ADNOC in the new energy eraApril 16, 2019
H.E. Dr. Sultan Ahmed Al Jaber, UAE minister of state and group CEO of Abu Dhabi National Oil Company (ADNOC), talks to TOGY about the company’s new partnerships with multinationals and its strategic investments overseas, as well as how the global energy landscape is shifting. ADNOC is active across all parts of the oil and gas value chain.
How is ADNOC leveraging its new partnerships with multinationals to boost its capacity and ability?
In this new energy era, we have adopted more creative strategies and more flexible business models to capture growth. As a result, we have expanded our approach to partnerships, as we pivot to where new growth is emerging to ensure ADNOC is fit to lead and thrive in the future.
By doing so, we can deliver two key benefits. Firstly, it allows us to unlock and maximise value and invest in growth. Secondly it enables us to accelerate delivery of our 2030 strategy, whilst improving integration across our business.
The milestone agreements, awarding two offshore blocks to a consortium led by Italy’s multinational energy company, Eni, and Thailand’s PTT Exploration and Production Public Company Limited (PTTEP), are a clear example of our targeted approach to engage with value-add partners who can contribute the right combination of capital, technology and capabilities to accelerate the development of Abu Dhabi’s hydrocarbon resources.
Meanwhile, the signing of two new equity partnerships with Eni and OMV, covering both ADNOC Refining and a new trading joint venture, support and strengthen our ambition of becoming an international downstream leader with the flexibility to respond quickly to shifting market needs and dynamics.
We have also formed a strategic partnership with Baker Hughes that will enable and support the growth and development of our subsidiary ADNOC Drilling into a fully integrated drilling and well construction provider. Partnerships such as these and others will help enable our objective of unlocking even more value from every barrel of oil we produce.
As part of our new approach to partnerships, we have also broadened our investor base to include specialist infrastructure and energy investors, long-term global investments institutions and other players in the global energy, services and petrochemicals sectors.
February’s announcement of a USD 4-billion midstream pipeline infrastructure partnership with two of the world’s leading institutional investors, KKR and BlackRock, underlines the innovative steps we are taking to constantly optimise our assets and capital and deliver sustained value to both ADNOC and the UAE.
We will continue to create a range of attractive opportunities for global and regional institutional investors to partner and invest alongside ADNOC to enhance value from our sizeable infrastructure base, drawing on our expertise in structuring and packaging partnership programmes that preserve Abu Dhabi’s ownership and control of its assets.
Our priority for 2019 is to continue leveraging existing and new partnerships to maximise value, drive efficiencies, improve performance and unlock new and greater value from our resources and assets.
This will be crucial as we intensify our focus on delivering on our strategic objectives of a more profitable upstream, a more valuable downstream and a more sustainable and economic gas supply – all underpinned by more proactive and adaptive marketing.
ADNOC has announced it intends to make strategic investments overseas in support of its downstream strategy. Can you talk about these investments and how ADNOC is becoming an IOC in terms of its footprint?
We have an international component to our downstream strategy whereby we will look to make highly select and strategic international and domestic investment opportunities and initiatives that will further ADNOC’s position as a more integrated downstream company.
By targeting strategic international investment opportunities and initiatives, we will ensure long-term market access for our hydrocarbons and deepen our global marketing and crude/product placement.
An example of this approach is our decision to explore, alongside Saudi Aramco and three Indian oil companies, co-investment in the development of a new mega-refinery and petrochemicals complex on India’s west coast.
Our investment in this project will secure offtake of our crude to a key growth economy, as well as one of the world’s largest and fastest-growing refining and petrochemical markets. It also underlines our expanded approach to partnerships, which combine a truly unique set of resources, capabilities and market access to create and maximise shared value.
What is the importance of the Fourth Industrial Revolution to ADNOC and what does ADNOC 4.0 look like to you?
Today’s global economy is not only growing in the traditional centres. Prosperity is spreading throughout the entire world. At the same time, the world is undergoing an unprecedented digital transformation that is shaping companies’ operations, unlocking new business paradigms and driving rapid socio-economic change.
In order to meet this fundamental shift in global growth, and consequent shift in demand for energy, oil and gas companies must pay heed to what ADNOC calls the Oil and Gas 4.0 mission.
That means embracing disruptive technologies and innovations such as AI, big data and blockchain to strengthen performance, increase efficiencies and empower people. At the same time, it requires new mindsets that will shape not only how we do business but how we drive sustainable global development.
For example, by thinking differently, applying technology creatively and adjusting the business model, ADNOC has begun to unlock huge reserves of previously uneconomical gas, which will put the UAE on a path to gas self-sufficiency and ultimately allow it to transition to a net exporter of natural gas.
Meanwhile, ADNOC is using predictive analytics to reduce its maintenance costs, prevent shutdowns and avoid system failures. Big data is allowing us to make real-time decisions in response to market movements, in line with industry trends and ahead of the competition. And blockchain is generating valuable efficiencies by transforming how we track the transaction of every hydrocarbon molecule we produce, from first oil to final sale.
