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Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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UAE Fast-Tracks Goal To Reach 5 Million Bpd Production Capacity

  • The UAE is looking to expand its production capacity from 4 million bpd today to 5 million bpd ahead before 2030.
  • The investments in production expansion are also aimed at boosting the local economy.
  • In tandem with developing its oil output are efforts to build out the means to transport it, and to ship and store the oil and other commodities of other major players in the market.

Together with its aims of becoming self-sufficient in gas and creating the pre-eminent oil storage and supply hub in the Middle East, boosting crude oil production to at least 5 million barrels per day (bpd) as soon as possible remains a core priority for the UAE. In precisely this context, its key state-owned oil conduit, the Abu Dhabi National Oil Company (ADNOC), last week announced that it awarded AED2.4 billion (US$653 million) in new framework agreements that will allow it to drill thousands of new oil wells. The agreements were made with Halliburton Worldwide Limited Abu Dhabi, Baker Middle East, Emirates Western Oil Well Drilling & Maintenance Co., NESR Energy Services, and Emjel Oil Field Services, following a tender process.

In parallel to the new awards optimizing the chance of the UAE being able to boost its crude oil output from the current 4 million or so bpd to 5 million bpd sooner than the official 2030 target year, the investments are also designed to boost the local economy, according to ADNOC’s upstream executive director, Yaser Saeed Al Mazrouei. All of these major energy-specific developments are seen by the UAE as foundation stones in its broader ‘Operation 300 Billion’ plan. This plan intends to raise the contribution of the country’s industrial sector to AED300 billion from the current AED133 billion within the next 10 years. This objective – itself part of the UAE’s Circular Economy Policy 2021-2031 - will be achieved in large part through the creation of 13,500 industrial companies over that period, covering the manufacturing, construction, electricity, gas, mining, and quarrying sectors in the first instance. 

Last week’s AED2.4 billion of new framework agreements follow ADNOC’s recent awarding of AED3.47 billion (US$946 million) in engineering, procurement, and construction (EPC) contracts to the UAE’s own National Petroleum Construction Company (NPCC) to do the necessary work to maintain Umm Shaif’s 275,000 bpd crude oil production capacity and then to increase this output. As OilPrice.com exclusively reported back in August 2020, that month – shortly before the ‘relationship normalization deal’ was signed between the UAE and Israel - saw  ADNOC announce the transfer of ownership rights in its Lower Zakum and Umm Shaif and Nasr offshore concessions from the holdings of the China National Petroleum Corporation (CNPC) to China National Offshore Oil Corporation’s (CNOOC) subsidiary, CNOOC Limited. This was done by CNOOC acquiring a 40 percent interest in CNPC’s majority-owned subsidiary PetroChina Investment Overseas (Middle East) Ltd (PetroChina) through its holding company, CNOOC Hong Kong Holding Limited (CNOOC HK). This deal marked the first time a dedicated Chinese offshore oil and gas company joined in any ADNOC concession. 

The ongoing activity in the Lower Zakum and Umm Shaif and Nasr offshore concessions has been mirrored in the quick pace of development on the Block 4 onshore concession, following the recent revelation that a new area of discovery in the Block is likely to have recoverable reserves of at least 480 million barrels, according to the operator of the site, Japan’s INPEX. This figure is based on a provisional recovery rate of 40 percent for crude oil and 70 percent for natural gas and condensate. This marked the first such find in the Block 4 onshore concession and the initial signs are that further finds may well be discovered on the site, according to ADNOC. The new crude oil find will also significantly augment ADNOC’s ongoing efforts to establish Murban as the centerpiece of what it intends to be the pre-eminent oil futures trading platform in the Middle East – the ICE Futures Abu Dhabi platform (IFAD).

Launched on 29 March 2021 by ADNOC in partnership with the Intercontinental Exchange (ICE), IFAD was built initially around a Murban futures contract, with this light, sweet crude oil grade accounting for around half of the UAE’s total 4 million or so bpd crude oil production before the outbreak of the COVID-19 pandemic. According to ICE and ADNOC at the time of the launch of IFAD, Murban futures were the second physically delivered futures contracts traded on a regional exchange after Dubai Mercantile Exchange’s Oman crude futures, and Murban remained a deliverable grade in the Platts benchmark Dubai and Oman crude assessments. ICE and ADNOC partnered with BP, GS Caltex, INPEX, PetroChina, PTT, Shell, ENEOS, Total, and Vitol to launch the trading platform, but ICE subsequently announced additional agreements with Chevron, Trafigura, and Occidental to explore using the contract to price crude exports from the U.S. to Asia. At the end of November, ICE announced that over one million futures contracts had traded on IFAD since the launch – equivalent to one billion barrels of Murban crude oil. “Murban futures are adding to price discovery in Asia and [the] physical delivery mechanism has worked smoothly since launch and open interest continues to grow,” Mike Muller, head of Vitol Asia told OilPrice.com.

In tandem with developing its oil output are efforts to build out the means to transport it, and to ship and store the oil and other commodities of other major players in the global oil market. The ongoing development of Fujairah continues apace in this context, offering precisely such an alternative global crude oil storage facility and transit hub to the perennially troublesome Strait of Hormuz route, as analyzed in-depth in my new book on the global oil markets. Earlier this year, according to comments by the Abu Dhabi (AD) Ports Group’s commercial director-ports, Julian Skyrme, an AED1 billion investment in the expansion added container capacity of 720,000 twenty-foot equivalent units and general cargo capacity of 1.3 million metric tonnes. Although various stages of Fujairah’s expansion plans have been subject to delay in the years prior to the onset of the major downturn in global oil prices in 2020 - due to lower forward oil prices making hydrocarbons storage a less attractive option – gradually each element of the Fujairah Port project (termed ‘Black Pearl’) has come into line. The pace of development, in particular, picked up after the 380 kilometer Abu Dhabi Crude Oil Pipeline from the Habshan onshore field in Abu Dhabi to Fujairah city became operational in June 2012, capable of transporting 1.8 million bpd and allowing for the smooth movement of UAE crude to the global market. 

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on March 23 2022 said:
    UAE’s crude oil production averaged 3.165 million barrels a day (mbd) during the last 10 years from 2011-2020 according to the 2021 BP Statistical Review of World Energy. The maximum production figure achieved was 3.384 mbd in 2016.

    Last year after a tiff between Saudi Arabia and UAE, OPEC+ granted UAE a production quota of 3.5 mbd but UAE has never ever achieved such a figure since it started oil production.

    My estimate of UAE’s current spare production capacity ranges from 100,000-335,000 barrels a day (b/d).

    And while UAE aims to boost crude oil production to 5.0 mbd by 2030, I don’t think this figure is achievable since the bulk UAE’s oil production comes from aging oilfields discovered more than 64 years ago.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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