Country Analysis: UAE to top gas imports
Meanwhile, oil capacity expansion will turn country into third OPEC producer
By Nadim Kawaach
Posted: 30 October 2006
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The UAE is pushing ahead with mega projects to become a dominant gas producer in the Middle East , while two other major ventures will turn the country into the region's largest gas importer.
Sitting atop the world's fifth largest oil reserves, the UAE is also pursuing massive plans to add more than half a million barrels to its sustainable crude output capacity in just five years to become the third largest producer within the 11-nation OPEC.
The Abu Dhabi National Oil Company (Adnoc), which controls the emirate's massive hydrocarbon sector, is spearheading the expansion programmes, which also cover increasing gas output, building more petrochemical projects and boosting the country's refining capacity.
 Strong oil prices have already turned the UAE into the second biggest Arab economy after Saudi Arabia as its GDP makes huge leaps and massive fiscal surpluses allowing it to replenish its once eroding financial reserves and spend more on development.
High economic growth has largely outstripped the population increase and this has sharply boosted the UAE's per capita income over the past few years. In 2005, it peaked at around $24,000 and is projected to jump to nearly $35,000 this year, one of the highest in the world.
The two main gas ventures are Dolphin and Dana Gas, which involve the import of more than four billion cubic feet per day (cfpd). Both projects have gone a long way in the implementation process and gas is set to start flowing into the country's industrial and power facilities next year.
"They are by far the largest gas supply projects in the Middle East and represent a turning point in the UAE's economy," said Mohammed Al-Asumi, a well know Dubai-based economist.
Dolphin is 51% controlled by the Abu Dhabi-owned Mubadala company, while Total of France and Occidental Petroleum of the US own 24.5% each.
The company has just completed the construction of a 48-inch pipeline stretching 364 km under the sea from Qatar 's northern port of Ras Laffan to Tawila in Abu Dhabi .
It will be begin pumping natural gas from the giant Qatari North Field in the next few months at a rate of two billion cfpd, which could rise later to 3.2 billion cfpd, depending on demand in the UAE and neighbouring Oman .
Speaking to reporters recently, a top Abu Dhabi oil official said the project is progressing smoothly and gas would start flowing into the UAE next year, denying reports that Saudi Arabia is blocking the project that was launched several years ago.
"I believe the Dolphin project is proceeding as scheduled and is going to be commissioned on time and gas deliveries will take place next year," said Yousuf Omair Bin Yousuf, Chief Executive, Adnoc and Secretary-General Supreme Petroleum Council.
"Plans are under execution and we are hoping to push further to increase gas production."
In Sharjah, officials from Dana Gas said they have been involved in marathon talks with Iran to get their gas supply deal under way. While they gave no definite date for such supplies, a compromise over price differences should be reached early next year and gas would begin flowing into the emirate by April or May.
Dana is the region's first private natural gas venture, which was created by scores of founders in Sharjah and other emirates in 2005 with a paid-up capital of Dh6 billion.
Crescent Petroleum, one of the biggest shareholders in Dana Gas, is renegotiating a gas supply agreement it signed with the Iranians in 2001 and is engaged in talks with potential clients in the UAE for possible price re-adjustment.
Company officials and economists sounded optimistic about the prospects of a final gas supply deal with Iran but hundreds of thousands of investors who had stampeded for Dana's shares late last year remained concerned.
Such concerns have sharply depressed the company's shares in the market and slashed its capitalization by nearly three times.
Dana Gas has invested billions in subsea pipelines, gas treatment installations, supply networks and other facilities for the gas agreement. Company officials have not disclosed the volume of gas to be imported but said the deal involves "substantial amounts."
According to Dana Gas figures, its assets totalled around Dh8.8 billion ($2.39 billion) at the end of April, including nearly Dh3.9 billion in real estate, gas equipment, stations, pipelines and other facilities in the UAE. The company reported its first net profits of around Dh689 million for the period between November 2005 and March 2006.
"I cannot tell when we will begin getting Iranian gas as you have to ask those officials who are involved in the talks with the Iranians," said Thomas Watt, Dana Gas's project manager.
Watt said Dana Gas has made large investments in the UAE ahead of a final agreement with Iran , adding that it has already completed its part of the pipeline from Iran . The Iranian part of the pipeline was completed at the end of August.
"I am convinced such an agreement is imperative and inevitable because it is in the interest of both sides… Iran needs to export its gas to get additional income and Dana needs gas to honour its commitments to its customers and offset the large funds it has pumped into the gas infrastructure. Failure to reach agreement will hurt both parties as it will damage Iran 's reputation as a credible supplier while it could inflict heavy losses on Dana," Asumi said.
Besides import, the UAE is also involved in massive projects to increase its gas production to meet a rapid growth in domestic demand fuelled by steady expansion in industry and other sectors.
The bulk of those projects are being carried out by Abu Dhabi , which controls more than 90% of the country's gas wealth of six trillion cubic metres and oil reserves of around 98 billion barrels.
According to Omair, Abu Dhabi will increase its gas production capacity by a third to nearly six billion cfpd within two years, as demand in the country is growing more than 10% annually.
"Currently 4.5 billion cfpd of gas is produced. This will go up to 6 billion cfpd in 2008 and there are plans to expand beyond this. We are continuously raising production to meet demand."
