The key corporate proxy at the centre of the U.S.’s Middle East pushback against increasing Chinese and Russian influence across the region – the Abu Dhabi National Oil Co (ADNOC) – last week announced massive new oil discoveries, a huge new investment program, and received the go-ahead to award major oil and gas exploration blocks. These developments should easily enable the company to reach and surpass its new 5 million barrel per day (bpd) oil output target that is central to the a new corridor of co-operation being developed from the U.S. (and Israel), through the UAE (and Kuwait, Bahrain and, in part, Saudi Arabia) through the recent ‘normalisation deals’ through to India, as a regional counterbalance to China’s growing sphere of influence.
According to an announcement last week from the UAE’s Supreme Petroleum Council (SPC), 22 billion stock tank barrels (STB) of recoverable unconventional onshore oil resources have been discovered by ADNOC, plus another 2 billion STB in recoverable conventional oil reserves. These new discoveries mean that the UAE’s recoverable conventional oil reserves to 107 billion STB, on a level with the best U.S. shale oil plays, said the SPC. The UAE’s oil output is set for a boost even beyond this with the SPC approval of AED448 billion (US$122 billion) of new investments by ADNOC over the next five years. In order to generate the funding for this volume expansion, ADNOC’s chief executive officer, Sultan al-Jaber announced recently that it will: “…Continue to pursue partnerships with investors that will allow us to generate new value streams for us to reinvest in higher value, higher return projects.” These new deals, OilPrice.com understands from senior legal sources close to ADNOC, are likely to heavily involve U.S. and U.S.-allied firms, in line with the US$10 billion+ that ADNOC recently secured from a consortium of international investors by selling a 49 per cent stake in its gas pipelines a year after striking a similar transaction for its oil pipelines. ADNOC also secured a US$5 billion+ deal last year with a similarly-constituted of heavy-hitting U.S. financial companies, BlackRock, and KKR.
Last week, ADNOC also announced that in tandem with these new discoveries and investments it has now received the required permissions from the SPC to proceed with the awarding of five potentially big oil and gas blocks as part of its second competitive bidding round that was launched in May 2019. The five blocks – Offshore Block 3, Offshore Block 4, Offshore Block 5, Onshore Block 5 and Onshore Block 2 (which has two separate licensing awards available – one for conventional, the other for unconventional) cover an area of around 34,000 square kilometres and will be awarded to international oil and gas companies of countries that are seen by the U.S., Israel, and the UAE as being ‘on their side’, according to one of the legal sources spoken to by OilPrice.com last week. The first round of concession awards that ended in March 2019 featured a consortium led by Italy’s ENI and Thailand’s PTT Exploration and Production Public Co. for Offshore Block 1 and Offshore Block 2, while Onshore Block 1 was awarded to India’s Bharat Petroleum Corp. and the Indian Oil Corp., Onshore Block 3 was awarded to the U.S.’s Occidental Petroleum, and Onshore Block 4 was awarded to Japan’s INPEX Corp.
Companies from India will almost certainly feature again in the new awards although – given their lead development roles in the earlier bidding – perhaps only for individual contracts, particularly on the engineering and maintenance side, as the country is vital to the U.S.-Israel-UAE plan of establishing a direct counterbalance to China in Asia. ADNOC’s chief executive officer, Sultan al-Jaber, stressed as much only recently when he said that he looks forward to exploring partnerships with even more Indian companies across the energy giant’s hydrocarbon value chain. He added that he wants this to include expanding the commercial scale and scope of the strategic reserves partnership, in line with ADNOC currently being the only overseas company so far allowed to hold and store India’s vitally-important strategic petroleum reserves (SPR). In line with this burgeoning partnership, only two weeks earlier, India’s government approved a proposal that will allow ADNOC to export oil from the SPR if there is no domestic demand for it, in the first instance from the Mangalore strategic storage facility (the other major SPR pool being at Padur). This decision marked a major shift in the policy of India in the handling of these key reserves, with the country having previously completely banned all oil exports from the SPR storage facilities.
Al-Jaber added last week that the investments, along with the new conventional and unconventional oil discoveries, will help boost the production of Murban, which dovetails into ADNOC’s plan to launch a Murban futures contract on a new Abu Dhabi-based exchange – the ICE Futures Abu Dhabi platform (IFAD) – on 29 March, in partnership with the Intercontinental Exchange (ICE). The light, sweet Murban crude oil grade is one of the four crudes produced by ADNOC, although it accounted for around half of the UAE’s total near-4 million bpd crude oil production before the outbreak of the COVID-19 pandemic. According to ICE and ADNOC, Murban futures will be the second physically delivered futures contracts traded on a regional exchange after Dubai Mercantile Exchange’s Oman crude futures and Murban is also a deliverable grade in the Platts benchmark Dubai and Oman crude assessments. ICE and ADNOC will be partnering with BP, GS Caltex, Inpex, ENEOS, PetroChina, PTT, Shell, Total and Vitol to launch the IFAD, and ICE has also announced agreements with Chevron, Trafigura, and Occidental to explore using the contract to price crude exports from the U.S. to Asia.
Despite this apparently clear positivity in the U.S.’s advance in its strategy to use the UAE as a key counterbalance against China’s burgeoning influence in the Middle East, two less positive factors remain, The first is that any sudden announcement of new oil reserves figures by any country that is highly dependent on oil and gas revenues as the source of its geopolitical power should be regarded with scepticism. Although Saudi Arabia has the most startling history in this regard – at the beginning of 1989, the Kingdom claimed proven oil reserves of 170 billion barrels but only a year later, and without the discovery of any major new oil fields, the official reserves estimate somehow grew by 51.2 per cent, to 257 billion barrels – the UAE has history in this context too. From 1988 to 2004, Abu Dhabi perennially claimed reserves of 92.3 billion barrels of oil but, over that period, approximately 14 billion barrels were extracted and no major new finds were made.
More worryingly for the U.S.-Israel’s ‘relationship normalisation policy is that the UAE may be trying to hedge its bets with China, which rather defeats the purpose of what Washington is trying to achieve. Last week, ADNOC announced the award of a contract worth up to AED1.9 billion to BGP, a subsidiary of China National Petroleum Company (CNPC), according to various local news sources. Although the award is for technology only relating to expanding the scope of a massive three-dimensional onshore and offshore seismic survey that is currently taking place in the Abu Dhabi, any such major award to a Chinese company – especially to Beijing’s key corporate Middle Eastern geopolitical proxy, CNPC – will concern Washington. “This award may just be a temporary hedge by the UAE against a potentially more relaxed approach to China to be taken by [president-elect] Joe Biden but once he is in position and can roll-out his tougher-than-expected policies on China and on Iran, the UAE should come back into line very quickly,” a senior Middle East energy analyst based in Abu Dhabi told OilPrice.com.