Abu Dhabi shake-up closes door on oil majors

Gulf Arab states are using lower prices as a reason to reform their energy industries and make state-controlled producers more profitable
Abu Dhabi shake-up closes door on oil majors
By Andy Critchlow, Reuters
Thu 25 Feb 2016 12:42 PM

Modernising Abu Dhabi's national oil producer could result in international majors such as BP and Shell being frozen out of the emirate for good.

The oil-rich Gulf enclave appointed on February 14 one of its most respected technocrats, Sultan Ahmed al-Jaber, as director general of Abu Dhabi National Oil Company (Adnoc).

Al-Jaber - one of a new breed of young modernising officials in Abu Dhabi and an acolyte of the emirate's powerful Crown Prince Mohammed bin Zayed al-Nahyan - is expected to make Adnoc work more efficiently as a business. Gulf Arab states, which pump about a fifth of the world's oil supply, are using lower prices as a reason to reform their energy industries and make state-controlled producers more profitable. Saudi Arabia, the region's largest producer, has said that it may for the first time sell shares in its national oil company Saudi Aramco.

The snag for the Western international oil majors is that this makes them less important in a region where they have 40-year ties. Unlike Saudi Arabia, the UAE has opened up large parts of its oil and gas industry to foreign participation. But now Gulf states are driving a harder bargain with US and European international oil majors over rights to develop their oil fields, while also seeking to strengthen ties with new partners in Asia.

Shell and BP are among the biggest losers in this shift in strategy, although neither shows much enthusiasm any more for the emirate. Their historic ties with the UAE date back to a time when the collection of seven semi-autonomous sheikhdoms depended on the UK for military protection, and camels were the main mode of transport between Abu Dhabi and the tiny fishing port of Dubai.

This influence has waned of late. Last year Shell and BP failed to renegotiate a 40-year-old onshore oil partnership with Adnoc after their original deals expired in January 2014. This sense of a declining relationship was rammed home on January 18 when Shell suddenly pulled out of a $10-billion scheme to jointly develop a gas field with Adnoc. If Adnoc emerges as a regional oil giant, it will underline the major's new altered circumstances.

Andy Critchlow is a Reuters Breakingviews columnist. The opinions expressed are his own.

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