Oil and Gas  

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ALI YAQOOB TRADING CO. LLC
Abu Dhabi National Oil Company (ADNOC)
Al Bader International Group
Emirates Western Petroleum
Fall Oil Company LTD.
Sharjah Oil Refining Co. LTD
Shell in the Middle East

Introduction 

The oil and gas sector provides around a third of the UAE's Gross National Product, thanks to a successful programme in recent years of diversification of the economy, but remains the dominant contributor of Government revenues. The Abu Dhabi National Oil Company, ADNOC, supervises policy in Abu Dhabi, under the guidance of the Supreme Petroleum Council. Production is handled through joint ventures with consortia of international companies,. ADNOC also owns, on behalf of Government, all of Abu Dhabi's gas reserves. Oil production is around 2 million barrels a day. Gas is increasingly important, both for export, and for meeting local demand, from domestic and industrial consumers and from power generation and water desalination plants. Dubai produces around 240,000 barrels a day of oil and substantial quantities of gas from offshore fields, with a major condensate field onshore, while Saharjah has smaller oil and gas fields. On the East Coast, Fujairah is the third largest bunkering port in the world, although all of the fuel is imported. Downstream development of refineries, petrochemical plants and other related industries is increasingly creating an integrated oil and gas sector, equivalent to that of industrialized nations.

Oil and gas production has been the mainstay of the economy in the UAE and will remain a major revenue earner long into the future, due to the vast hydrocarbon reserves at the country’s disposal. Proven recoverable oil reserves are currently put at 98.2 billion barrels or 9.5 percent of the global crude oil proven reserves. As for natural gas, the proven recoverable reserves are estimated currently at 5.8 billion cubic meters or 4 percent of the world total. This means that the UAE possesses the third largest natural gas reserves in the region and the fourth largest in the world. At the current rate of utilization, and excluding any new discoveries, these reserves will last for over 150 years. The UA E ’s oil production is limited by quotas agreed within the framework of OPE C to 2 million barrels per day (mbd). Production capacity, however, will rise to around 3 mbd in the year 2000. There are plans to boost that level to 3.6 mbd in the year 2005 and 4 mbd in the year 2010. Gas production is being expanded to meet a forecast doubling of demand to 3.7 billion cubic feet per day (bn cfd) by the year 2000. Domestic demand is expected to increase from 813 million cubic feet per day (mn cfd) in 1996 to 1.137 bn cfd by the year 2000, while gas used for reinjection is projected to double to 1.8 bn cfd. The value of oil exports dropped from Dh 49.1 billion in 1997 to Dh 35.7 billion in 1998 (-27.3 per cent) due to the deterioration in oil prices which fell by 34 per cent during 1998 compared with 1997 levels, to reach US $12.4 a barrel. The value of liquefied gas exports also dropped from Dh 8.5 billion in 1997 to Dh 6.5 billion in 1998, due to the fall in its prices which are closely linked with oil prices and owing to the fact that the value of gas exports in 1997 included a one-time payment of Dh 1.5 billion made to ADGAS by its main importer Tokyo Electricity Power Company. The UAE exports 62 per cent of its crude oil to Japan making it the UAE’s largest customer. Gas exports are almost entirely to Japan, the world's largest buyer of liquefied gas, with the UAE supplying almost one-eighth of Japan's entire requirements.

International Markets 

The UAE plays a vital role in achieving stability in international oil markets through its positive and balanced attitude within OPEC. The UAE participated in two production cuts in 1998 and also played an important role in the agreement adopted by OPEC member states in March 1999 to reduce production by 1.7 mbd. The UAE agreed to reduce its production by 157,000 bd to a low of 2 mbd. By early September 1999 international benchmark Brent crude oil was trading at a new high of US $21.03 per barrel. Oil prices were expected to continue rising in the fourth quarter of 1999 when winter weather in the western hemisphere is expected to increase demand. The UAE welcomed a proposal to hold an OPEC summit meeting in Venezuela in late 1999 or the year 2000 in order to reinforce rationalization of the world supply of oil.

