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On Sunday 22 November, the Supreme Petroleum Council (SPC) of
Abu Dhabi announced a notable upgrade in the emirate's hydrocarbon
resources - the discovery of 22 billion barrels (Bbbl) of
unconventional oil and a 2-Bbbl increase in conventional oil
reserves. This comes a year after a similar uptick in certified
hydrocarbon reserves that pushed the United Arab Emirates (UAE)
from seventh to sixth place in the world rankings for the largest
recoverable oil and gas resource base. Estimated to hold over 90%
of UAE's recoverable hydrocarbons (albeit while also covering a
comparable proportion of its land mass), Abu Dhabi remains the
seven-emirate federation's leader in oil and gas production.
Concurrent with the latest announcement, the SPC outlined state
company Abu Dhabi National Oil Company (ADNOC)'s spending programme
for the next five years and stated that awards from last year's Bid
Round are imminent.
The news comes days after rumours began circulating that the UAE
was questioning the value of its membership in the Organisation of
Petroleum Exporting Countries (OPEC). In a statement on 19
November, Energy Minister Suhail Al-Mazrouei said that the country
"has always been a committed member" of OPEC, but remained
concerningly cryptic about its future plans. While countries
leaving OPEC is not out of the ordinary (Qatar and Ecuador have
done just that in the last two years), the UAE is the cartel's
third-biggest producing nation after Saudi Arabia and Iraq, so its
departure would have far-ranging effects. As the UAE famously has
one of the most diversified economies in the Middle East, with
hydrocarbons accounting for less than a third of its GDP, this
could give it a more advantageous negotiating position that many
neighbouring producers do not have. Already the coronavirus disease
2019 (COVID-19) pandemic had led to fractures among oil producers,
notably causing a temporary price war between Saudi Arabia and
Russia - the world's biggest producers along with the United States
- in March that resulted in the lowest oil prices in nearly two
decades.
While a new OPEC+ output cut agreement was ultimately concluded
in April, the UAE was certainly not ambiguous about its plans for a
post-production cut world. During the few weeks in March when it
appeared the markets would turn into a free-for-all, ADNOC
announced that it was able to accelerate plans to significantly
increase its output capacity from the already-record levels of 3.4
MMb/d to 4 MMb/d, with a stretch goal of 5 MMb/d by 2030. Under the
reinstated production cuts, the UAE's current production is around
2.5 MMb/d, with the threshold to rise to 2.74 MMb/d from January.
Perhaps tellingly, in its latest statement, the SPC emphasised that
the country's production capacity is now effectively above 4 MMb/d,
indicative of its readiness to be free of the shackles once the
market situation improves. With oil prices now holding steadily
above USD 40 per barrel and more optimism about a COVID-19 vaccine
leading to a return to normal in the medium term, the UAE will
likely continue weighing the pros and cons of remaining in OPEC,
especially as the cartel's influence continues to be diluted by
rising production from countries such as the United States.
However, with the spike of COVID-19 cases across the world
demonstrating that things might get worse before they get better,
no major decisions are expected during the next round of OPEC+
talks set for 30 November.
In the meantime, the UAE continues bolstering its resources,
with the government approving a AED 448 billion (USD 122 billion)
capital expenses programme for ADNOC through 2025. The SPC added in
its statement that despite the challenging market conditions,
foreign direct investment in ADNOC's activities reached AED 62
billion (USD 16.8 billion) this year. The 2 Bbbl of new reserves
increases the country's reserves base to 107 Bbbl of conventional
recoverable oil, particularly thanks to appraisal activities near
the Al Dabbiyah oil field. The 22 Bbbl of new unconventional oil
resources - deemed "technically recoverable" by an independent
assessment supported by well data and a dedicated appraisal
programme - are reportedly similar to the prolific shale plays of
North America, according to ADNOC, and could be just as
transformative if they live up to their potential. The state
company also recently reached a milestone on the unconventional gas
front, with first production reported from the Ruwais Diyab
concession, where it is partnered with French major Total. In last
year's announcement, the SPC notably reported the discovery of 160
trillion cubic feet (Tcf) of unconventional gas (presumably
in-place) on the territory of Abu Dhabi, adding to 58 Tcf of
conventional gas reserves.
More foreign partners may join the fray in the coming months,
adding to companies such as Italy's Eni, Thailand's PTTEP and a
consortium of Indian players that previously garnered stakes in oil
and gas projects. The SPC stated last Sunday that it had authorised
ADNOC to sign concession agreements with the winners of the Abu
Dhabi Bid Round 2019, which saw five conventional and two
unconventional exploration blocks on offer. The companies are not
yet announced, but it was confirmed earlier this year that one of
the shortlisted bidders was a consortium of Pakistan-based players
PPL, Mari Petroleum and OGDCL. ADNOC stated that it estimates that
the soon-to-be-awarded blocks also hold multi-Bbbl and multi-Tcf
potential.
The state company also has its sights set on future exploration
opportunities, with the 2018 award of a record-breaking 30,000 sq
km onshore and offshore 3D seismic survey to BGP, a contract worth
USD 1.6 billion. With seismic works now underway, it was reported
in mid-November that the scope has been expanded to include more
offshore areas in the Transition Zone, adding USD 519 million to
the contract value. With this mix of short-, medium- and long-term
oil and gas projects, Abu Dhabi certainly cannot be accused of
resting on its laurels, but like most producers (or nearly all
companies across every industry) in the current climate, it may
find itself hampered by market realities for much longer than it
would like.
Sergey Myakishev is a senior editor for the Energy
industry at IHS Markit.
