Early in 2000, the UAE marked the fiftieth anniversary of the drilling of the first oil well at Ras Sadr, northeast of Dbu Dhabi. In the ensuing half century the UAE's oil and gas industries have shown remarkable progress. Today, proven recoverable oil reserves are around 100 billion barrels (10 per cent of the world's total) whilst proven recoverable reserves of natural gas in the UAE are currently estimated at 6 billion cubic metres, or 4 per cent of the world total. Thsi makes the UAE's gas reserves the third largest in the Middle East (after Iran and Qatar) and the fourth largest in the world (with Russia holding the biggest reserve).

The UAE produces oil in accordance with quotas agreed with the national quotas agreed by the members of the Organisation of Petroleum Exporting Countries (OPEC). Following a period of rising oil prices through most of 1999 and 2000, OPEC members made a series of increases in quotas aimed at bringing more stability to the market. A meeting on 10 September 2000 raised the production of OPEC's members by 3 per cent, equating to an additional 800,000 barrels per day. The UAE's contribution to the supply increase was set at an extra 70,000 barrels per day over its previous quota of 2.219 million barrels per day, bringing it to 2.29 million barrels per day with effect from 1 October 2000. OPEC announced that it would closely watch the behaviour of the market with the hope that prices would stabilise between $22 to $28 per barrel. In the event that it became necessary to do so, OPEC was reported to be willing to consider further output increases.
 

Abu Dhabi Oil Industry

Ahu Dhabi emirate controls more than 85 per cent of the UAE's oil output capacity and more than 90 per cent of its reserves. Its oil is consideeredlight, with gravities in the 34-40 degree API range (Murban 39 degrees, Lower Zakum 40, Umm Shaif 37 and Upper Zakum 37). Murban is its major export crude, shipped from the Jebel Dhanna terminal. Umm Shaif and Zakum crude is exported from the terminal on Das Island. The quality of Abu Dhabi crude, the long-term evergreen contracts with its customers, and the security of supply hve combined to make the UAE a major supplier of crude oil to the Far East. The UAE's single largest customer for its oil and gas is Japan. In fact more than a quarter (28 per cent) of Japanese oil imports in 1999 came from the UAE. Meanwhile, the UAE is Japan's fifth largest supplier of natural gas. The figures are even more impressive when seen from the UAE's perspective with 60 per cent of the UAE's oil exports and 80 per cent of its gas exports being sold to the Japanese market.

The Supreme Petroleum Council, established in June 1988, determines oil policy for Abu Dhabi. Its chairman is the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, Sheikh Khalifa bin Zayed Al Nahyan, and its Secretary-General is Yusif bin Omair Yusif. Among the Supreme Petroleum Council's responsibilities is management control of ADNOC. This company, in tur, has majority shareholdings in a range of subsidiaries in the UAE and overseas which specialise in upstream and downstream oil and gas operations, as well and distribution, shipping and all other aspects of the hydrocarbons industry.

Since 1999, oil refining in Abu Dhabi has been carried out by a wholly owned subsidiary of ADNOC, the Abu Dhabi Oil Refining Company (TAKREER). This was set up as part of a major restructuring of ADNOC. The emirate's first refinery, at Umm al-Nar, started up in 1976 and currently has a capacity of 90,000 b/d.

In June 1996, the export of condensates from Ruwais began from a new berth, following the opening of a major gas recycling project targeting the Thamama C and F non-associated gas reservoirs. Two 140,000 b/d condensate distillation trains were commissioned in 2000 (the first in May, the second in July), thus tripling the refining capacity at Ruwais and eliminating the export of condensate. TAKREER's total refining capacity in the middle of 2000 exceeded 500,000 b/d.

