A cornerstone of the U.S.’s strategy to counter the growing influence of China and Russia across the Middle East via Iran remains the relationship normalisation deal signed between Israel and the UAE. Not only does this provide the U.S. with some element of control over more of the oil coming from the region, to augment that principally of Saudi Arabia, but also as the oil industry in particular involves the movement of huge amounts of money, ships, equipment, technology and personnel in often disguised ways it allows for increased intelligence-gathering and counter-terrorism activities by the U.S. and its allies. The UAE is particularly useful in all of these endeavours, as has been analysed in depth in my new book on the global oil markets, given its scope to increase crude oil output from Abu Dhabi and to offer a secure storage and bunkering area in Fujairah, outside the perennially politically-sensitive Strait of Hormuz. Last week saw another of the UAE’s constituent emirates, Sharjah, announce 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 but which may occur later in 2022, according to legal sources in Abu Dhabi spoken to by OilPrice.com last week, relates to Sharjah’s Block B, run jointly by Italy’s ENI and the state-owned Sharjah National Oil Corp (SNOC) after the Emirate’s first bidding round in 2019. 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 in order 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 in January with two new wells, according to the statement by SNOC, and the company added last week that the initial seismic data on the developments show ‘significant’ reserves that will be ‘very economical’ to produce and develop.
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These plans to develop Sharjah’s gas output potential are part of an overall initiative across the UAE to boost its gas production and develop potential sites, particularly in light of the huge gas discovery made in 2020 in Jebel Ali. According to statements from the companies developing the site – the Abu Dhabi National oil Company (ADNOC), and the Dubai Supply Authority (DSA) - the shallow gas field holds around 2.2 trillion cubic metres (80 trillion cubic feet) of gas across a 5,000 square kilometre area between Abu Dhabi and Dubai. Becoming self-sufficient in gas is a goal of the UAE, as part of its broader ‘Operation 300 Billion’ plan that 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 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. Self-sufficiency in gas will also allow the UAE to build out a strategic petrochemicals sector and to avoid being reliant on Qatar for the gas that it requires for its electricity grid.
This, in turn, would allow Washington to put further pressure on Qatar – which is still home to the U.S.’s huge Al Udeid airbase that acts as a forward operating headquarters of its Central Command - to keep from fully aligning with China and Russia in the ongoing struggle for influence across the region after the U.S.’s scaling back of land-based military operations under former President Donald Trump. The relationship between Qatar and China appears to have deepened in recent months especially, with a swathe of deals, most prominently for liquefied natural gas (LNG) but encompassing broader business areas of interest as well. The most recent example was the deal signed earlier this month for a long-term contract for QatarEnergy to supply China’s Guangdong Energy Group Natural Gas Co for one million tons per annum (mtpa) of LNG starting 2024 and ending in 2034, although it can be extended. This followed similar deals between China Petroleum & Chemical Corp. and Qatar Petroleum for 2 mtpa of LNG for a term of 10 years. Qatar also signed LNG supply agreements with Iranian (and Chinese and Russian) ally, Pakistan – specifically, a 10-year sale and purchase agreement for Qatar Petroleum to supply the Pakistan State Oil Company with up to 3 million tons per annum (mtpa) of LNG to various ports in the country. This agreement builds on the earlier deal signed in 2016 for Qatar to supply Pakistan with 3.75 mtpa of LNG and came at around the same time as close Pakistan ally, Bangladesh, made a similar deal with Qatar.
This pressure from the U.S. came tangentially in the form of the blockade imposed by Saudi Arabia and its allies – including the UAE – on Qatar that ran from June 2017 to January 2021, supposedly for providing support to various Islamist groups, including the Muslim Brotherhood. Qatar publicly acknowledged that this was true as far as the Muslim Brotherhood went but privately railed at the hypocrisy of the Saudis. In this context, Qatar alluded to Saudi Arabia’s own suspected links to terrorism, with 15 of the 19 hijackers in the ‘9/11’ attacks on the U.S. being Saudi nationals. All the while, Qatar continued to supply the UAE with gas for its power grid, via the Dolphin pipeline.
By Simon Watkins for Oilprice.com
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And they have to sell their products to someone.
It is, therefore, rational and economic for UAE to want to boost its Gas production capacity mostly to satisfy its domestic needs and partly to reduce its dependence on Qatar’s piped gas supplies.
But the author whom I remarked before about having a tendency to see geopolitics lurking behind any purely economic issues, gets it wrong most of the time.
On the basis of purely economic interests, Qatar will continue to be a major supplier of LNG to the Asia-pacific region particularly China well into the future.
Moreover, the US-Israel-UAE-India axis whose aim is to counter the growing influence of the China-Russia-Iran alliance, is virtually dead in the water. There are various reasons for that,
Despite diversification, 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.
India as an emerging economic superpower will have its own strategic, geopolitical and economic interests which will eventually deviate from the United States’. While rivalry with China may have temporarily brought India and the United States together, India will eventually realize that its overall interests are in the Asia-Pacific region, the largest emerging economic bloc in the world, and in a rapprochement with China.
On the other hand, the China-Russia-Iran alliance is already on the ascendency underpinned by the Chinese-Russian strategic alliance which will usher a new world order within the next two decades, China’s Belt and Road Initiative (BRI) which is extending its influence over the global economy slowly but surely, Russia’s status as the superpower of energy (with nuclear teeth) and Iran’s status as the regional power of the Gulf region and also an essential part of China’s BRI.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London