Uae'S Gas Driven Future Is Emerging And Adnoc Must Deliver

Demand for gas at home and oil internationally: that is the key theme of Adnoc's latest bumper budget. Its board meeting last week approved $150 billion of capital expenditure over the next five years. Does the state oil company's latest budget and resource base set it up to meet its mission?

The most critical issue is to assure domestic energy security, predominantly by providing natural gas. The country wants to be capable of self-sufficiency by 2030. While nuclear and solar power have greatly diversified power generation, domestic demand is rising again.

People are flocking to the country, attracted by strong economic growth and attractive lifestyles, or escaping financial and political malaise elsewhere. New gas-based industries are being established, to support a wider manufacturing base. Artificial intelligence, such the 5 gigawatt "Stargate" computing project, is hungry for electricity. And the new liquefied natural gas export plant at Ruwais will need about 1.3 billion cubic feet of gas input daily when it starts up in late 2028.

Adnoc's gas subsidiary expects UAE consumption to rise at 4-5 per cent per year up to 2030. Timing of its gas megaprojects is critical to stay in sync with demand.

The biggest single production increment will come from the giant Ghasha offshore development, which has now been expanded to 1.8 billion cubic feet per day from 1.5 Bcfd, due fully on-stream by 2028. But these are technically-complex and challenging projects, demanding strict cost control.

On the oil side, Adnoc plans to raise crude oil production capacity to 5 million barrels per day by 2027, a target it has already almost achieved. It has managed to stick to its plans so far despite pervasive uncertainty. The UAE is allowed to produce 3.4 million bpd next month and the first quarter of next year.

Oil prices have slipped pretty steadily since mid-2022, but they have not collapsed, despite a series of bumper increases in Opec+ production allowances. A forecast "oil glut" has not yet arrived, although oversupply next year seems nearly unavoidable.

Yet, with US shale slowing down, Russia hit by sanctions and Ukrainian drones, and only a couple of Opec+ colleagues having credible expansion plans, there is room for the UAE to push its output higher. In its meeting on Sunday, the oil exporters' group was meant to agree on a mechanism to evaluate members' production capacity for a reset of baselines in 2027. This makes it particularly important for the UAE to put a stake in the ground now.

Adnoc also announced a further upgrade to its reserves. These changes can be split into three categories. Conventional oil increased by 7 billion barrels to 120 billion barrels, and conventional gas by 7 trillion cubic feet to 297 trillion cubic feet.

Within this increase, 1.2 billion barrels of oil-equivalent (combining oil and gas, for which Adnoc did not provide a split) came from new discoveries. The bulk of the gain, therefore, comes from improved recovery and extensions to existing fields, typical for most established producing areas.

In the third category, the emirate holds 220 billion barrels of unconventional oil and 460 trillion cubic feet of unconventional gas in place. The latest board meeting reaffirmed estimates that 22 billion barrels and 160 trillion cubic feet of this could be recovered.

These figures may increase as development proceeds. Adnoc is working with TotalEnergies in the Ruwais Diyab concession, targeting unconventional gas, with US shale specialist EOG to investigate oil in the Al Dhafra area, and with Malaysian state firm Petronas on two unconventional blocks.

The UAE as a whole produced about 1.1 billion barrels of oil and about 2.2 trillion cubic feet of gas during last year, nearly all of it accounted for by Adnoc. So, it more than replaced production with reserves gains.

If it actually produced at its full target capacity, current conventional reserves would notionally last for about 65 years. Conventional gas reserves at likely 2030 production levels will be sufficient for about 90 years. Very few countries, nearly all in the Middle East and North Africa, have longer reserves lives.

So there is plenty of room for Adnoc to be even more aggressive in production targets, particularly if its unconventional developments take off. It touted the successful use of AI in making its new discoveries.

Projected average annual spending of $30 billion is the same as in the last plan which covered 2023-27. This is slightly more than that of ExxonMobil, the largest non-state oil company, and well ahead of other competitors such as Shell and TotalEnergies. They operate more complex and generally higher-cost, geographically-dispersed assets. Its big regional peer, Saudi Aramco, will spend about $55 billion this year, but its downstream and chemicals operations are much more extensive.

At current oil prices, Adnoc's revenue should be very roughly in the order of $100 billion a year, excluding its retail, trading and overseas activities, and the shares of joint-venture partners. It intends to recycle $60 billion into the UAE economy over the next five years through its in-country value programme, which looks achievable given reported results so far. Its six listed entities, including Adnoc Gas, pay about two-fifths of all dividends by ADX companies. It also contributes heavily to the government budget.

The company has been through a major transformation over the last decade, listing subsidiaries, attracting outside capital, restructuring all its major joint ventures, implementing AI, and internationalising. All this came despite the turbulence of oil market battles, actual wars in the region and beyond, and a global pandemic. Its next half-decade must deliver on challenging project execution, cost control and ambitious new deals, in the face of possibly lower oil prices and, no doubt, further external shocks.

Source: THENATIONALNEWS