- UAE is focused on boosting its crude oil production to over 5 million barrels per day by 2030
- ADNOC gains EPC contract to develop Umm Shaif offshore field despite Chinese lobbying for the contract to go to several Chinese companies
- Without the intervention from the U.S. over the Khalifa Port project, China could have expected at least a significant part of the Umm Shaif EPC award to go to some of its companies
As a core country in the U.S.’s ongoing efforts to counteract the ever-increasing influence of China and Russia across the Middle East, through their main proxy, Iran, the UAE is focused on boosting its crude oil production to over 5 million barrels per day (bpd) by 2030 at the latest, from the current 4 million bpd, and to become self-sufficient in gas as soon as possible. Both of these aims received a boost last week, beginning with the news that the principal company responsible for delivering the increase in the UAE’s oil output – the Abu Dhabi National Oil Company (ADNOC) – has awarded an AED3.47 billion (US$946 million) engineering, procurement, and construction (EPC) contract to develop its Umm Shaif offshore field. Despite considerable lobbying from Beijing for the contract to go to several Chinese companies, it was the UAE’s own National Petroleum Construction Company (NPCC) that won the mandate to do the necessary work to maintain Umm Shaif’s 275,000 bpd crude oil production capacity and then to increase this output. The political and economic significance of the award is enormous, given not just the central part that the UAE’s oil and gas sectors are set to play in the U.S.’s new strategy for the Middle East centered on its recent ‘relationship normalization’ deals but also with the furor surrounding the recent discovery by the U.S. that China may have been in the process of building a secret military facility in the UAE port of Khalifa. According to various reports, the UAE stated to the U.S. team that flew out to the country to present the evidence of the facility that it had no knowledge that the Chinese were using the site for such a purpose, but immediately moved to suspend the work at the port. This quiet incremental increase in influence leveraged on financial assistance in the first instance is the core strategy at play in China’s multi-generational power-grab project ‘One Belt, One Road’, as analyzed in-depth in my new book on the global oil markets. Securing key strategic tracts of land or sea in lieu of debts owed or investments made has seen China gradually but insistently expand its influence in a range of specific regional hotspots vital to Beijing’s broader land- and sea-based military plans. These include most notably in recent months and years, most of Iran’s major airports and naval ports under the 25-year deal with China, Sri Lanka’s Hambantota Port (overlooking South Asia’s major sea lanes, and allowing China to establish a dual commercial and military use facility for naval assets, just as with the ‘dual use’ assets in Iran), and Djibouti’s Doraleh Port (which was similarly transformed into a dual-use base for the Chinese navy around four years ago). As highlighted recently in my book, and in several pieces for OilPrice.com, China is in the process of doing exactly the same for Oman, given its enormously strategic geographical position.
Without the intervention from the U.S. over the Khalifa Port project, China could have expected at least a significant part of the Umm Shaif EPC award to go to some of its companies. As OilPrice.com exclusively reported back in August 2020, that month – shortly before the relationship normalization deal was signed between the UAE and Israel – saw ADNOC announce the transfer of ownership rights in its Lower Zakum and Umm Shaif and Nasr offshore concessions from the holding of the China National Petroleum Corporation (CNPC) to China National Offshore Oil Corporation’s (CNOOC) subsidiary, CNOOC Limited. This was done by CNOOC acquiring a 40 percent interest in CNPC’s majority-owned subsidiary PetroChina Investment Overseas (Middle East) Ltd (PetroChina) through its holding company, CNOOC Hong Kong Holding Limited (CNOOC HK). Significantly, aside from the broader relentless expansion of China into the Middle East, this deal marked the first time a dedicated Chinese offshore oil and gas company joined in any ADNOC concession. These points did not go unnoticed by the chairman of CNOOC, Wang Dongjin, who said: “CNOOC will leverage our extensive expertise in the offshore sector and be dedicated to value creation in these concessions for our mutual benefit.”
