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 has become a major source of high quality crude oil, of liquefied natural gas (LNG), liquefied petroleum gas (LPG) and other gas liquids (NGLs), 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 United Arab Emirates marked its 29th anniversary on Dec. 2, 2000 as the only successful union experienced by the Arab World in modern history. By far the largest and wealthiest among the seven UAE emirates, Abu Dhabi prides itself on being the leader of this union. Abu Dhabi's ruler, Shaikh Zayed Bin Sultan Al Nahyan, celebrated his 29th anniversary as president of the UAE on Dec. 2 as well. He had undergone a kidney transplant in the US and returned to Abu Dhabi on Nov. 26, Shaikh Zayed is the oldest ruler in the GCC - aged 84 - and has proved to be among the wisest leaders in the Arab World.

The whole of the UAE is 84,000 sq km, and Abu Dhabi is 77,700 sq km. Total population in the UAE is over 2.8 million (compared to 2.39m in early 1997), with Abu Dhabi accounting for more than one million. Excluding the expatriates, Abu Dhabi's GDP per capita is the highest in the world.

The GDP of the whole UAE including the much poorer emirates was $51,880m in 1999 and was expected to grow in nominal terms by 17% in 2000, up from $48.02 bn in 1997 and $39.1ybn by end-1995. Abu Dhabi's GDP in 2000 was estimated unofficially at more than $34 bn, up from about $27 bn in 1996, as this emirate gained the most from high oil prices. 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:

* At end-2000, Abu Dhabi reached the capacity to produce over 2.65m b/d of crude oil and condensates, up from 2.45m b/d at end-1996 and 1.9m b/d in 1990/91. The capacity could be expanded to over 3m b/d by end-2001 or early 2002. (The capacity to produce crude oil and condensates in the other UAE emirates - mainly Dubai and Sharjah - has declined to about 250,000 b/d).

In the state-owned Abu Dhabi National Oil Co. (ADNOC), upstream experts say this capacity is sustainable for several years, rather than for 12 months. The UAE's OPEC quota for oil production since Nov. 1, 2000 has been 2.54m b/d (excluding condensates). Although the other UAE emirates do not abide by OPEC decisions, in its commitment to the organisation Abu Dhabi takes into account the oil outputs of Dubai and Sharjah.

The geology and hydrocarbon reserves of Abu Dhabi, compared to its size, are the envy of all the countries in the world (see Gas Market Trends).

Abu Dhabi's proven oil reserves have been officially estimated at 92 bn barrels, and there are more than 200 bn barrels of oil in place in the emirate yet to be appraised for future development. Its proven recoverable reserves of natural gas are officially estimated at 190 TCF (5.7 TCM), with more to be found and proven in the future. To compare, proven recoverable oil reserves in the whole of the UAE are less than 98 billion barrels, and proven reserves of natural gas are almost 205 TCF.

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. Unlike its bigger GCC neighbours and other OPEC members, Abu Dhabi has foreign partners sharing its burden in funding capacity expansions. They provide the best technology available (see Part 2).

* The sector of natural gas is expanding rapidly. By mid-1996, Abu Dhabi's gas production capacity reached more than 4,000 million cubic feet (MCF) a day, up from a little over 2,000 MCF/d in 1994 and about 1,800 MCF/day in 1992. A big increase is expected from three gas development and gathering projects progressing on schedule.

Before end-2001, the gas production capacity will reach more than 6,000 MCF/d. But Abu Dhabi now is expected to import gas from Qatar, as local demand is projected to rise rapidly in the coming years in view of big power and industrial expansions (See Part 3).

* The capacity to produce condensates has increased from 40,000 b/d in early 1994 to 171,000 b/d. Before end-2001 the condensate production capacity will reach more than 300,000 b/d. Condensates, NGLs and LPGs are excluded from the OPEC quota system.

