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All Hands on Deck in Abu Dhabi's Transition

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Abu Dhabi has moved faster than other producers in the Middle East to respond to the challenges posed by the energy transition. Abu Dhabi National Oil Co. (Adnoc) has been at the center of the effort, pushing its advantage as low-cost, low-carbon producer as peak oil demand nears. But other players in the emirate are also making contributions, even if they sometimes come in under the radar. Abu Dhabi National Energy Co. (Taqa) and state fund Mubadala Investment Co. have been quietly shifting more investment into electricity and clean energy projects after spending years making moves in oil and gas markets. The repercussions of both Covid-19 and the accelerating energy transition mean that hydrocarbon producers must adapt to a new energy landscape characterized by a changing demand picture and lower oil and gas revenues. Abu Dhabi, which produces almost all the oil and gas in Opec member United Arab Emirates, has moved relatively swiftly to respond to the changes taking place and begun to prepare the emirate, in line with the UAE's 2050 energy strategy. It is pursuing greater economic diversification and preparing for a changing energy system, both at home and internationally. This includes placing a greater focus on streamlining oil and gas production, electricity and water -- including desalinated -- generation and renewables, while driving collaboration among the relevant state entities where possible, for example in areas such as hydrogen.

Adnoc's strategy is clear: it is moving to produce more oil in a shorter time frame, aiming to boost oil production capacity by 1 million barrels per day to 5 million b/d by by 2030, while also seeking self-sufficiency in gas production by the end of the decade. It is also keeping downstream expansion plans on track, bolstering marketing and trading capabilities -- including through this year's launch of the Murban crude futures contract -- and pursuing the type of flexible financing strategy that has allowed it to raise around $25 billion since 2017 via the lease of key infrastructure and assets and stake sales in its listed retail fuel unit. This week's announcement that it would float a 7.5% stake in Adnoc Drilling on the Abu Dhabi Securities Exchange (ADX) is the latest case in point.

While Adnoc's role has always been focused on the development of Abu Dhabi's hydrocarbon reserves, the remits of quasi-state firms Taqa and Mubadala have been broader historically, both in terms of portfolios and geographies. Both have invested in international oil and gas -- along with other energy -- assets. But more recently, Abu Dhabi appears to be moving toward positioning them more clearly. Taqa is being turned primarily into a utility, with a strong national focus but also international assets. Last week, the majority Abu Dhabi government-owned and ADX-listed company said it might sell some or all oil and gas assets as part of a broader strategic review. Their reorientation reflects the pervasive change taking place in the emirate in response to the transition. “Our future is as a utility business with a large, regulated asset base and long-term contracted generation plants at its core,” Taqa CEO Jasim Husain Thabet told Energy Intelligence in July. Set up in 2005 at a time of rising oil prices, Taqa quickly began to expand across the globe, acquiring oil and gas assets in Canada, the US, the UK, Netherlands and Asia, along with power and water assets in Africa. But the spending spree left the company with a $24 billion debt pile 10 years later, forcing it to restructure and sell some oil assets.

Mubadala, the owner of local renewables firm Masdar, meanwhile continues to focus on renewables and clean energy technologies -- and increasingly on gas and LNG. Through its Mubadala Petroleum unit, the company is seeking to decarbonize energy production and has identified lower-carbon gas and LNG as bridge fuels to the energy transition. Both gas and LNG are set to account for around 70% of its portfolio going forward, Bakheet al-Khateeri, head of UAE industries at Mubadala, recently told Energy Intelligence.

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