BMI View : Though global oil prices moderately rebounded from the precipitous deflation in 2014 - we expect the OPEC basket price to be at USD52.00 per barrel in 2015 - the long - term trajectory of stagnated pricing will continue to push petro-transitional countries like the UAE towards economic diversification. Under the right conditions, the pressure from decreased revenue can actually be a blessing in disguise. As the future success within the UAE's oil and gas industry will be inextricably linked to these economic diversification efforts, the greater revenue coming from non-hydrocarbon resources will invariably assist in production, transportation, and refining enhancements. The economic success that the country has experienced in the last five years has been skilfully recreating the conditions of a stable investment climate, which the immediate after-effects of the global financial crisis negatively impacted. With global oil prices now lessened as a result of continued hampered recovery in major global markets and the increase in global oil supply, the UAE needs to continue balance investment and growth in the non-hydrocarbon sectors while also maintaining and upgrading its domestic production capacity. Equally important will be the country's reaction towards the changing geopolitics of the region, whether it is the future of Iran-US relations or the containment and eventual demise of the Islamic State of Iraq and Syria (ISIS).
2014 brought the UAE closer to its target of to 3.6mn barrels per day (b/d) by 2019. However, as a recent economic studies have argued, investments and focus on the non-hydrocarbon sectors, chiefly the non-oil sector, will be critical to the UAE's short-term growth, particularly as global supply, by reason of unconventional production, is slated to moderately increase in the future. BMI expects that with the dramatic price changes from 2014 to 2015 prices, though an increase will be seen, the UAE will moderately increase production to 3,287mn b/d, which would be only a measured increase from its 2014 production figures of 3,236.9mn b/d.
The next two to three years will be critical for the UAE to synthesise the strong revenue it obtained from the past five years of high prices, which at the time of writing had significantly decreased, in order to diversify its economy. Greater attempts at increasing energy efficiency, waste reduction efforts, and increasing natural gas production will be critical to limiting the UAE's import requirement as consumption continues to outstrip demand.
|e/f = BMI estimate/forecast. Source: BMI/EIA|
|Crude, NGPL & other liquids prod, 000b/d||3,220.0||3,244.9||3,295.6||3,361.5||3,437.6||3,521.4||3,604.1|
|Dry natural gas production, bcm||54.1||58.0||63.9||71.6||72.0||72.1||72.2|
|Dry natural gas consumption, bcm||64.6||67.2||70.0||73.0||75.3||77.2||79.1|
|Refined products production & ethanol, 000b/d||440.3||465.2||490.5||514.7||621.3||648.0||672.5|
|Refined products consumption & ethanol, 000b/d||695.9||725.2||752.1||781.2||808.2||836.7||858.6|
We highlight the following trends and developments in the UAE's oil and gas sector:
The UAE's upstream investment plan will raise its production capacity while increasing recovery from onshore and offshore fields, resulting in billions in contracts awarded as part of a plan to raise production capacity. Over the next five years, Abu Dhabi is planning to spend USD60bn to raise its production capacity above 3.6mn barrels per day (b/d) by 2019. Given its steady focus on production capacity and investment, BMI believes that the UAE is largely on track to meet this target.
This would be on the back of significant upstream investment to drive growth at annual average of more than 2% from 2015 to 2022. According to our forecast the UAE will be producing 3.98mn b/d by the end of our forecast period in 2024.
The UAE will continue to focus on adjusting a deficit in gasoline and diesel products, while boosting production of LPG among other products. The UAE's leaders continue to put much hope in the start of new Ruwais units that potentially will allow self-sufficiency in gasoline production. Expansion of downstream capacity may also come in Fujairah and Dubai, however much of this will be contingent upon the success of exiting projects. Such projects are consistent with a strategy seen in the UAE and elsewhere in the region with producers hoping to expand refining capacity to both meet local demand but in order to export higher value added products.
The UAE's gas production is slated to markedly increase from its the 2014 figure of 60.2bcm to 69.6bcm in 2015. However, the UAE's gas production increase will continue to be offset by rising domestic consumption. BMI expects consumption growth to slow from the end of the decade as new power supplies, renewable, namely nuclear, come online and reduce the pressure on gas.
The UAE's significant potential in increasing its oil and gas production, and leveraging that potential in attracting more upstream investment, is contingent upon maintaining the delicate balance of domestic political stability and unity with its counterparts in the Gulf Cooperation Council. Domestic political stability is currently controlled by the UAE and is thus a lower priority for its political elite. However, the significant crisis within the interstate relations between the UAE and its fellow GCC member Qatar has the potential to create unforeseen geopolitical and geostrategic risks for the UAE. Though remote for the short term, the fallout from political developments broadening into the OPEC arena and influencing internal consensus cannot be ruled out. Such an outcome would invariably impact the trajectory of the UAE's production and export policies.
Furthermore, the recent co-intervention with Egypt in Libya's continued civil war has the potential to create new areas of economic liabilities for the country, particularly as it would siphon away funds from increasing oil and natural gas production efforts.