ECONOMIC DEVELOPMENT - UAE Interact

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124UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT125Six areas of maritime activity will be catered for: marine services, productmarketing, management, research and education, recreation, ship design andmanufacturing. Ship repair and maintenance services will also be headquarteredwithin the zone and marine management services ranging from cargo, vesseland life insurance agencies to legal businesses specialising in consultation, legaladvice and marine domain lawyers are also expected to set up offices.BunkeringThe UAE now ranks among the top locations in the world for bunkering. Fujairahhas overtaken Rotterdam to become the second-largest bunkering centre in theworld behind Singapore, which remains the world’s largest bunkering centre with acapacity of 19 million tonnes of fuel oil a year. Fujairah supplies 12 million tonnesof fuel oil a year, worth US$2.5 billion (Dh9.17 billion). This, in turn, has spawneda healthy growth in the ship supply business. Around 40 companies operate in thisfield in the Emirates as a whole, with an annual turnover of around US$300 million.OIL AND GASThe sharp rise in oil prices in 2004 brought to an end a decade of relativestability when prices mostly remained in the US$20 to US$28 per barrel range(with the exception of 1998 when a sharp downturn took place). The sudden pricejump was the result of an increase in demand rather than any disruption orrestriction in supplies. China is the most important contributor to the rise in worlddemand for oil. Its imports of crude oil almost doubled between 2002 and 2004.While each emirate takes responsibility for exploitation of its hydrocarbonreserves, with Abu Dhabi playing by far the largest role in this regard, the role ofthe Federal Government has been re-organised, with a new Ministry of Energycombining the former roles of the Ministry of Petroleum & Minerals and theMinistry of Electricity & Water. In January 2005 HH Sheikh Khalifa bin Zayed AlNahyan, President of the UAE, passed a law transferring the ownership of theshares and funds of National Petroleum Construction Company (NPCC) formAbu Dhabi National Oil Company (ADNOC) to the General Holding Corporation(GHC) in order to pave the way for its eventual privatisation and transformationinto a national joint stock company.Average 2004 prices were more than US$10 above the 2003 average (US$28.39in 2003 cf. US$38.87 in 2004). Oil prices continued to rise in 2005, with LowerZakum (39˚) exceeding US$57 per barrel in August. Year-to-date average at midyear(2005) was US$46.71 per barrel, with strong indications that the overallaverage price for 2005 would exceed that figure. In fact, global oil prices touchedUS$70 per barrel in September 2005. Oil revenues loosely tracked the price rises,depending also on production rates.With both price and production rates rising in 2004, revenues showed a markedincrease. A surge in world demand and requests to OPEC from the internationalcommunity to raise production levels resulted in the UAE’s production quota,allocated by OPEC, being adjusted five times during the year. Two reductions inthe first part of the year were followed by three increases, resulting in an averagequota, over the whole of 2004, of 2,189,000 barrels per day (b/d). In actual factit exceeded this level by 164,700 b/d.The UAE is capable of producing more oil than its OPEC quotas allow. Whilstit is true that reserves in Dubai and Sharjah have declined significantly, AbuDhabi, with 94.3 per cent of the UAE’s total oil and gas reserves, has significantadditional production capacity, which amounted to 500,000 b/d in 2004. This figureis being increased as a result of the huge investments that have been made in theindustry over the past five years. Abu Dhabi National Oil Company (ADNOC) hasinvested around US$10 billion on an expansion programme that plans to raiseproduction capacity to 3 million b/d in 2006 and 3.7 million b/d by 2010.OPEC’s five largest oil producers, the UAE, Saudi Arabia, Kuwait, Iraq and Iran,control more than 60 per cent of global oil reserves and produced 19.6 millionbarrels per day (mb/d) in 2004. The supply/demand balance for 2005, based onOPEC mid-year projections, indicated an expected average global oil demand of83.66 mb/d. With non-OPEC sources averaging 54.76 mb/d, this left OPEC tosupply the balance of 28.90 mb/d. As supplies from the UAE and other major OPECproducers stabilise at somewhat higher than the 2005 rate, supported by strongreserves, other sources are likely to become more seriously depleted. It is againstthis background that the UAE has committed to major developments in its oil andgas production and supply facilities.Notwithstanding major progress in its long-standing programme of diversificationaimed at reducing dependence on finite oil and gas resources, the UAE’s oil andgas sector continues to occupy prime status in the country’s economic profile –a fact bolstered by confirmed hydrocarbon reserves standing at 97.8 billion barrelsof oil and 213.5 trillion cubic feet of natural gas. Based on current knowledge,the UAE’s oil reserves, account for 9.6 per cent of the world’s total oil reserves,estimated at 1016.8 billion barrels (US Dept. of Energy, based on oil industryfigures). These figures rank the UAE in fifth place in terms of the size of its oilreserves (excluding Canadian oil-sands) and fourth with respect to its natural gasreserves. It has been suggested by oil experts that there could be approximatelydouble the presently discovered reserves in deeper layers, where drilling has, so far,not taken place. By far the greatest portion of the UAE’s oil reserves are locatedin Abu Dhabi Emirate with 92.2 billion barrels, followed by Dubai with 4 billionbarrels, Sharjah with 1.5 billion and Ra’s al-Khaimah with 100 million. Natural gasreserves are also concentrated in Abu Dhabi, which has 198.5 trillion cubic feet,
126UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT127followed by Sharjah with 10.7 trillion cubic feet, Dubai with 4.1 trillion cubic feetand Ra’s al-Khaimah with 1.2 trillion cubic feet.OIL PRODUCTION AND CRUDE RESERVESCrude oil production ceilings are set by OPEC members at regular conferences.The UAE’s output of crude oil in 2004 rose in response to increased OPEC quotasthat averaged 2.19 m/bd during the year. Oil industry figures published by OPECindicate that the average production level during the year reached 2.36 mb/d,up from around 2 mb/d in 2003. Abu Dhabi alone produced 1.96 mb/d, comparedto 1.9 mb/d in 2003 and 1.69 mb/d in 2002. At these levels Abu Dhabi had aspare capacity of 500,000 b/d. Recognising the importance of being able to meetdemand surges at short notice, Abu Dhabi has continued to focus on increasing itsproduction capabilities. The target has been to reach around 3 mb/d in 2006 and3.7 mb/d by 2010.Abu DhabiThe Emirate of Abu Dhabi, with proven crude oil reserves estimated at 92.2 billionbarrels, has 94.3 per cent of the UAE’s total reserves and 9 per cent of the provenworld oil reserves (1016.8 billion barrels). At the current rate of pumping AbuDhabi’s oil reserves will last for 129 years. Its largest oilfield, Upper Zakum, containsan estimated 50 billion barrels of reserves in-situ, with estimated recoverablereserves around 16 to 20 billion barrels (using extensive water injection).In terms of production capacity, Abu Dhabi’s land-based and marine facilitiesare roughly equal. Onshore production capacity in 2004 averaged 1.2 mb/d whilstoffshore capacity stood at 1.25 mb/d. Actual production levels have, however,been higher in recent years from the onshore fields run by ADCO, which exceededoffshore production by ADMA-OPCO, ZADCO and the other companies. In 2004for example, ADCO produced around 1.15 mb/d whereas offshore productionran at around 805,000 b/d. The latter figure was made up by 380,000 b/d fromADMA-OPCO, 375,000 b/d from ZADCO and 50,000 b/d spread between the fourother offshore fields (Mubarraz/Neewat al-Ghalan, Umm al-Anbar, Al Bunduq andAbu al-Bukhoosh). The three main operators, ADCO, ADMA-OPCO and ZADCO, allhave ADNOC as their major shareholder. They each have expansion projectsunder way. ADCO will boost its capacity from 1.2 mb/d to 1.4 mb/d; ZADCO istaking the production capacity of the Upper Zakum field from 550,000 b/d to750,000 b/d and ADMA-OPCO is raising the sustained capacity of the UmmShaif and Lower Zakum fields to 600,000 b/d, which is presently regarded as peakcapacity of the complex rather than a sustainable level. Meanwhile, ADCO alsoproduced 130,000 b/d of 57.5° API condensate (0.11 per cent sulphur) from theThamama formation of the Bab field, which started up in 1996. Two additional gasprojects were completed in 2001, at Bab and Asab, boosting condensate productionto 210,000 b/d (130,000 b/d at Bab and 80,000 b/d at Asab) and two other projectsdue to be completed in 2008 should raise ADCO’s condensate production toaround 355,000 b/d. Condensate production is not counted in OPEC quotas.Abu Dhabi Company for Onshore Oil Operations (ADCO) thus generates morethan half of Abu Dhabi’s oil production, and it is one of the ten largest operatingoil companies in the world and the largest crude oil producer in the southernArabian Gulf. As noted above, ADCO is engaged in a major expansion projectthat will add nearly 400,000 barrels per day to its production capacity. Theseinclude raising capacity of four fields in north-eastern Abu Dhabi (Al Dabbiya,Jarn Yaphour, Rumaitha and Shanayel) from 10,000 b/d to 110,000 b/d; bringingthe small Huwaila field on line at an initial rate of 10,000 b/d; raising the BuHasa field’s capacity by 180,000 b/d and that of the Bab field by 100,000 b/d.Offshore, ADMA-OPCO’s two fields, Umm Shaif and Lower Zakum, are close tooptimum capacity. The Lower Zakum field has 321 wells tapping into fiveproductive zones spread over 1270 square kilometres, whilst Umm Shaif has268 wells spread over its 360 square kilometres of seabed. The plan here involvesbringing sustainable capacities up to their theoretical maximum capacities. This isbeing done, both through drilling of new production and injection wells, and byexpansion of gas injection facilities. The Umm Shaif Crestal Gas Injection Project,due for completion in 2006, is a key part of this programme and involvesinstallation of a 600-million-cubic-feet per day (cf/d) gas injection system. Gas fromthe Khuff reservoir is being re-injected into the Arab C and D reservoirs to boostoil production. A similar gas injection project, completed in 2004, is also drawinggas from the Umm Shaif Khuff reservoir and boosting production of Lower Zakum.In September 2005 a company in which Abu Dhabi’s International PetroleumInvestment Company (IPIC) has a significant shareholding, OMV, was grantedstakes in five new oil and gas exploration blocks in Britain’s North Sea. OMV areoperators and partners with UK firm Dana Petroleum in part of Block 204/14b,and are also partners with ChevronTexaco, the operators, and Norway’s Statoil andDenmark’s DONG in Blocks 212/30, 213/16 and 213/17 and in part of Block 205/2.OMV, one of the largest oil and gas firms in Central Europe, with extensive oilexploration interests overseas, are also partners with IPIC in Borealis, part-ownersof the Borouge petrochemical complex at Ruwais.DubaiDubai’s proven oil reserves as of 1 January 2005 were officially estimated at 4billion barrels, but the recoverable portion may be less than half this figure, withindustry sources (American Association of Petroleum Geologists) estimating themat 1.6 to 2 billion barrels. Almost all of the emirate’s oil reserves are located inthe original concession area of the Dubai Petroleum Company (DPC), whose fouroffshore fields (Fateh, Southwest Fateh, Falah and Rashid) account for its entireoutput of crude oil and associated gas. Whilst oil output has generally declined
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