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Simon Watkins

Simon Watkins

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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The UAE Moves One Step Closer To Its Oil Production Goal

  • The UAE’s National Petroleum Construction Company won the $946 million contract that will maintain and then increase Umm Shaif’s oil production capacity 
  • This contract alongside the recent discovery in the Block 4 onshore concession will also help to cement Murban as a major benchmark
  • While China remains a key market for the UAE as its oil industry expands, India could well outperform China in coming years as its economy expands

The UAE is focused on boosting its crude oil production to over 5 million barrels per day (bpd) by 2030 at the latest and becoming self-sufficient in gas as soon as possible. Both these aims received a boost last week, beginning with the news that the principal company responsible for delivering the increase in the UAE’s oil output – the Abu Dhabi National Oil Company (ADNOC) – awarded an AED3.47 billion (US$946 million) engineering, procurement, and construction (EPC) contract to develop its Umm Shaif offshore field. The UAE’s National Petroleum Construction Company (NPCC) won the mandate to do the necessary work to maintain Umm Shaif’s 275,000 bpd crude oil production capacity and then to increase this output.

This follows the recent discovery located in the Block 4 onshore concession that is likely to have recoverable reserves of at least 480 million barrels, according to the operator of the site, Japan’s INPEX, 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 near-4 million 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.

Related: Shell’s Gas Trading Booms While Oil Trading Slows

Last week also saw the UAE award an AED5.36 billion (US$1.46 billion) EPC contract for the Dalma Gas Development Project. Part of the Ghasha Concession - the world’s largest offshore sour gas development - the Dalma field development will also feature the UAE’s NPCC and Target Engineering, plus Spain’s Técnicas Reunidas. Not only is the Dalma Gas Development Project a key to making the UAE self-sufficient for gas – in the same way that the Umm Shaif oil development program is a vital part of the UAE’s drive to produce 5 million bpd, but also they are cornerstones in ADNOC’s ‘In-Country Value’ (ICV) program – itself a foundation stone of ‘Operation 300 Billion’, and the UAE’s Circular Economy Policy 2021-2031. According to a statement last week from the UAE’s central bank, the country’s real total GDP is expected to grow by 4.2 percent in 2022, with non-hydrocarbon real GDP to increase by 3.9 percent during the period.

The UAE’s core markets for oil remain both India and China, with the former expected to dramatically outpace the economic growth of its regional rival China in the coming year and beyond, according to various forecasts. China’s economy, as highlighted by OilPrice.com at the beginning of December, is likely to grow only by around 5 percent this year, with SEB expecting 5.2 percent, TS Lombard 4.7 percent, and Nomura 4.3 percent, among others, while India’s economy is widely expected to grow by at least 8 percent. A report released last year by the International Energy Agency showed that India will make up the biggest share of energy demand growth at 25 percent over the next two decades. The report added that India’s energy consumption is expected to nearly double as the nation’s GDP expands to an estimated USD8.6 trillion by 2040 under its current national policy scenario. This is underpinned by a rate of GDP growth that adds the equivalent of another Japan to the world economy by 2040, according to the IEA. 

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on January 12 2022 said:
    Equally China ignored the UAE when it invited the foreign ministers of Saudi Arabia, Kuwait, Oman and Bahrain as well as the secretary general of the of the Gulf Cooperation Council (GCC) to a meeting this week in Beijing to accelerate progress on reaching a free trade agreement (FTA) and cooperation in areas including energy.

    An FTA with GCC would further enhance China’s considerable influence and involvement in the Arab Gulf region and fit well with its Belt and Road Initiative (BRI) which is extending its influence over the global economy slowly but surely.

    Absent from this gathering in Beijing is the UAE. Of recent time, UAE has been tilting towards India as part of having thrown its weight behind the US-Israel-UAE-India axis whose aim is to counter the growing influence of the China-Russia-Iran alliance.

    Despite having joined the US-led axis and despite its ongoing diversification of its economy, the UAE economy will remain an oil-based economy throughout the 21st century and beyond. This means that UAE will continue to pivot towards the Asia-Pacific region rather than towards the inevitable declining political influence of the United States. Economics always trumps politics.

    Last but not least. One thing in the article I find particularly most ludicrous is the claim by the author about the recent discovery by the U.S. that China may have been in the process of building a secret military facility in the UAE port of Khalifa. Is it possible that such a secret facility could be hidden from the roaming eyes of spy satellites? Moreover, why would China want to build a secret military facility in UAE, a close ally of the United States, when it has the entire area of Iran to build one there under the 25-year treaty it signed with Iran?

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

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