Environmental concerns are increasingly to the forefront of oil and gas industry development in the UAE. TAKREER is able to make unleaded gasoline at Ruwais and quantities are manufactured as required. Similarly sulphur in the gas oil bass voluntarily reduced from both the Ruwais and Umm al-Nar refineries. The decision has been taken in principle to produce only unleaded gasoline, phasing out leaded gasoline production and reducing the sulphur in gas oil. TAKREER is currently planning to build a Dh 1.47 million (US $400 million) lube base oil refinery with a capacity of 300,000 tons/year. The US company, Bechtel, has carried out a feasibility study for the project. The refinery, integrated with the existing one at Ruwais, is scheduled for commissioning in 2004. Other measures have included minimising air emissions, treating oil water, disposing effluent water through disposal wells and reduction of waste disposal to the sea, in addition to schemes to minimise gas flaring and effluent water disposal by injection. Oil flaring while esting on drilling rigs was reduced by 70 per cent by injecting it in the well's streams.

In addition to developing its own oil industry, Abu Dhabi has investments in several overseas ventures through the government-owned International Petroleum Investment Company (IPIC). In October 1999, IPIC announced that it had reached an agreement with South Korea's Hyundai Group to acquire a 50 per cent controlling interest in the latter's Korea oi refining and marketing subsidiary. Hyundai Oil Refinery Company (HDO), with Hyundai affiliates retaining the other 50 per cent.

Oil exploration has always been a key element of ADNOC's work. Two exploratory and 12 appraisal/delineation wells were drilled from 1995 to 1999 in the concession areas of ADNOC, ADCO and ADMA-OPCO, so that the total exploration and appraisal/delineation footage drilling during the period reached 167,265 feet. Out of this, 23,161 feet were for two exploratory wells (one for ADNOC and the other for ADCO) while the remaining 144,104 feet were exclusively for 12 appraisal/delineation wells. During the period the drilling activities of the company continued at a peak level, both in onshore areas, reaching a total footage of 4.7 million feet, concentrating mainly on the drilling of development wells in major oil and gas producing fields. Of this, 2.7 million feet were drilled onshore and the remaining in offshore areas.
 

Dubai and the Other Emirates

Dubai's oil production peaked in 1991 at 410,000 b/d and has been steadily declining ever since then. In the mid-1990s, production was running at around 230,000 b/d but dropped in 1999 to 170,000 b/d. The major company involved with Dubai's oil is the Dubai Petroleum Company (DPC). This venture is also the operator in a consortium that discovered the four major offshore oilfields, Fateh, Southwest Fateh, Rashid and Falah.

Production of condensate from the onshore Margham field is running at around 25,000 b/d. A condensate refinery began production at Jebel Ali in May 1999. The refinery currently has five Merox units capable of processing condensates from the Gulf region into 34,000 b/d of kerosene, 11,500 b/d of diesel, 5000 b/d of liquefied petroleum gas (LPG) and 33,000 b/d of naphtha.

Dubai has three terminals from which oil and LPG is exported: Jebel Ali, Port Rashid and Fateh. On the domestic marketing front, Emirates Petroleum Products Company (EPPCO) Lubricants produces and markets engine oil and lubricants in the UAE. Early in 2000, Emirates National Oil Company (ENOC) revealed that it intended to move into the domestic petroleum retain market, joining (and competing with) EPPCO, Emarat and ADNOC-FOD, by setting up 30 of its own gasoline stations in Dubai and other Emirates.

Sharjah is the third largest hydrocarbon producer in the UAE, with oil production centred on the offshore Mubarak field whose northern sector lies in an Iranian concession area. As a result, while Sharjah has drilling and production rights, it shares production and revenue with Iran. At the same time, 20 per cent of Sharjah's remaining revenue is shared with the Emirate of Umm al-Qaiwain and 10 per cent with Ajman. Sharjah's hydrocarbon resources are confined largely to natural gas (see later in this chapter) and condensates. The Mubarak field, operated by Creasent Petroleum, came on stream in 1974, with an initial output of 60,000 b/d. but by early in 2000, production from the Mubarak field was estimated at 6000 b/d.

Onshore, Crescent Petroleum drilled an exploration well late in the year in the Hamriyah area of Sharjah, east of the Saja's gas and condensate field, with results due to be announced as this book went to press.

In mid-1999, a small refinery, which was assembled in the Sharjah free trade zone of Al Hamriyah, began operations. It is run by the Sharjah Refining Company (SRc) - an affilitate of the Fal Group of the UAE. The refinery was put together in three phases. The first phase consisted of a 16,000 b/d crude distillation unit and a 7500 b/d reformer.

