Abu Dhabi’s state oil company ADNOC will soon expand its investments to refineries abroad, a new report by Bloomberg indicates, suggesting the emirate is seeking to strengthen ties with its petrostate counterparts around the world in the industry’s dying decades.
A total investment of $109 billion in the next five years will be funneled into plants abroad. Some of the money will also be used to develop technologies to drill unconventional gas, recovered from difficult to access rocks, by the year 2030.
“Adnoc will expand its portfolio through strategic international downstream investments, and develop Abu Dhabi’s unconventional gas resources,” Crown Prince Mohamed bin Zayed Al Nahyan said on Monday after a meeting of the Supreme Petroleum Council, the emirate’s highest policy-making body for the oil industry.
The UAE’s oil-producing rivals, Saudi Arabia and Kuwait, bought out refiners and chemical plants in China and Vietnam to ensure demand for their petroleum products. Venezuela also famously owns Citgo, a PDVSA subsidiary in the U.S. But Caracas’ struggles with its foreign asset in the U.S. heightens fears of oil-related geopolitical risk with regards to investments.
President Donald Trump’s administration has enacted direct sanctions against the PDVSA to make it difficult for Citgo to repatriate revenues back to Venezuela or get new funding from American banks. The measures come as President Nicolas Maduro’s regime stands on its last legs. Low oil prices have crippled government revenues, making it difficult for Caracas to make its debt payments or import medical and grocery supplies.
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But Abu Dhabi’s situation is a little bit different. The emirate’s affiliation with the UAE aligns its interests with Saudi Arabia—a resilient ally of the U.S. and an emerging ally of Russia and China.
“We might be considering our own investments in the downstream business in Asia, meaning more refining capacity or more petrochemicals,’’ ADNOC CEO Sultan Al Jaber said in an interview on November 13th.
The Organization of Petroleum Exporting Countries (OPEC), which is led by Saudi Arabia, is due to meet in Vienna this week to announce the future of an oil production pact that has governed the bloc’s output since the beginning of the year. The Gulf has taken the biggest hit to production under the quotas, but the bloc’s rival, Russia, and about a dozen other countries joined in on the cuts, making a 1.8 million bpd dent in global output.
Like the rest of the developed Gulf nations, the UAE has a large sovereign wealth fund to shield itself from years of low oil prices. This new investment in downstream petroleum services shows the emirate’s financial planning extending into the post-oil unknown. The UAE is still extremely dependent on oil, so taking advantage of the next 20 years or so of solid fossil fuel revenues represents an existential need. Roughly 80 percent of the state budget is currently fulfilled by oil industry activities.
With this in mind, the UAE is getting particularly aggressive about expanding the OPEC deal that is providing some healing for glutted oil markets.
“It would have been difficult to try to rebalance the market alone and so I think there is a rationale for this group to stay together… and maybe even expand,” Emirati oil minister Suhail al-Mazrouei said at the Abu Dhabi International Petroleum Exhibition Conference (ADIPEC) earlier this month.
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Non-OPEC American and Canadian producers are unlikely to lower output in harmony with the bloc, and the remaining producers that have not already joined the agreement are small. Cuts to their activities are not likely to have market-moving effects.
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The UAE is securing demand for its oil by securing dependable subsidiaries abroad, which is just one of the strategies employed by petrostates to map the future of their economic development. These countries need a higher oil price to juice the end of the fossil fuel-based energy market, which promises a bright future for the OPEC agreement come the end of the week.
By Zainab Calcuttawala for Oilprice.com
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