UAE industry forecast

Offshore oil will prove critical to meeting production targets while sour gas holds the key to sustaining the UAE’s economic miracle.

Under the UAE's constitution, each emirate controls its own oil production and resource development. More than half of Abu Dhabi's oil production is generated by state-owned Abu Dhabi National Oil Company (ADNOC).

Dubai Petroleum Company (DPC) is the main upstream operator in Dubai, representing a JV between the government and US-based ConocoPhillips. 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. The second main producer is Abu Dhabi Marine Operating Company (ADMA-OPCO).

IOCs from Japan, France, the UK and others own up to 40% of the energy sector in Abu Dhabi, the only Gulf oil producer to have retained foreign partners on a production sharing basis. ADNOC holds the majority stake in all upstream oil ventures and is currently planning a limited further opening of oil production to foreign firms. The initial asset sale involved 28% of the offshore Upper Zakum field, to US major ExxonMobil.

The US group in 2007 ironed out the details on Abu Dhabi's Upper Zakum deal, allowing it to begin work on the giant field. Upper Zakum has been in production for years, but Abu Dhabi wants ExxonMobil to extend its life and boost recovery rates.

The company hopes ultimately to raise production from the 550 000 bpd field to 1.2 million bpd by 2010, reaching 750 000 bpd in 2008. It won the stake back in 2004 in a hotly-contested round which saw the likes of Chevron, BP and Total in the running.

For Abu Dhabi itself, the Upper Zakum project is key to its capacity expansion plans, with ADNOC planning to spend US $10 billion over the next few years to boost oil production capacity by 1.25 million bpd.

Oil and gas reserves

BMI's view is that the UAE's proven oil reserves will slip gradually over the period to 2012, dropping to 93.6 billion bbl. Exploration and development activity is now on the rise, but may not be sufficient to maintain the current reserves position while delivering rising output. However, we see scope for some expansion of gas reserves, perhaps to 6 220 bcm over the next five years.

Oil supply & demand

UAE crude supply rose to 2.67 million bpd in June 2008 from 2.66 million bpd the month before. Sustainable capacity is estimated at 2.85 million bpd, and there is unlikely to be significant output expansion over the very near term.

Growth in the UAE comes from Abu Dhabi, where investment at onshore fields feeding the Murban crude stream is bearing fruit. Murban's capacity, which stood at 1.2 million bpd in 2005, is expected to average 1.58 million bpd in 2008. Longer-term expansion from Abu Dhabi is likely to shift offshore, to the Upper Zakum and Umm Shaif fields. The impact of these projects is likely to be felt only at the end of the forecast period.

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