The Abu Dhabi National Oil Co (ADNOC) is the key corporate proxy at the centre of the U.S.’s Middle East pushback against increasing Chinese and Russian influence across the region via their activities in Iran (and Iraq).
The awarding of exploration, development, and ancillary contracts for its onshore and offshore oil and gas fields is a principal mechanism by which ADNOC is used to promote engagement with countries regarded as ‘in play’ by Washington. A longstanding prime example of this is Pakistan and the awarding last week of the first ever oil concession to it by the UAE can be regarded as a signal that despite its history of double dealings with the U.S. over Islamic terrorism, Washington has not yet lost all hope that Islamabad can remain at least partly under U.S. influence.
As part of ADNOC’s broad-based drive to increase its crude oil production from the current 4 million barrels per day (bpd) to at least 5 million bpd by 2030 at the latest, it has awarded a slew of contracts recently, almost all of them to U.S.-aligned companies. Indeed, the last set of contract awards - US$764 million in drilling contracts for activities in the Upper Zakum and Satah Al Razboot fields - went only U.S. companies (Schlumberger, and Halliburton), in addition to the UAE’s own ADNOC Drilling. The last major concession award, in the meantime, went in February to the U.S.’s long-term principal ally in the Asia-Pacific region, Japan, with Cosmo Energy Holdings Co. being granted a 100 per cent stake in the exploration phase of Offshore Block 4 in exchange for a US$145 million investment in the site. Last week’s award is also for a 100 per cent stake in the exploration phase – for Offshore Block 5 – and has been given to a consortium of Pakistan companies led by Pakistan Petroleum Ltd. (PPL) that accounts for around 20 per cent of the country’s total natural gas supplies and produces crude oil, liquefied petroleum gas and other natural gas liquids as well.
The remainder of the consortium that will invest up to US$304.7 million towards the exploration and appraisal drilling of the offshore 6,223 square kilometre field located 100 kilometres northeast of Abu Dhabi city is comprised of the Mari Petroleum Co. Ltd., Oil and Gas Development Co. Ltd., and Government Holdings (Private) Ltd. Once the initial new developments of Offshore Block 5 have been done, the PPL-led consortium will also have the right to activate a 35-year production concession for the site, over which ADNOC will have the option to hold a 60 per cent stake. The strategic nature of ADNOC and its awards since the UAE signed a U.S.-sponsored ‘relationship normalisation’ deal with Israel in August last year was highlighted again by a statement from the firm that accompanied the groundbreaking award to the Pakistanis that the contract: “Underscores ADNOC’s expanded approach to strategic partnerships.”
One such strategic aim that the U.S. has long been looking at pushing back to the front of its dealings with Pakistan is the seemingly unstoppable drift even further into Iran’s (and thus China’s and Russia’s) sphere of influence. Even before Al Qaeda leader, Osama bin Laden, was discovered by the U.S. living in Abbottabad in Pakistan, Washington had known for years that Pakistan was playing a double game with it. On the one hand, it was taking huge aid payments from the U.S. aimed at keeping terrorism at bay in the region but on the other offering sanctuary and support to many of the world’s most dangerous terrorist groups. However, Washington believed that this was a price worth paying to retain at least some say in Pakistan’s foreign policies. This was the opposite view to that taken when the U.S. unilaterally withdrew from the Joint Comprehensive Plan of Action (JCPOA) – ‘nuclear deal’ – with Iran in May 2018, after which not only did Iran become further out of control as far as the West was concerned but so did many other countries in the Shia Crescent, including Pakistan.
In fact, Pakistan’s commitment to Iran was clearly re-stated just after the first wave of the new U.S. sanctions were rolled out on 7 August 2018, when Pakistan’s Foreign Office spokesman Muhammad Faisal said that: “We are examining the implications of the U.S.’s re-imposed sanctions on Iran, however, Pakistan, being a sovereign state, reserves the right to pursue legitimate economic and commercial interests while respecting the international legal regime.” Later, in his inaugural speech as Pakistan’s new prime minister, Imran Khan called for improving ties with the country’s immediate neighbours, including Iran, from whose President, Hassan Rouhani, he also accepted an invitation for an early state visit to Tehran. Khan has stated since then that he is personally in favour of the game-changing Iran-Pakistan Pipeline (IPP) and has made it a priority project.
It is this pipeline, and the current plans for it that do not involve it going through key U.S. ally, India, as had been part of the original discussions surrounding it, that is one of many key concerns for Washington in the context of Pakistan’s further drift towards the Iranian (and Chinese and Russian) sphere of influence. China has well-developed plans to integrate the IPP into the US$50 billion-plus China Pakistan Economic Corridor (CPEC) project, with Gwadar earmarked to be a key logistical node in China’s ‘One Belt, One Road Initiative’. Russia, meanwhile, sees the IPP as offering surrounding countries a viable alternative to the long-awaited and U.S.-backed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, the prospects for which have been further damaged by the recent U.S.’s withdrawal from Afghanistan. A pipeline for Iranian gas, and later oil, running through Central Asia remains a core strategy for Russia to exert its influence in the Middle East, and to consolidate its presence in central and Eastern Europe to the one side and in Asia to the other.
For the time being, the UAE will make no further exploration and development awards, having preceded the PPL and the Cosmo field awards with earlier contracts to various U.S-friendly firms Italy’s ENI and Thailand’s PTT Exploration and Production Public Co. for Offshore Block 1 and Offshore Block 2. Onshore Block 1 was awarded to India’s Bharat Petroleum Corp. and the Indian Oil Corp., Onshore Block 3 was awarded to the U.S.’s Occidental Petroleum, and Onshore Block 4 was awarded to Japan’s INPEX Corp. The planned award for Onshore Block 2 will not go ahead as yet as planned, following the discovery in November 2020 of 22 billion stock tank barrels (STB) of recoverable unconventional onshore oil resources, plus another 2 billion STB in recoverable conventional oil reserves. These new discoveries mean that the UAE’s recoverable conventional oil reserves to 107 billion STB. “This area contains some of the unconventional resources discovered that have production potential ranking alongside the most prolific North American shale oil plays,” underlined ADNOC last week.
By Simon Watkins for Oilprice.com
More Top Reads From Oilprice.com:
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… More