Abu Dhabi 

Abu Dhabi is by far the biggest oil producer in the UAE, controlling more than 85 percent of the UAE’s total oil output capacity and over 90 percent of its crude reserves. Principal offshore oil fields are Umm Shaif, Lower Zakum, Upper Zakum, Al Bunduq and Abu al-Bukhoosh. The main onshore fields are Asab, Bab, Bu Hasa, Sahil and Shah. Almost 92 per cent of the country's gas reserves are also located in Abu Dhabi and the Khuff reservoir beneath the oil fields of Umm Shaif and Abu al-Bukhoosh ranks among the largest single gas reservoirs in the world.

Abu Dhabi National Oil Company (ADNOC)

Oil companies from Japan, France, Britain and other countries own up to 40 percent of the energy sector in Abu Dhabi, the only Gulf oil producer to have retained foreign partners on a production-sharing basis. More than half of Abu Dhabi’s oil production is generated by the Abu Dhabi Company for Onshore Operations (ADCO), one of the 10 largest oil companies worldwide and the largest crude oil producer in the southern Arabian Gulf. The second main producer is Abu Dhabi Marine Operating Company (ADMA-OPCO). The output of oil and gas from ADMA-OPCO fields is transported to its center of operations on Das Island for processing, storage and export. Both ADCO and ADMA-OPCO are part of the Abu Dhabi National Oil Company (ADNOC) group of companies. ADNOC, established in 1971, is a fully owned government company controlled and supervised by the Supreme Petroleum Council (SPC), which is responsible for formulating Abu Dhabi petroleum policy and overseeing the emirate’s oil and gas operations and related industry.

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ADNOC Group of Companies 

In addition to its own concession areas and operations ADNOC has major shareholdings in 15 ventures forming the ADNOC group. These include the three main oil and gas operating companies (ADCO, ADMA-OPCO and ZADCO), five support companies providing services to the oil and gas industry, two natural gas processing companies (GASCO, ADGAS), two maritime transport companies for crude oil, refined products and LNG (ADNATCO, NGSCO), a refined product distribution company (ADNOC-FOD) and two chemical and petrochemical companies (FERTIL, BOROUGE). ADNOC also owns and operates two refineries at Umm al-Nar and Ruwais, the gas treatment plants at Habshan, gas pipeline distribution network and the chlorine industries at Umm al-Nar.

ADNOC Restructuring 

ADNOC announced a major management restructuring plan in November 1998 shifting the firm's refinery and gas operations to two new wholly-owned subsidiaries and bringing the number of subsidiaries up to 17. The two new ADNOC companies, Abu Dhabi Oil Refining Company (TAKREER) and the Abu Dhabi Gas Company (ATHEER), were formally established on 19 June 1999. Along with the creation of refinery and gas subsidiaries the company has set up five business line directorates (BLDs) to carry out upstream and down stream activities. Another three directorates will provide support services for various operations. The new management structure also creates an executive committee, chaired by a chief executive officer, to oversee the company's businesses.

Dolphin Project

The Dolphin project was launched in March 1999 following an announcement by the UAE and Qatar of plans for a joint venture aimed at transporting gas from Qatar's huge reserves to industrial consumers in the UAE, Oman and other countries. Dolphin, which is being developed under the auspices of the UAE Offset Group (UOG), is intended to provide a framework to stimulate investment in a variety of related industries throughout the value-added gas chain. (For more information see section on Business Environment). Economic forecasters predict that the UAE's demand for gas will double over the next decade.

Memorandums Signed with Oman and Pakistan 

In June 1999 Oman signed a Memorandum of Understanding with the UOG that would enable it to receive gas at an estimated 300–600 mn cfd through the Dolphin project. Muscat's involvement in Dolphin, which will be of great assistance in meeting anticipated demand for energy in the sultanate well into the next century, will include the construction of pipelines in Oman. Another memorandum was signed between UOG and Pakistan to supply much-needed natural gas to Pakistan. The memorandum p rovides for the offsets group to submit a firm proposal to supply between 1 and 1.5 bn cfd to Pakistan as part of a broader programme of substantial investment in Pakistan's energy sector.