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

* The capacity to produce LNG on Das island has more than doubled. From 2.6m t/y, the nominal capacity in late 1994 reached about 4.9m t/y with the addition of a third train. But the actual production of LNG in the past six years has averaged about 5.3m t/y. The Das island LNG complex also produces LPG. With Tokyo Electric (Tepco) of Japan buying 3.6m t/y 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 TotalFinaElf. 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 onshore gas processing JV, Abu Dhabi Gas Industries Co. (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 oil 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 to 400,000 b/d.

The Supreme Petroleum Council (SPC), the top decision maker for the hydrocarbon sector, and ADNOC are likely to delay a further expansion of the Ruwais refinery until they make certain this will be profitable (see Downstream Trends No. 2 of next week).

* ADNOC and Borealis of Copenhagen have a petrochemicals joint venture, called Abu Dhabi Polymers Co. (Borouge), with a complex being built at Ruwais, an expanding industrial zone 250 km east of Abu Dhabi city. This will consist of an ethane-based ethylene plant with a capacity of 600,000 t/y and two polyethylene units of 225,000 t/y each. The complex will cost about $1 bn and will be completed this year. Borouge is owned 60% by ADNOC and 40% by Borealis.

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.

As part of the September 1997 acquisition agreement, OeMV sold its 100% petrochemical unit PCD Polymere to Borealis. That move came after a fall in oil prices hurt profits in the European petrochemicals industry. PCD Polymere was not so important to OeMV, and Neste had a cash flow problem at the time. IPIC moved in with cash and helped all concerned. IPIC also has a major stake in a South Korean refining/marketing venture (see Downstream Trends No. 3).

Abu Dhabi is to have a second petrochemical venture to be built at Ruwais, approved in February 1997 by the SPC. This will 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 also produce chlorine and salt for domestic consumption and hydrogen for the oil refining complex at Ruwais.

ADNOC is delaying construction of a proposed aromatics plant in Ruwais to produce paraxylene and benzene, which would be taking naphtha from the Ruwais refinery's condensate units. This would be a joint venture with a qualified foreign company.

The capacity of the fertiliser producing complex at Ruwais, a joint venture between ADNOC and TotalFinaElf called Fertil, is to be doubled.

* Abu Dhabi is intending to have a $1.5-2 bn aluminium smelter built with a capacity of 220,000 t/y in a project promoted by the state's General Industry Corp. (GIC).

A final decision on this is yet to be taken by the SPC and would have political implications for both Dubai and Bahrain. Dubai has been concerned that Abu Dhabi's project would seriously affect its own smelter (Dubal), which has been expanded at high cost, while aluminium prices have come down. Bahrain's smelter (Alba) is the largest in the world. Oman is intending to build an aluminium smelter as well. A smelter project in Qatar has been postponed or shelved.

* A steel rolling mill is to be built for GIC. Initially, its capacity will be 500,000 t/y. The mill will be supplied by a European consortium headed by SMS Schloemann Siemag of Germany, under a $60.3m contract signed in 1997.

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

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 and IPIC is considering partnerships in some bargain assets in Asia (see DT No. 3).

* Abu Dhabi's total investments overseas, including those of IPIC, are now said to be worth about $190 bn. Held mostly in liquid assets, they are worth twice as much as those of Saudi Arabia and Kuwait combined.

The Decision Makers: 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 university graduates joining the decision makers is increasing steadily.

Under the chairmanship of Crown Prince Shaikh Khalifa Bin Zayed, who heads the local government of Abu Dhabi, the SPC members represent the most important sectors in the emirate. ADNOC initiates most of the decisions or projects, which must be approved by the SPC. ADNOC was restructured in October 1998 (see Part 4).

Dubai's oil production has declined to less than 200,000 b/d, due to field depletion, and is expected to fall below 175,000 b/d in the next two years. This compares with 420,000 b/d during the 1990 Gulf crisis. Its oilfields are offshore, operated by a consortium under Conoco of the US and including TotalFinaElf. It has gas/condensate reserves onshore which have been developed for limited production by Arco Dubai which is now owned by BP (see survey of Dubai and the other UAE emirates in Vol. 50).