ABU DHABI - Part 1 - Executive Summary.

The UAE emirate of Abu Dhabi is by far the wealthiest Middle East state in per capita terms and financially. It has been one of the most attractive places in the world for foreign investors. Alert to any new opening or additional incentives offered in the neighbouring countries, the local government will always try to be competitive, if not the very best. Local and foreign investors will always be happy operating in this emirate.

Abu Dhabi is a major source of high quality oil, of LNG, LPG and other gas liquids, and condensates. It will become a more important exporter of these sources of energy and industrial feedstocks in this decade.

True to tradition since late 1971, the UAE marked its 33rd anniversary on Dec. 2, 2004 as the only successful union in the Arab World. But this time it was a sad occasion as the founder of this union of seven emirates, Abu Dhabi ruler Shaikh Zayed Bin Sultan Al Nahyan, died on Nov. 2 - one month before he was to celebrate his 33rd anniversary as UAE president. Shaikh Zayed was succeeded as Abu Dhabi ruler and UAE president on Nov. 3 by his first son and crown prince, Khalifa Bin Zayed; and his third son, Mohammed Bin Zayed, became the crown prince of Abu Dhabi.

By far the largest and wealthiest among the seven UAE emirates, Abu Dhabi prides itself on leading this union. The whole of the UAE is 84,000 sq km, and Abu Dhabi is 77,700 sq km. Total population in the UAE, including the expatriates, is almost 4m (compared to 2.39m in early 1997). Each of Abu Dhabi and Dubai accounts for over 1m. Excluding the expatriates, Abu Dhabi's GDP per capita is the highest in the world. All the sectors in Abu Dhabi are expanding to cope with a steady economic growth expected in this decade and a further improvement in social conditions. The main features of expansion in the sectors of energy and industry are:

Abu Dhabi has the capacity to produce 2.7m b/d of crude oil and condensate, up from 2.45m b/d at end-1996 and 1.9m b/d in 1990/91. The capacity will be expanded to over 3.4m b/d by 2007 (The capacity to produce crude oil and condensates in the other UAE emirates, mainly Dubai and Sharjah, has declined to less than 200,000 b/d). In the state-owned Abu Dhabi National Oil Co. (ADNOC), upstream experts say current and future capacity levels should remain sustainable for up to 25 years, rather than for 12 months. The UAE's total oil and condensate output from late 2002 to end-2004 was about 2.7m b/d.

The geology and resources of Abu Dhabi, compared to its size, are the envy of all the countries in the world. Its proven oil reserves are put at 92 bn barrels, and there are more than 200 bn barrels of oil in place yet to be appraised for development. Its proven recoverable reserves of natural gas are 190 TCF (about 5.7 TCM), with more to be found and proven in future. To compare, recoverable oil reserves in the whole of the UAE are below 98 bn barrels, and proven reserves of natural gas are almost 205 TCF (see Gas Market Trends).

Six major fields in Abu Dhabi, three onshore and three offshore, account for the bulk of the emirate's oil, condensate and gas production; and the oil is of high quality. Most of Abu Dhabi's oil and gas fields are being expanded. However, the fields have matured and require expensive EOR systems based mainly on gas injection. Unlike its bigger GCC neighbours and other OPEC members, Abu Dhabi has foreign partners sharing its burden in funding EOR projects and capacity expansions. They provide the best technology available (see Part 2).

The natural gas sector is expanding rapidly. Abu Dhabi's onshore gas production averages 3,000 million cubic feet (MCF) a day, with more than 25% of this reinjected into the oilfields. It should reach 5,000 MCF/day in 2005. Offshore production is partly reinjected and mostly used for LNG/LPG exports.

Abu Dhabi is to import gas from Qatar, as local demand is projected to rise rapidly in the coming years in view of big expansions in the power/water and industrial sectors (see Part 3).

The capacity to produce condensates has risen from 40,000 b/d in early 1994 to more than 300,000 b/d and should exceed 440,000 b/d by 2007. Condensates, NGLs and LPGs are excluded from the OPEC quota system.

ADNOC has had difficulty in marketing its condensates, partly because of the liquids' bad quality and partly because of differences with potential clients over pricing. Most of the condensates now are refined locally.

Production of LNG on Das island has more than doubled. From 2.6m t/y, the nominal capacity in late 1994 reached 4.9m t/y with the addition of a third train. But the actual production of LNG in the past ten years has averaged about 5.3m t/y and the three trains now can produce up to 6m t/y. The Das island LNG complex also produces 1.7m t/y of LPG, 535,000 t/y of pentane and 338,000 t/y of sulphur. An expansion underway should raise LPG output to 2.7m t/y by end-2005. With Tokyo Electric (Tepco) of Japan buying most of the LNG under a 25-year contract and taking a major part of the LPG output, the surplus of both LNG and LPG is being sold on spot basis.

The Das joint venture, ADGAS, is owned 70% by ADNOC. The rest of the ADGAS shares are held by BP, the Mitsui group and Total. ADNOC's share was raised from 51% in June 1997. The foreign partners' participation in ADGAS was in July 1997 renewed until 2019 (see Part 3).

The capacity of Abu Dhabi to produce LPG from onshore and offshore associated gas and from the LNG complex on Das island has risen to more than 8m t/y, from 3.93m t/y in 1994. The total capacity should reach 12m t/y by end-2007.

