The UAE is committed, but not enthusiastic
The UAE could lift oil output but it will likely toe Saudi Arabia's line
Suhail al-Mazrouei, the UAE's oil minister, likes to make a point of his relative youth, at 43. Appointed in 2013, the current oil price slump may be his first as minister, but as a 1996 graduate, his industry experience spans two others.
So his somewhat sceptical note on Opec's production cuts, and his casting of the deal as one to "rebalance the market" and draw down surplus stocks-rather than achieving a specific price-was notable. He pointed to the danger of a rebound in shale. But Abu Dhabi, as is traditional, toes the line set by Gulf Opec colleague Saudi Arabia. The UAE accepted a 139,000-barrel-a-day cut as its part of the November deal.
State firm Adnoc has already cut supplies to term lifters in January by 5% for the onshore Murban grade and the offshore Upper Zakum, and 3% for the offshore Das blend. This mostly affects Asian buyers, particularly Japan, South Korea and Thailand. The 39-40°API Murban is produced largely by the Abu Dhabi Company for Onshore Operations (Adco), to which BP recently returned as a 10% shareholder, joining Total (10%), GS Energy of South Korea and Inpex of Japan, with Adnoc holding the 60% balance.
The giant Upper Zakum field, producing 34°API crude, has ExxonMobil as an influential partner, holding 28% of operator Zadco, with Jodco of Japan and Adnoc. Das blend, 39°API, was launched in 2013 to replace the separate crudes from Umm Shaif and Lower Zakum fields operated by Adma (BP, Total and Jodco alongside Adnoc), and also includes newer fields such as Nasr.
Adco, Adma and Zadco all have ambitious expansion plans. Adma is supposed to increase from 0.65m b/d in 2015 to 0.97m b/d by 2020; Zadco from 0.6m b/d to 0.75m b/d by 2018 and 1m b/d by 2024; and Adco from 1.6m b/d to 1.8m b/d by 2018. With contributions from smaller fields and operators, including Dubai's minor output, total UAE production was assessed at just shy of 3m b/d in November by Opec's secondary sources.
On these figures, the announced cuts from its three main producing units should be sufficient for Abu Dhabi to meet its Opec target of 2.87m b/d without requiring reductions elsewhere. The relatively minor adjustment, within operational tolerance limits, can easily be reversed should the Opec deal be rejigged or abandoned.
It has been clear for some time that the official target to raise capacity to 3.5m b/d by 2017 would slip. But the hard-driving Sultan al-Jaber, appointed as Adnoc's chief executive in February 2016, has already shaken up the company, and may get stalled projects moving again. Should Mazrouei decide at some point that production restraint is not working, he will have ample firepower to boost output again.
PE Verdict: Ambivalent about the cuts, and ready to lift output quickly if needed—but this core Opec member can be counted on
This article is part of a report series on Opec. Next article: No panacea