The search for oil in Ras al-Khaimah has been continuing since 1967, with the emirate estimated to have reserves of 400 million barrels of oil and condensate.

In January 2000 Fujairah announced that it refinery, which had suffered from temporary closure following the bankruptcy of one of its partners, was to re-open under control of the Gujairah Refinery Company Ltd. Production of 90,000 b/d, including jet fuel, kerosene, fuel oil and gasoline, has been forecast. Meanwhile Fujairah is continuing to expand its oil products storge capabilities. A 20-tank storage farm, built at a cost of US $84 million, was opened early in 1999, and towards the end of the year a contract was awarded for the construction of six more tanks. The tank farm distributes products to regional markets such as Pakistan, India and East Africa.
 

Gas: The UAE's Fuel of the Future

Oil has underpinned the development of the UAE thus far, but it is becoming clear that natural gas will be playing an increasingly major role for the emirates as a whole throughout he twenty-first century. Not only does the UAE own vast reserves of its own, but it is also taking the initiative of developing a hub in the emirates to supply a network that will benefit the entire Gulf region - and possibly countries further afield at a later stage.

Once again, Abu Dhabi has been blessed with the biggest reserves - as much as 90 per cent of reserves are located within the territorial land and waters of that one emirate. As early as 1977, the Abu Dhabi Gas Liquefaction Company (ADGAS) built and LNG plant on Das Island to process associated gas. Initially the plant had two trains, and a thilrd was added in November 1994. As well as LNG, this plant produces smaller amounts of liquefied petroleum gas (LPG), pentane and sulphur. The plant's nameplate capacity is 5.5 mn tons/year (t/y), but production has frequently been is excess of that figure. Since 1992, gas has been produced from Abu Dhabi's share of the vast Khuff reservoir - one of the largest in the world - under the Abu al-Bukhoosh and Umm Shaif oilfields.

The venture's principal long-term customer is the Tokyo Electric Power Company (Tepco) which signed a 20-year contract beginning in 1977 to buy 4.3 mn t/y of LNG, with an option of lifting additional quantities of up to 4.9 mn t/y, plus a much smaller quantity of LPG. The contract was extended by another 25 years in 1994. Tempo imports about 30 per cent of its gas supply from ADGAS. In May 1977, ADGAS took delivery of its fourth LNG carrier from Kvaerner-Maesa Yards of Finland to carry LNG to Tepco's power plant in Japan. The National Gas Shipping Company (NGSCO) operates the carriers. These replaced four other tankers that had been on long-term charter. As well as the Tepco deal, ADGAS has signed a series of short-term supply contracts with another firm in Japan as well as customers in South Korea, Spain, Italy and Belgium.

ADGAS's other major long-term contract, for the supply of LNG to India, was signed in 1999. Under the deal, ADGAS, will provide Enron's Indian affiliate MetGas with 500,000 t/y of gas for a 20-year period beginning in 2001. LNG from Abu Dhabi, as well as larger volumes from nerby Oman, will be used to meet the fuel requirements of the 2450 MW power station.

In March 1999 ADNOC made some key decisions regarding its onshore gas development. A second gas supply scheme, known as the Onshore Gas Development Phase-2 (OGD-2) project, was initiated at the Bab field. When it comes on stream in early 2001 it will add an incremental 1 bn cfd of gas into the domestic network. Contractors in 2000 were constructing a new pipeline connection to the Maqta/Taweelah manifold as part of the ongoing OGD-2 project. The existing power plant at Taweelah is already linked into the domestic network through an overland pipeline spur from Maqta. 

In February 2000 a US $84 million agreement was signed between Abu Dhabi Gas Company (ATHEER) and the National Petroleum Construction Company (NPCC) both part of the ADNOC group, to build a pipeline from Maqta Area to Jebel Ali in Dubai in order to provide gas to Dubai. ATHEER's Director General Rashid Mohammed Al Otaiba and his NPCC counterpart Oqail Abdullah Madhi were signatories to the agreement. The 112-kilometre-long pipeline, with a diameter of 48 inches, will be constructed according to international safety and environment protection specifications and have a capacity of 900 million cubic feet a day. The initial capacity will be completed and commissioned by March 2001.