The Abu Dhabi Gas Processing Co. (Atheer) was in 2001 merged with Abu Dhabi Gas Industries Co. (GASCO) - with ADNOC now holding 68% and its partners being Shell (15%), Total (15%) and Partex (2%). In charge of the gas sector, Gasco has expanded its capacity to 6m t/y of ethane, LPG and NGLs. GASCO at Ruwais also has the capacity to produce up to 2.12m t/y of pentane-plus, which is expected to expand as well.

ADNOC's refining sector has been expanded from 205,000 b/d to 485,000 b/d. The Umm Al Nar refinery has a capacity of 85,000 b/d. The 120,000 b/d refinery at Ruwais now has two condensate units on stream which have boosted its capacity by 280,000 b/d. ADNOC's unit in charge of refining is called Takreer.

The Supreme Petroleum Council (SPC), the top decision maker for the hydrocarbon sector, and ADNOC have revived plans for a further expansion of the Ruwais refinery with a $500m unit to produce unleaded gasoline (see Downstream Trends No. 2 of next week).

ADNOC and Borealis of Copenhagen have a petrochemicals JV, called Abu Dhabi Polymers Co. (Borouge) with a complex at Ruwais - an expanding industrial zone 250 km east of Abu Dhabi city - on stream since January 2002. This consists of an ethane-based ethylene plant with a capacity of 600,000 t/y and two polyethylene (PE) units of 225,000 t/y each. Borouge is owned 60% by ADNOC and 40% by Borealis.

Borouge's PE production units are being expanded by 130,000 t/y under a Phase-II project. Phase-III, to be on stream in late 2009 or early 2010, is to consist of a 1.4m t/y ethylene cracker based on ethane, plus units to produce 540,000 t/y of PE and 800,000 t/y of polypropylene (PP).

Borealis, the biggest producer of polyolefins in Europe, is now owned 50% by Statoil of Norway, 25% by International Petroleum Investment Co. (IPIC - 50-50 owned by ADNOC and the Abu Dhabi Investment Authority), and 25% by OeMV. IPIC holds 19.6% in OeMV, the biggest oil and industrial company in Austria. IPIC and OeMV bought their stakes in Borealis from Neste Oy of Finland in September 1997. Until then Neste used to hold 50% in Borealis.

ADNOC and Takreer are considering a worldscale aromatics complex to be built at Ruwais. The SPC has also been considering another petrochemical venture to be built at Ruwais, to have the capacity to produce 520,000 t/y of ethylene di-chloride and 420,000 t/y of caustic soda (chemicals used in the salt industry). The plant will produce chlorine and salt for domestic consumption and hydrogen for the oil refining complex at Ruwais.

The capacity of the fertiliser producing complex at Ruwais, a joint venture between ADNOC and Total called Fertil, is being doubled. Fertil is also to have a 50,000 t/y melamine plant. Fertil is a JV of ADNOC and Total.

The Abu Dhabi Water and Electricity Authority (ADWEA) has a 40% stake in Oman's Sohar Aluminium Co. (SAC), which is to have an aluminium smelter built in the Sohar industrial zone with a single potline to have a capacity of 326,000 t/y and a captive power plant with a capacity of 740-780 MW. They should be in operation in the second quarter of 2008. A second 326,000 t/y potline is to be on stream by 2010/12.

This is ADWEA's first external investment, having successfully privatised the power and water desalination business in Abu Dhabi (see Downstream Trends of this week). The other 40% partner in SAC is Oman Oil Co. (OOC). Alcan of Canada holds the remaining 20% in the JV.

Overseas investments by IPIC now include stakes in four integrated groups: 19.6% in OeMV, 25% in Borealis, 12% in Cepsa of Spain, a major stake in a South Korean refining/marketing operation, and a smaller equity in Total.

IPIC also has a 30% share of a refinery at Multan, Pakistan, along with a terminal and storage facilities, in a venture called Pak-Arab Refinery Co. (Parco). OeMV has another 10% in Parco, bought in November 1997 from IPIC. Further acquisitions overseas are under study (see DT No. 3).

Abu Dhabi's total investments overseas, including those of IPIC, are now said to be worth more than $210,000m. Held mostly in liquid assets, they are worth more than twice as much as those of Saudi Arabia and Kuwait combined.

Decision making in Abu Dhabi for oil or gas policies and for projects is controlled by the Supreme Petroleum Council (SPC). The number of young Abu Dhabian graduates joining the decision makers is increasing steadily.

The SPC remains under the control of the new Abu Dhabi ruler, Shaikh Khalifa Bin Zayed who succeeded his father in early November 2004, although the council will be chaired nominally by the Crown Prince and UAE Chief of Staff, Shaikh Mohammed Bin Zayed. Shaikh Zayed died on Nov. 2 and was succeeded also as UAE president by Shaikh Khalifa. Mohammed Bin Zayed heads the local government of Abu Dhabi.

The SPC members represent the most important sectors in the emirate, mainly the Abu Dhabi Investment Authority (ADIA) and ADNOC. ADNOC initiates most of the decisions or projects, which must be approved by the SPC. ADNOC was restructured in October 1998 (see who's who in Part 4).