Dubai Joins Dolphin 

The Dubai Government also joined the multi-billion dollar Dolphin initiative with the signing of a memorandum with the UOG where by the Dubai Supply Authority (DSA) agreed to purchase its requirements for Qatari gas from Dolphin. Under the terms of the agreement, Dubai plans to purchase gas in the amount of 200–700 mn cfd. The Dubai Government and the UOG also agreed to cooperate in identifying and maximizing opportunities for investment arising out of the supply of gas. The Dolphin gas will bridge the gap between energy supply and demand which will develop over the next five years as Dubai’s economy expands.

Dubai 

Dubai’s oil reserves have reduced over the past decade and are now expected to be exhausted within 20 years. The main fields are offshore: Fateh, Southwest Fateh and two smaller fields, Falah and Rashid. The only onshore deposit is the Margham field. Dubai Petroleum Company (DPC) is the main operator. Dubai has a 2 per cent share of the UAE's gas reserves. Dubai’s Margham gas/condensate field can deliver up to 140 mn cfd for domestic use and offshore fields can provide another 100 mn cfd. Sharjah also supplies Dubai with 430 mn cfd through a pipeline installed in 1992. The state-owned Dubai Natural Gas Company (DUGAS) is responsible for processing natural gas produced in Dubai’s offshore oil fields as well as the gas piped from Sharjah.

Sharjah 

Sharjah owns 5 percent of the UAE's gas reserves, mostly non-associated gas which is being utilised domestically. The emirate’s most important gas deposits are at the offshore Mubarak field and the onshore Saja’a, Move yeid and Kahaif fields. Gas reserves are estimated at 10,000 billion cubic meters and around 800 mn cfd of gas are produced. Sharjah’s offshore Mubarak field, operated by the local Crescent Petroleum Company, produces around 30,000 bd of condensate. In July 1999 Crescent Petroleum began drilling Sharjah-2 some 30 kilometers offshore of Sharjah where gas has already been discovered. The site is located 800 meters from the Sharjah-1 well. Any gas finds are expected to contain valuable liquid condensates. Crescent operates the concession area along with London-based Atlantis. Crescent – Atlantis also announced in July that they were about to begin major seismic work in the gas-proven  areas of Sharjah's interior desert and this would be followed by drilling. The onshore Sajaa and Moveyeid fields, operated by BP–AMOCO, produce 35,000 bd of condensate in addition to natural gas.

Sharjah Natural Gas Project

The Sharjah Liquefied Gas Company (SHALCO) was formed to increase exports of liquefied natural gas (LNG). The first phase of a Dh 300 million project to supply natural gas to residences, commercial and industrial premises in Sharjah was officially inaugurated in March 1999. Natural gas was supplied to buildings in Abu Shaghara in Sharjah marking the beginning of Phase I which is due for completion in May 2000. A 172 - kilometers network of pipes, three pumping stations and the internal connections for a total of 25,000 domestic, commercial and industrial consumers will be completed in the first phase. Phase II is due to supply the remainder of the city of Sharjah.

Ras Al-Khaimah 

Ras al-Khaimah's reserves are estimated at 400 million barrels of oil and condensate and 1,200 bn cfd of natural gas. In September 1997, Ras al-Khaimah awarded Norway’s Atlantis Technology Services and Petroleum Geo Services a permit to explore the offshore Baih field. The Ras al-Khaimah Oil and Gas Company, set up in 1996, has exclusive hydrocarbon rights to the rest of the emirate.