In early September 2000 ADNOC indicate its serious commitment to further development of its offshore gas fields. The company signed an offshore engineering, procurement and construction contract for its US $1 billion (Dh 3.67 billion) Khuff gas project with US firm ABB Lummus and the National Petroleum Construction Company, NPCC. A statement issued after the signing inAbu Dhabi said the project involves the installation of a new gas-gathering network and new gas-processing platform to enhance the sustainable flow rate of new and existing facilities to 15.29 million cubic metres per day of gas. The facility currently has a capacity of 8.49 million cubic metres per day. The gas will be transmitted via a 75 centimetre offshore pipeline.

Completion of OGD-2 - developing the Thamama C and D gas reservoirs - was due in 2000. It will provide an additional 1100 mn cfd of raw gas, with 950 mn cfd being sold to meet the needs of the expanding power and desalination sector, industrial users and the condensate splitter at the Ruwais refinery. As part of the onshore development, the Asab Gas Development project - a new grassroots facility to process the natural gas from the Thamama F and G reservoirs in the Asab field - was also due for completion in 2000. This has the capacity to produce and gather 825 mn cfd of sour gas into the various reservoirs. A pipeline has been constructed to transport condensate to the Ruwais refineery. With the commissioning of the two condensate splitters at Ruwais, exports of condensate from Thamama C and D (100,000 b/d) were to stop. Instead, the condensate from there and a similar amount from Thamama F and G were to be piped to Ruwais for the production of naphtha. The decision to switch from the export of condensates to naphtha reflects the fact that the latter commands a higher price on international markets.

Another major facility at Ruwais is the natural gas liquids processing plant operated by Abu Dhabi Gas Industries Ltd (GASCO). This produces around 6 mn t/y of propane, butane and pentane.

Abu Dhabi's main future gas policy is to develop gas resources to meet growing domestic requirements, giving priority to generating water and electricity, supply of gas to new industries, petrochemical projects and any re-injection needs. Estimates of the gas supply needed to meet these requirements all point to a sharply rising demand in the coming decade. Abu Dhabi's gas supply in 2001 is projected at approximately 5.7 bn cfd - consisting of 2.46 bn cfd from condensate gas, 1.62 bn cfd from the Khuff offshore production and 1.62 bn cfd from associated gas. However, demand projections show that power generation and industrial consumption will increase from 1.78 bn cfd in 2001 to 2.1 bn cfd in 2005, and that demand for reinjection will grow substantially from 2.57 bn cfd to 4.25 bn cfd during the same period as Abu Dhabi's oilfields continue to mature, while LNG demand will remain constant at around 1.1 bn cfd. These demand estimates leave a shortfall of nearly 1 bn cfd by the year 2005, and the supply deficit is projected to widen ever further to more than 3 bn cfd by 2015.

Demand for power and water in Abu Dhabi is increasing by 8 per cent a year. At present the emirate is generating 3500 MW of electricity and producing 262 mn b/d of water. Output is expected to rise to 6964 MW/400 mn b/d by 2005 and 7536 MW/573 mn b/d by 2010. The privatisation schemes form part of a new drive towards increasing capacity whilst reducing cost to government.

Dubai produces limited amounts of gas and this is not nearly enough to meet the rising demand from its fast-expanding industrial sector. At present, its main source of gas (up to 400 mn cfd) is its northern neighbour, Sharjah. The major customers for the BP-operated Saja's a Moveyeid onshore fields in Sharjah are the Sharjah Electricity and Water Authority, the Dubai Supply Authority and the UAE Ministry of Electricity and Water. In September 1999 another operator, Sharjah-based Crescent Petroleuym and its partner Atlantis Holding Norway AS, announced that significant quantities of hydrocarbons had been discovered at the offshore Sharjah-2 well. This was the first well drilled by Crescent/Atlantis in the 1018 square kilometre block, which runs from the Sharjah coastline to the Crescent-operated Protocol Area where the Mubarak field is located.

