UAE upstream standing still
To judge from the slow progress of the Adco concession renewals, the UAE is in no real hurry to expand its upstream
STATE oil company Adnoc got a new boss in March and the government has shuffled personnel in the senior oil and gas decision-making body, Abu Dhabi Supreme Petroleum Council. The organisational changes, together with the long-delayed onshore concession renewal process, have blunted efforts to boost upstream activity this year. A clutch of key projects are nonetheless seeing progress, with natural gas a priority for the feedstock-hungry Emiratis.
Oil, though, remains the mainstay. Adnoc is targeting a long-term increase in crude production capacity from 3m barrels a day to 3.5m b/d by 2017-18. One of the biggest contributors to this target is the offshore Upper Zakum field, where Zakum Development Company, an Adnoc offshoot, aims to lift capacity to 0.75m b/d, from 0.55m b/d now. Water injection might help it increase this to 1m b/d at a later stage.
That timetable for all this expansion, though, may be up for debate. Weak oil prices have drained some of Adnoc’s urgency. Delays have struck one key onshore oil project too, after Abu Dhabi Company for Onshore Operations (Adco) last year scrapped a tender for expansion of the Bab field. This is one of the UAE’s largest projects, designed to achieve sustainable production capacity of 450,000 b/d in an area with high hydrogen sulphide content. Adnoc’s expansion of the Qusahwira field in Abu Dhabi, which would have added 25,000 b/d to output, has also been delayed.
Delays have struck one key onshore oil project too, after Adco last year scrapped a tender for expansion of the Bab field
Two longstanding technically challenging offshore gas developments have, though, seen progress this year. The Hail and Ghasha fields – the latter reckoned to hold more than 5 trillion cubic feet of reserves – have lain fallow on account of serious technical difficulties and environmental concerns. But Adnoc has now pre-qualified six international engineering contractors to compete for the front-end engineering and design package on the sour gasfield developments. These are viewed as strategically important gas projects that will eventually add more than 1bn cubic feet a day (cf/d) of gas.
Sour gas is now a clear priority for Abu Dhabi. In March, Adnoc teamed up with US independent Occidental Petroleum and Austria’s OMV in a four-year partnership to evaluate large offshore sour gasfields. A month later, Adnoc launched the massive $10bn Shah sour gas joint venture with Oxy, which will initially produce 0.5bn cf/d, rising to 1bn cf/d.
This followed Shell’s withdrawal, in January 2016, from the Bab sour gas project – the estimated development costs of $10bn having become a major obstacle for the supermajor.
Missing in action
Many assumed Shell’s Bab deal would help it secure a renewal of its contract for the UAE’s main prize – the 1.6m-b/d Adco concession. The previous Adco concessions, which lasted 40 years, comprised, BP, Shell, ExxonMobil, Total and a small interest for Portugal’s Partex. The contracts expired at the start of 2014. So far, Total, Japan’s Inpex and South Korea’s GS Energy have taken stakes equivalent to 18% of the new concessions, leaving another 22% still unallocated. Abu Dhabi missed the chance to sign up more majors when oil prices were high, say analysts, has failed to recognise the shift in attitude to the concession, and will now struggle to sew up the rest. The government wants the new partners to increase Adco output to 1.8m b/d.
Adnoc’s new chief Sultan al-Jaber – a close ally of the powerful Abu Dhabi crown prince Mohammed bin Zayed – says the door is still open for other partners. But further delays seem inevitable, given how long it has taken to renew just 18% of the concession so far.
What is abundantly clear is that Adnoc still wants foreign partners to commit to tougher fiscal terms – and cheaper operating costs. In April, the company approached foreign contractors asking them to find cost cuts ranging from 10-25% on major upstream contracts. These reductions are understood to be focused on fields including Umm Shaif, Nasr Umm Lulu, Satah Al-Razboot, and Upper and Lower Zakum. Adnoc also wants operating costs to be moved down to $3-5/barrel from $4-6/barrel, to account for the lower oil price environment.
This article is part of an in-depth series on upstream in the Gulf. Next article: Back to black in Qatar.