Refineries 

In the UAE there are six refineries operational at present and the existing refining capacity in the region is estimated to be around 800,000 tones. Development of downstream industries such as refineries and petrochemical plants is a central part of UAE efforts to move away from crude oil exports. Major plans are under way to construct new refineries and increase the capacity of existing ones in order to attain production of 180,000 bd by the year 2000. Abu Dhabi is presently in the middle of a five - year (1997–2002) development project aimed at boosting refining capacity. ADNOC’s US $600 million Ruwais refinery upgrading project is just one of the many down stream projects that are included in the programme. Others include a 35,000 bd refinery plant in Fujairah and the Dh 600 million Sharjah re finery at Hamriyyah Free Zone, which commenced operations in mid-1999.

Eppco 

The Emirates Petroleum Products Company (EPPCO) condensate and light crude refinery in Jebel Ali was commissioned in May 1999. Up to 50 per cent of the refinery's output – comprising naphtha, marine diesel oil, diesel, kerosene, jet fuel and LPG – will be exported. The plant will have a capacity of 60,000 bd, with naphtha comprising more than half. LPG will be supplied to Emirates Gas, a wholly-owned subsidiary of Emirates National Oil Company (ENOC), which holds a majority stake in EPPCO. Caltex of the US holds the remainder.

Petrochemicals 

As part of an ambitious plan to expand its energy sector the UAE is planning to make a major investment in petrochemicals in the next few years. The Abu Dhabi Government plans to establish four petrochemical plants with a total investment of Dh 10.6 billion: the Dh 3.67 billion Borouge joint venture, the Dh 1.83 billion Ruwais EDC plant, the Dh 1.46 billion Ruwais fertilizer project and a Dh 3.67 aromatics venture.

Polyethylene Plants 

Work on the Borouge gas-based down stream complex is on schedule to start production late in the year 2001. The project is a joint venture  between ADNOC (holding 60 percent of shares, and Borealis (holding 40 per cent) is located at Ruwais. It envisages a petrochemical complex with two major segments – an ethylene cracker plant with a designed capacity of 600,000 tones per year and two of the world’s most sophisticated polyethylene units, each with an output of 225,000 tones per year of low density polyethylene. The ethylene cracker will have an annual capacity of 600,000 tonnes of which 450,000 tones will go as feedstock to the proposed polyethylene plants and 150,000 tones will be allocated to the planned ethylene dichloride (EDC) plant wholly owned by ADNOC, which will also be sited at Ruwais. The complex will be close to both the ADNOC refinery and the Abu Dhabi Gas Industries Ltd (GASCO) facility which will supply the ethylene cracker with ethane.

Borouge was established in 1997 to construct, own, operate and maintain the ethylene and polyethylene plants. The company awarded a contract in January 1999 to a two-member team comprising Germany's Linde and Eastern Bechtel Company of the US to build the ethylene cracker plant. The Dh 1.47 billion (US $400 million) contract to build the polyethylene plants was awarded to Italy's Tecnimont SpA in June 1999. When completed, Ruwais will be one of the largest polyethylene production facilities in the Middle East and the first significant dow n s t ream petrochemical investment in the UAE. A sales and marketing company Borouge Pte Ltd, 50 per cent of which is owned by Borealis, has been set up in Singapore and pre-marketing has begun in the Middle East, East Asia, China and the Asia-Pacific. Formaldehyde manufacturing Emirati Investor Company is establishing a petrochemical plant to manufacture formaldehyde and formaldehyde derivatives such as UFC85, resins, glues and urea formaldehyde, the first plant of its kind in the UAE. Construction will begin in 1999 and the plant is expected to go on stream in the year 2001. The production capacity for formaldehyde is 42,000 tones per year, urea formaldehyde 57,000 tones per year and UFC85 26,000 tones per annum. These products, which are presently imported, are mainly used in making fertilizers, chipboard and Formica board. The products will be marketed locally and exported to neighboring AGCC markets such as Oman and Qatar. Emirati Investor Company was founded by 11 prominent UAE nationals three years ago and is a wholly owned national company.


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