Ultimately, our ambition is to extend technology’s power across our entire value chain from drilling platforms to trading platforms. We intend to embed innovation into every aspect of our business, in order to stay ahead of the curve and capitalise on the opportunities created by the fourth industrial age.
How important is in-country value (ICV) to you and what steps are being taken to increase its contribution to the UAE’s economy?
ADNOC is an integral part of Abu Dhabi’s and the UAE’s economy and prosperity and will remain so for many years to come. Most importantly it will continue to play a central role in helping achieve the UAE’s ambitious socio-economic development objectives established by the country’s leadership.
Our In-Country Value programme is a critical part of ADNOC’s contribution to the development and diversification of the UAE’s economy. Through the programme we will deliver greater opportunities for the private sector to participate in and benefit from ADNOC’s success, while at the same time supporting the nation’s continuing sustainable GDP growth.
In 2018 alone, the value of our ICV impact exceeded AED 18 billion [USD 4.9 billion]. This represented a significant year-on-year increase and we fully expect the amount spent on local goods and services will increase, in the coming years, as contracts progress to the implementation phase.
With ICV included as part of all tender evaluations and award processes, the programme will make an increasingly important contribution to the UAE’s economic growth, as we deliver our USD 45-billion downstream expansion strategy by creating business and investment opportunities in the private sector, increasing the purchase of local goods and services and the employment of UAE nationals, and developing the knowledge sector.
The UAE is making significant investments in renewable energy. What impact will this have on ADNOC and how do you see the future of the country in terms of energy security via sustainable energy diversity?
By 2040 oil consumption will rise by at least an extra 10 million bopd and demand for natural gas will grow by 40%. This means hydrocarbons will remain a key part of the global energy mix as economic growth continues to drive energy consumption and ADNOC is well placed to continue to be a responsible and reliable energy provider for decades to come.
However, no single source of energy will be able to satisfy future demand. So, as the energy mix evolves, renewables and hydrocarbons will complement, rather than compete with, each other. And the more renewables we use, the more we can redirect hydrocarbons to create higher-value products such as the petrochemicals that are the building blocks of everyday life, or to supply the world’s growing energy demand where it is needed most.
Today, the economics of renewables have reached an unprecedented tipping point, where deploying renewables is economic, liberates hydrocarbons for other purposes and generates greater value. This integrated energy model, driven by a compelling economic case, is what will ensure sustainable energy security. This belief lies at the core of the UAE’s Energy Strategy 2050.
Your expanded partnership strategy has attracted new investors from the non-traditional countries (India, Thailand, China). How do you see the energy landscape shifting and how does that fall in line with your strategy?
Global demand for energy continues to grow but the demand dynamic is shifting from west to east and from north to south as emerging economies become more prosperous. By 2040, non-OECD countries will account for over 70% of global energy demand, adding almost the equivalent energy use of North American and Europe combined. These changes also sit alongside forecasts of a rapid increase in demand for products derived from petrochemicals from the expanding middle classes in Africa and Asia.
These shifting trends are creating an energy landscape where new rules of engagement are required. In response, ADNOC is adopting more creative working practices and more flexible business models to capture growth, maximise efficiency and create greater value from every barrel of oil produced as we accelerate delivery of our 2030 smart growth strategy.
Alongside our domestic upstream and downstream investments, we are also exploring strategic, commercially driven, targeted investments to secure offtake for our crude oil and to improve market access and product placement capabilities for our expanding portfolio of refined and petrochemical products.
To achieve both strategic goals, we will continue to engage with partners, existing and new, who can contribute the right combination of capital, technology and capabilities to accelerate the development of Abu Dhabi’s hydrocarbons resources and help us secure access to target markets and the new centres of global demand, particularly in India, China and Southeast Asia.
China represents a key strategic partner for ADNOC and the growing ties between ADNOC and Chinese companies such as CNPC, China ZhenHua and Wanhua are a testament to the depth and importance of the relationship. We are keen to explore how ADNOC can continue to serve the growing demand for energy, and in particular for chemical and petrochemical products in China, as a key growth market.
Meanwhile, ADNOC is unwavering in its commitment to being a reliable partner in India’s energy security. In 2018, for example, Indian oil companies were given access to Abu Dhabi’s hydrocarbon resources for the first time, when an ONGC-led consortium was granted a 10% interest in the offshore Lower Zakum concession.
ADNOC has also supplied crude oil for one of India’s strategic reserves and is exploring a strategic partnership and co-investment in the development of a new mega-refinery and petrochemicals complex at Ratnagiri, on India’s west coast, alongside Saudi Aramco and a consortium of three Indian oil companies.
We look forward to exploring further opportunities to expand our energy partnerships – with both China and India, as well as others – and to collaborating on new, broader opportunities that will further strengthen and deepen both our upstream and downstream businesses, as well as expand our international footprint.