A sustainable future: Abu Dhabi manages market dynamics

Abu Dhabi

The UAE’s Minister of Energy H.E. Suhail Mohamed Faraj Al Mazrouei talks to TOGY about developing new oil, gas and alternative resources to ensure long-term sustainability and reinforce the country’s energy security. The Ministry of Energy works with the Abu Dhabi National Oil Company (ADNOC) and Abu Dhabi’s Supreme Petroleum Council to meet production and distribution targets.

What is driving the decision to increase crude production capacity to 3.5 million barrels of oil per day (bopd) by 2017?

Our growing economy requires more resources year after year. Abu Dhabi has made the decision to increase its hydrocarbons output in response to growing demand from the UAE. Part of that increase will be made by the ongoing expansion of the UAE’s refining capacity, from 500,000 barrels of oil equivalent per day (boepd) up to 920,000 boepd.

We decided to develop some of our new fields and ADNOC has signed exploration agreements at new concessions with the China National Petroleum Corporation and the Korea National Oil Company. In addition to developing more resources, ADNOC is targeting production of 1.8 million bopd from onshore fields, an increase from the current 1.6 million bopd.

Our offshore production is also being increased. One of our offshore operators, the Abu Dhabi Marine Operating Company, is raising its production target to 1 million boepd. The other, the Zakum Development Company, is close to its targeted 750,000 bopd. With these increases, we hope to attain a production capacity of 3.5 million bopd by 2017. We believe that this capacity will be needed, though not necessarily by 2017.

The International Energy Agency has forecasted that demand for crude from OPEC members will not exceed 30 million bopd before 2017. However, Abu Dhabi is expecting requests from its trading partners to increase their oil allocations by 2020. We envision increased demand for our crude from both our trading partners and the UAE, and that is why these production targets have been set.

What additional resources are available for Abu Dhabi to use in order to meet the UAE’s increasing electricity demand?

The UAE imports almost half of the natural gas it requires for power generation in the form of LNG. This is because most of the gas produced from our own reserves is reinjected into our fields to maintain pressure.

In order to secure more gas for generation feedstock we, along with ADNOC and its partners, have moved ahead with plans to further develop additional resources, including sour and tight gas, which will also result in the additional production of condensates.

In addition to this, we are engaging with international oil companies that possess a high level of technological proficiency in order to find ways of reducing or replacing the reinjected gas and freeing it for power generation, consumption and alternative uses, such as carbon capture and underground storage and gaseous nitrogen capture.

Even though these projects will enhance Abu Dhabi’s gas supply chain, the UAE is still expecting to import more natural gas in the future to meet domestic demand.

EmiratesLNG, which is a joint venture developing a regasification facility in Fujairah, will import close to 9 million tonnes per year of LNG for power generation and regasification. The more we develop our domestic gas resources, the cheaper LNG imports will become, so it is economic for us to do this despite the large capital expenditure it requires.

How much progress has Abu Dhabi made in the replacement of associated gas for reinjection into mature reservoirs?

We commissioned a nitrogen plant at Mirfa, which is operated by the ADNOC Linde Industrial Gases Company. This company supplies nitrogen to the Habshan onshore processing complex for compression and injection into the nearby Thammama gas reservoirs.

The ministry has also sanctioned a joint venture between ADNOC and the Abu Dhabi Future Energy Company to capture carbon dioxide from the steel plant operated by state-owned Emirates Steel Industries and inject it into the Thammama reservoirs via Habshan.

We expect to commission more of these kinds of projects in the future to boost gas production, but we are looking for the best reservoirs to target for injection.

How does the ministry’s relations with ADNOC complement its role in retaining market stability and supply security?

Managing market dynamics is best achieved by sharing all the information received from the various bodies upon which the Ministry of Energy has an influence. The ministry advises the government of Abu Dhabi directly in regards to policies and the role that ADNOC should play in supplying the market.

The ministry also represents the UAE in OPEC, so it must contribute to running the organisation and reaffirm Abu Dhabi’s export commitments to the rest of the world. When operating companies inform us of the cost to develop resources, we work with ADNOC to understand the resources’ production potential and set production targets. ADNOC’s marketing team has a full understanding of the crude market, demand and the forecast for the future.

The ministry works with this team as well as OPEC’s analysis group, which looks at changes in production across the OPEC members. ADNOC representatives meet with me and I appoint an ADNOC employee as a national representative to OPEC. The two bodies supply each other with information, and using this we develop a plan for production. That plan is usually reviewed on a month-by-month basis, depending on market demand.

If there is some kind of interruption in the output of any OPEC member states due to political turmoil in the region, we always step in at OPEC’s request in order to offset the supply reduction by maximising our own production, just as other members do.

The UAE always ensures its share of the quota is met. For this reason, we try to keep a buffer between our production capacity and our actual production. Thankfully, we have invested almost $70 billion into upgrading facilities so that they are reliable and allow us to keep production on schedule.

What are the main benefits that Abu Dhabi is seeking to derive from inviting new players into its onshore acreage?

The reason for inviting more shareholders into Abu Dhabi’s onshore acreage is that the industry has evolved a lot since it started. The technology of the past, which was largely proprietary, is no longer seen. Fields can be developed more efficiently than in the past and operators are competing to bring maximum efficiency to their acreage. Abu Dhabi’s decision to include independents into the bidding round for the onshore concessions to compete with super-majors is healthy for the market.

We have also recognised the benefits of working more closely with the national oil companies of some of our key export partners, such as Japan, China and South Korea. The share of our exports that are delivered to these countries makes them strategic partners.

The international oil companies involved in the bidding process for the onshore concessions were satisfied that it was transparent and well planned. We learned a lot from the process and we hope to use it as a platform for future concession rounds.

Are new advances in technology contributing to the diversification of Abu Dhabi’s energy industry and energy mix?

The ministry is working with Abu Dhabi’s concession-holders to enhance the input of technology in field development. We are looking at cleaner ways of integrating technology to reduce the industry’s carbon footprint.

The UAE is striving for a cleaner mix of resources, with natural gas to be the most important of those in the future. By 2020, we are looking for gas to contribute 70 percent to the UAE’s energy mix, with nuclear accounting for 25 percent. This has become a national goal that the Abu Dhabi government has tasked the ministry with achieving.

ADNOC, with the support of international oil companies, has started to develop and encourage research and development initiatives, particularly through Abu Dhabi’s engineering university, the Petroleum Institute. We are co-ordinating with the emirates to encourage the use of cleaner technology, for future generations to have sustainable energy.

Will these new resources be able to compete in the market on a commercial level?

Commercially, we cannot justify concentrating on one form of energy. We need to look at all available forms, including renewables. Reducing and preventing environmental damage is an important factor when looking at investing in renewable sources such as solar. However, if we are to increase solar energy production we must reduce the price of the energy to make it comparable to LNG, for example.

The problem Abu Dhabi has had thus far is that the cost of solar has been compared with subsidised energy forms. Petrol is subsidised in the UAE. Electricity is also subsidised, both as a feedstock and through tariffs to electricity distributors, which allow for sales at much lower rates than the cost of generation.

Removing the subsidy would help renewable energy compete in the market and this is an option we are considering. We are promoting energy conservation, and the use of technology to reduce consumption, to individuals, companies, factories and organisations.

We are also raising electricity tariffs, enforcing stringent requirements for energy efficiency and imposing heavy regulations on imports. If these initiatives do not work, reducing subsidies will become a necessary measure.

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