The pace of industrial development is swiftly pushing up gas consumption in Dubai. In 1998, power generation and water desalination used around 380 mn cfd, with peak demand rising to 500 mn cfd. It is expected that demand growth rates for these two sectors will be between 8 per cent and 9 per cent annually through to the year 2010. Dubai's major aluminium producer, DUBAL, is presently consuming an estimated 240 mn cfd. Other industries in Dubai (existing or under construction) used 70 mn cfd in 1998 and this figure is set to rise to 90 mn cfd by 2005.

Given the rising demand for gas in Dubai, a major concern is how best to deliver gas from the production areas to this centre of consumption. As mentioned above, work recently began on constructing a 112 kilometre pipe from the Al Taweelah processing plant in Abu Dhabi's Maqta' district to the Jebel Ali industrial zone in Dubai. At a later stage the plan is that gas from 
Qatar will also reach Dubai via this pipeline. The idea of the Qatar connection arose out of a realisation that the scope of the demand for natural gas in the UAE, and elsewhere in the Gulf, was rising so rapidly that new and much broader strategic thinking was required. This led to the birth of the most ambitious gas distribution scheme ever attempted in the Middle East: the Dolphin initiative.
 
 

The Dolphin Initiative

Early in 1999, The United Arab emirates Offsets Group (UOG) came up with a new proposal for bringing gas to he UAE market - and to ?Dubai in paticular. The logic was that nearby Qatar, in its offshore North field, has one of the biggest reservoirs of gas in the world. It needs to find a market, and Dubai needs to find a new source of supply. The UOG proposal - known as the Dolphin Project - entailed construction of an 800 kilometre undersea pipeline from the North field to a landfall in Abu Dhabi. From there the gas would be piped overland, first to Jebel Ali and then on to Oman. 

In March 2000 the UOG announced that they had reached an agreement with the US's Enron and France's Elf (a subsidiary of Totalfina) on a strategic partnership to implement the Dolphin initiative. The first priority is construction of a pipeline from Qatar to Dubai via Abu Dhabi with a view to completion in late 2002 or early 2003. Intitial deliveries are expected to reach around 1.2 bn cfd of gas, expanding to 3 bn cfd over two to three years as the customer base grows. Of this amount, 80 per cent is earmarked for use in the UAE, to include the 500 mn cfd which Abu Dhabi has contracted to supply to Dubai.

The cost of the production facilities and the pipeline from Qatar to Abu Dhabi, Dubai and Oman is expected to total about US $4 billion, of which US $2-3 billion is expected to be spent on productionand processing and US $1-2 billion on the pipeline. The overall cost of taking gas to these markets, and building the power projects and industrial plants linked to the gas stream, is projected to take the total capital outlay to US $8-10 billion, much of which is to come from the customers.

With its decision to launch the Dolphin project, the UAE has taken the initiative in developing the first links in an intra-Gulf gas network. Beyond that, the UAE could become the hub for an even wider gas distribution system, with pipelines extending to Pakistan in the first instance, and possibly as far as India at a later stage.
 
 

Petrochemicals

Abu Dhabi is also taking steps to develop and expand its petrochemicals sector. Construction started early in 2000 of a 600,000 t/y ethylene plant in the Ruwais industrial area. The project, which will also contain two 225,000 t/y polyethylene plants, is being carried out by Borouge, a joint venture owned 60 per cent by ADNOC and 40 per cent by Denmark's Borealis. The ethane-based cracker will supply feedstock to the two polyethylene plants and ADNOC's planned dichloride plant. Borouge will be producing high-density and linear low-density polyethylene. Borouge Singapore will handle marketing of the products. The Dolphin project discussed above is expected to increase regional demand for high quality polyethylene piping and the Ruwais facilities will be particularly well placed to meet this demand.

The petrochemical industry is not however confined to new ventures in the UAE. The Ruwais Ferilizers Industries Ltd. (FERTIL), which is owned by ADNOC (63.75 per cent), began production of ammonia and urea in 1984. By 1994 the output of the two was 600,000 t/y.