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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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Abu Dhabi Steps Up Gas Production Ahead Of Winter

  • ADNOC rewarded a $980 million contract for rigs and equipment to ADNOC Drilling last week.
  • The UAE is working together with notable foreign partners to speed up the development of the Ghasha sour gas project.
  • Whether or not such initiatives from Middle Eastern countries will be sufficient to stave off oil and gas supply issues as winter fully descends remains to be seen.

Enduring high gas prices across the globe in the aftermath of Russia’s invasion of Ukraine in February have catalysed several leading Middle Eastern oil supplying countries to step up their gas, and oil, production. The emirate of Abu Dhabi is a case in point, with last week seeing the Abu Dhabi National Oil Company (ADNOC) award a US$980 million contract to ADNOC Drilling to bolster rig numbers to support the expansion of ADNOC’s oil and gas production capacity. This followed the awarding just a few days before by ADNOC of a US$1.53 billion contract for the same purpose.  Both contracts and the US$3.43 billion of similar contracts awarded by the same firm in August went to local firms, these latest two going to ADNOC Drilling. This is part of ADNOC’s ‘In-Country Value’ (ICV) program, the aim of which is to support local economic growth and diversification. This program, in turn, is a foundation stone of ‘Operation 300 Billion’, which intends to raise the contribution of the country’s industrial sector to AED300 billion (US$81 billion) from the current AED133 billion within the next 10 years. This objective – itself part of the Circular Economy Policy 2021-2031 of the UAE – is to 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. According to a recent statement 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 same period. Such investment is part of ADNOC’s drive to expand oil production capacity to five million barrels per day (bpd) by 2030, from just over three million bpd currently, and to enable gas self-sufficiency for the UAE.

Related: Chinese Refiners Are Betting Big On European Fuel Demand These efforts from the UAE are also continuing to attract notable foreign partners to develop it key oil and gas fields. Just last month, Claudio Descalzi, the chief executive officer of Italian oil and gas giant, Eni, met with his counterpart from ADNOC, Sultan al-Jaber, in Abu Dhabi, to discuss speeding up the development of the Ghasha sour gas project, and the Offshore Block 2 project. The Ghasha concession is the world’s largest offshore sour gas development, comprising not just the Ghasha field itself but also the Hail, Hair Dalma, Satah, Bu Haseer, Nasr, SARB, Shuwaihat, and Mubarraz fields as well. First production from it had been expected to begin in 2025, with the target being production of at least 1.5 billion cubic feet per day (bcf/d) of gas by 2030. Eni is the holder of the largest foreign share of the ADNOC-led project, with a 25 percent stake, followed by Germany’s Wintershall Dea (10 percent), Austria’s OMV (5 percent), and Russia’s Lukoil (5 percent). 

This drive towards self-sufficiency in the gas sector was re-energised after the huge shallow gas field discovery made in 2020 in Jebel Ali, which, according to statements from the companies developing the site – ADNOC, and the Dubai Supply Authority - holds around 80 trillion cubic feet of gas across a 5,000 square kilometre area between Abu Dhabi and Dubai. Following this, the hunt for further sizeable gas deposits picked up pace, and not just in the vicinity of the previous discoveries. Another of the UAE’s constituent emirates, Sharjah, also recently announced proposals to launch an offshore bidding round for its new gas and condensate find.  The bidding, which is officially mooted to start in early 2023, relates to Sharjah’s Block B, run jointly by Eni and the state-owned Sharjah National Oil Corp (SNOC). Late in 2020, the two companies discovered the Mahani reservoir, and subsequent first drilling yielded up to 1.4 million cubic metres per day (mcm/d) of lean gas and associated condensate. First gas was also produced this year from the Mahani-1 gas well, but no volume data was released by the companies, although SNOC did state that it is continuing to limit production from Mahani-1 at less than 1.4 mcm/d to collect data and map out the full potential of the reservoir. Further drilling by the two companies, which also work together in onshore concession areas A and C, is set to continue with two new wells, according to the statement by SNOC, and the company added recently that the initial seismic data on the developments show ‘significant’ reserves that will be ‘very economical’ to produce and develop.

Related: China To Stop Reselling LNG To Europe

Offshore Block 2, the second of the major projects earmarked for fast-tracking recently, along with the Ghasha sour gas project, also features Eni as the major shareholder, with a 70 percent stake (the remainder being held by Thailand’s PTTEP). The end of July saw the discovery of a new, deeper reservoir that indicated 1.0-1.5 trillion cubic feet (tcf) of raw gas, almost doubling the discovered field volume, according to a comment from ADNOC at the time. The July discovery followed the one made in February from a shallower target, and takes the total potential gas discovered from Block 2 to 2.5-3.5 tcf. Eni also operates in other offshore areas of Abu Dhabi and Ras Al Khaimah, another UAE emirate.

In parallel with these initiatives to boost its gas production, ADNOC back in March awarded an initial US$653 million of contracts in new framework agreements that will allow it to drill thousands of new oil wells. The agreements were made with Haliburton 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. These awards, in turn, followed ADNOC’s grating of 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 – shortly before the ‘relationship normalisation deal’ was signed between the UAE and Israel - ADNOC announced 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.

Whether or not such initiatives from Middle Eastern countries will be sufficient to stave off oil and gas supply issues as winter fully descends remains to be seen, although the UAE has concluded major new deals with Germany and France very recently. According to local UAE sources, following the visits of Scholz and Germany’s Economy Minister, Robert Habeck, as part of a new Energy Security and Industry Accelerator agreement signed between the UAE and Germany, the Abu Dhabi National Oil Company (ADNOC) will supply RWE with an LNG cargo in late 2022 to be used in the country’s floating LNG import terminal in Brunsbuttel. ADNOC has also earmarked several other LNG cargoes for German customers for delivery in 2023, the same sources said. France’s TotalEnergies, meanwhile, recently signed a partnership agreement with ADNOC that includes cooperation in trading, product supply and carbon capture, utilisation and storage. As TotalEnergies stated at the time of the signing of the partnership agreement with ADNOC: “[The agreement includes] the development of oil and gas projects in the UAE to ensure sustainable energy supply to the markets and contribute to global energy security.” 

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