"Demand for oil is growing worldwide at 2% and for gas at 6% to 7% annually. Here it is higher at about 10%. And if demand continues to grow we will expand capacities to meet the needs."
Experts say the UAE needs to import gas because most of its natural gas resources are associated with oil, unlike the Qatari or Iranian fields, which contain mammoth non-associated gas deposits.
"Any large increase in the UAE's gas production means an increase in its oil output and this will be an unnecessary waste of money as the UAE will not be able to fully utilize the surplus oil output because of its commitment to the OPEC quota system," one source said.
The UAE, however, has been locked in massive development plans at its major oilfields to raise output capacity gradually in tandem with the increase in global demand.
The country's present sustainable capacity is estimated at 2.7 million bpd, which will gradually expand by nearly 580,000 bpd over the next five years.
It will be the second largest capacity rise within the Organisation of Petroleum Exporting Countries after Saudi Arabia , which is boosting capacity by 1.6 million bpd.
Figures from the International Energy Agency (IEA) show that the UAE's production capacity will climb to 2.87 million bpd in 2007, to 2.9 million bpd in 2009 and 3.25 million bpd in 2011.
IEA provides no figures for the cost of such expansions, but according to the London-based Centre for Global Energy Studies, the UAE is expected to invest more than $11 billion over the next five years in capacity expansions. More funds would be spent on maintenance of the present capacity.
With such an increase, the UAE will become the third largest producer in OPEC after Saudi Arabia , with an estimated output capacity of 12.3 million bpd in 2011, and Iran , whose production capacity is expected to be around 3.9 million bpd at that time.
Expansions also cover the petrochemical sector, as the UAE is carrying out massive projects to boost existing capacity and build more plants to exploit its gas wealth and diversify an oil-reliant economy.
In refining, the UAE has heavily invested in downstream industries. According to the Ministry of Energy, the country's total refining capacity stood at around 633,000 bpd at the end of 2005 following expansions in Abu Dhabi 's two main refineries in Umm Nar and Ruwais. A third refinery, with an output capacity of around 500,000 bpd, will be built in Abu Dhabi , but no information has yet been provided on investment or the location of the project. The Ministry's report shows Ruwais refinery produced 425,000 bpd while output at Umm Nar stood at 88,000 bpd and the rest was produced by Enoc refinery in Jebel Ali. Two other refineries, in Fujeirah and Sharjah, are currently out of operation.
The expansions in the upstream and downstream sectors run parallel to plans by the UAE to lessen dependence on foreigners to run its vital oil and gas industry. Besides sending local students on scholarships abroad, Adnoc has set up a specialized institute to provide degrees in oil engineering and other fields. The first batch of those engineers graduated from the Petroleum Institute (PI) in June this year.
The graduates in electrical, mechanical, chemical and petrol engineering as well as oil geoscience will be assigned to jobs in ADNOC and its affiliated institutions across the UAE.
Yousuf said the PI was founded nearly five years ago with the aim of creating qualified nationals capable of running the UAE's massive hydrocarbon sector.
"The short-term objectives of the institute were to meet the ever-growing demand of the country's oil and gas industry in general and ADNOC and its Group of Companies in particular for locally trained UAE nationals in all fields of engineering," he said, adding that female students would soon join the institute.
According to Minister of Higher Education Sheikh Nahyan bin Mubarak, the decision to admit UAE women into the Institute would largely support the oil industry because females outnumber men in colleges.
"This fall we will see the first graduate students and the first class of women to matriculate into the Institute. With these initiatives the Institute takes another step towards strengthening the oil and gas industry and our nation by wedding the circle of opportunity and excellence in education."
The UAE's economy hit a record $97 billion in 2005 to become the second largest Arab GDP after Saudi Arabia . In 2006, it is forecast to reach over $161 billion on the back of high oil prices, while the current account surplus is projected to peak at nearly $28.1 billion.
According to official figures, average crude oil prices have risen 30% this year, and this is having a positive impact on GDP. In addition, the non-oil sector is also growing fast, with liberalisation of the real estate sector and other business laws, stronger private sector activity, and higher public expenditure.
"Assuming that oil prices will remain at current levels, the GDP for 2007 is projected to go up to $178 billion," said the government-controlled National Bank of Abu Dhabi .
It said the UAE's current account balance would reach $28.1 billion in 2006, or 17.4% of the national income, compared to $19.1 billion last year. It is projected to hit a record $29.8 billion in 2007.
"Again, the high oil exports have impacted the current account balance positively. As exports have risen on the back of free zone growth and oil exports, the current account surplus reached 14.7% of GDP in 2005 and is projected to be 17.4% this year and 16.7% next year."
The surge in oil prices allied with high crude output to earn the UAE its highest ever income of around $42 billion last year.
The income is expected to rise further this year as average oil prices should be at least $10 above their 2005 level of around $50.
Total exports peaked at $103.1 billion in 2005 and are forecast to climb to $106 billion this year before slipping to around $101 billion in 2007.
Oil provides more than two third of the UAE's income, but the country has been locked in a drive to ease reliance on fluctuating crude sales by building an industrial base covering gas, petrochemicals and other light and medium non-oil products.
The UAE was the seventh largest oil exporter in the world in 2005 and it controls nearly 10% of global crude resources of more than one trillion barrels. |
