest. For instance, Britain, France, the United States and South Korea are some of the closest strategic military, economic and diplomatic allies of the UAE.

Mubadala Development Company, Abu Dhabi’s sovereign investment holding company, has played a major role in establishing joint ventures with foreign oil and gas companies, notably Occidental’s onshore upstream and sour gas processing concessions since 2008. Abu Dhabi also established the International Petroleum Investment Corp (Ipic) to take equity stake in foreign upstream and downstream ventures with its first strategic investment a 19 percent stake in Austria’s OMV. Taqa, another Abu Dhabi firm, owns oil and gas assets as far away as the North Sea and Canada. Taqa is also the leading partner in a Ruwai’s gas joint venture with France’s GDF Suez and Japan’s Osaka Gas.

Abu Dhabi has recently emerged as the world’s fifth largest exporter of natural gas, behind Russia, Iran, Qatar and Saudi Arabia. The UAE gas reserves are estimated at 3.5 per cent of the world’s proven reserves, with 92 per cent located in Abu Dhabi. Abu Dhabi is also a participant in the Dolphin project, the largest inter-GCC energy venture that imports Qatar’s gas for domestic electricity generation and exports to Oman.

Though oil and gas is still the most important economic sector in the UAE, the Abu Dhabi government has embraced the concept of diversification and the creation of surrise knowledge industries Abu Dhabi Future Energy company’s Masdar Initiative has gained worldwide fame as an alternative renewable energy pioneer.

It is a tribute to the stability and low political risk of Abu Dhabi’s oil and gas environment that the emirates original concession awardees from 1939 are still partners in its strategic upstream and downstream energy infrastructure. Unlike Iraq, Libya or Kuwait, Abu Dhabi did not nationalise the concessions awarded to foreign oil companies, even when resource nationalism was the dominant ideology of OPEC in the 1970’s. This is the reason Adnoc has evolved into one of the world’s most technically sophisticated and best managed state-owned oil companies.

Abu Dhabi intends to raise its output from 2.7 to 3.5 million barrels a day, to supply the Ruwais refinery and to export to its Asian refineries and utilises. Abu Dhabi also financed the construction of a pipeline to the loading terminals of Fujairah to bypass the maritime Straits of Hormuz chokepoint. The UAE economic miracle is unthinkable without Abu Dhabi’s oil and gas wealth.