Significantly as well for what has just happened in the Khalifa Port development, the 2020 rights transfer exclusively highlighted by OilPrice.com followed the signing of a comprehensive framework agreement between ADNOC and CNOOC on 22 July 2019 – as also exclusively reported by OilPrice.com – to “explore new opportunities for collaboration” in the upstream, midstream, and downstream oil sectors as well as in liquefied natural gas (LNG). Described at the time by ADNOC chief executive officer, Ahmed Al Jaber as “far-reaching”, the deal was such a significant move by China into the core oil and gas interests of one of the U.S.’s few remaining vocal allies in the Middle East – the UAE – that the deal signing ceremony was attended in person by China’s President, Xi Jinping.
Given the U.S.’s direct intervention on China’s activities in Khalifa port, the UAE not only finally awarded the US$946 million oil EPC contract to its own – and what may be described as ‘neutral’ – company, but did the same for the AED5.36 billion (US$1.46 billion) EPC contract for the Dalma Gas Development Project. Part of the Ghasha Concession – the world’s largest offshore sour gas development – the Dalma field development will now feature no significant Chinese presence, with the only non-UAE corporate participants being Spain’s Técnicas Reunidas (working jointly with the UAE’s and Target Engineering). Not only is the Dalma Gas Development Project a key to making the UAE self-sufficient for gas – in the same way, that the Umm Shaif oil development program is a vital part of the UAE’s drive to produce 5 million bpd, but also they are cornerstones in ADNOC’s ‘In-Country Value’ (ICV) program – itself a foundation stone of ‘Operation 300 Billion’, and the UAE’s Circular Economy Policy 2021-2031. According to a statement last week from the UAE’s central bank, the country’s real total GDP is expected to grow by 4.2 percent in 2022, with non-hydrocarbon real GDP to increase by 3.9 percent during the period.
The UAE’s apparent decision to stay on the right side of the U.S. appears well-founded in the reality of economic growth profiles this year, with India expected to dramatically outpace the economic growth of regional rival China, according to various forecasts. China’s economy, as highlighted by OilPrice.com at the beginning of December, is likely to grow only by around 5 percent this year, with SEB expecting 5.2 percent, TS Lombard 4.7 percent, and Nomura 4.3 percent, among others, while India’s economy is widely expected to grow by at least 8 percent. India has been portrayed by the U.S. as being the big global bid for oil to replace China as a final destination for all of the oil that its allies in the Middle East want to sell, with the release of a report in the first quarter of 2021 from the International Energy Agency showing that the country will make up the biggest share of energy demand growth at 25 percent over the next two decades. The report added that India’s energy consumption is expected to nearly double as the nation’s GDP expands to an estimated USD8.6 trillion by 2040 under its current national policy scenario. This is underpinned by a rate of GDP growth that adds the equivalent of another Japan to the world economy by 2040, according to the IEA.
This said, the China-Russia axis clearly have no intention of allowing this cozy arrangement to proceed unfettered, with the Kremlin’s startling announcement in December of 28 investment deals between Russia and India signed during the very recent visit of President Vladimir Putin himself to Indian Prime Minister, Narendra Modi, as analyzed in depth by OilPrice.com. These covered a broad range of subjects, including not just oil, gas, and petrochemicals, steel, and shipbuilding. Bad though these deals are from the U.S.’s perspective of seeing Russia being able to leverage them into military opportunities in India, matters became a whole lot worse as the meetings between Putin and Modi went on. As it now stands, a joint statement from Russia and India said: “[We have] reiterated their intention to strengthen defense cooperation, including in the joint development of production of military equipment.” Specifically, according to further official statements from one or both sides, India will produce at least 600,000 Kalashnikov assault rifles – the weapon of choice for terrorists and militias across the Middle East and elsewhere – and, even more disturbing for the U.S., India’s Foreign Secretary, Harsh Vardhan Shringla, said that a 2018 contract for the S-400 air defense missile systems is now being implemented.