UAE - Dubai - Dubai Diversifying Away From Oil.

The government of Dubai is lessening its dependence on oil, with about 60% of its revenue now generated from non-oil sources. In late 1996, it launched a programme with US$12 bn worth of projects to boost non-oil productivity per capita to rates that would rival those in the developed nations. Accordingly, the non-oil sectors' contribution to GDP was set to rise from 81.2% in 1996 to 97.5% in 2010 and 100% by 2015.

Dubai is a regional trading hub and is promoting itself as an international centre for trade in various commodities including crude oil, finance, business, re-insurance and tourism. The world's first Internet city has been established in Dubai and has launching a US$15 bn Dubai Silicon Oasis project (see Downstream Trends of this week) and the world's first e-government has been functioning in Dubai since 2001 (see who's who in Part 4).

Dubai has two petroleum producing areas: one offshore for oil, where four fields are depleting, and one onshore at Margham for natural gas and condensate. The four oilfields lie on the median line with Iranian waters. An EOR system based on gas injection in early 2003 raised these fields' production to 240,000 b/d. But that was only for a short period. Their actual production began to fall rapidly in 2004.

Their export blend is Dubai, 32.5[degrees] API with 1.7% sulphur, loaded by SBM. ConocoPhillips of the US, the operator of the four fields, regulates the physical and paper markets for Dubai crude. These markets include over-the-counter swaps and the "dry chain" of paper deals, and spot trades (see 1994 oil trading survey in Vols. 42 & 43). These are apart from the oil futures system of Dubai Mercantile Exchange (see OMT 23).

ConocoPhillips leads the merged Dubai Marine Areas and Dubai Petroleum Co. (DUMA-DPC), in which it holds 32.5%. Its main partner in this is Total, holding 27.5%, which has developed two nearby Sirri fields on the Iranian side of the waters. The other partners are Repsol/YPF of Spain (25%), the German firms RWE-DEA Dubai (10%) and Wintershall (5%).

Background: The search for oil in Dubai began in 1937, two years before the concessionaire Petroleum Development Trucial Coast (PD/TC) moved to Abu Dhabi. PD/TC signed the concession in 1937 with the then ruler of Dubai, the late Shaikh Sa'id bin Maktoum (grandfather of the current ruler Shaikh Muhammad bin Rashed al-Maktoum - see who's who in Part 4).The concession covered onshore areas. Exploration and drilling were carried out after World War II (as in the case of Abu Dhabi). But PD/TC relinquished its area in 1961, after having drilled one well.

The offshore concession was granted in 1954 to a 50-50 partnership of Compagnie Francaise des Petroles (CFP, now Total) and Hispanoil (now Repsol). The two companies formed the Dubai Marine Areas Ltd. (DUMA). In the early 1960s, DUMA's exploration efforts began to show promising signs and the then new ruler, Shaikh Rashed bin Sa'id, was in a hurry for oil to be found in Dubai territories.

In April 1963, Continental Oil (Conoco) signed an agreement with Shaikh Rashid and took over the onshore concession. Conoco established the Dubai Petroleum Company (DPC), as a unit fully-owned by the US firm. In the same year, DPC acquired 60% in DUMA's concession and Conoco became the operator offshore. In 1964 DPC sold 40% of its share to Deutsche Erdoel (later Deutsche Texaco and then Wintershall) and Sun Oil of the US. DUMA and DPC merged under Conoco's leadership.

Conoco, as operator for DUMA-DPC, discovered the offshore oilfields of Fateh in 1966, South-West Fateh in 1970, Rashed in 1973 and Falah in 1976. Each of these fields was developed quickly. Fateh began producing in 1969.

The relationship between DUMA-DPC and the government of Dubai is still not clear to the public. In 1975, the IMF said that by 1973 the government had acquired 25% in DUMA-DPC and had raised its share in 1974 to 60%. In July 1975, it was officially announced by Dubai that the concession was placed under the government's "full control".

However, the concessionaire companies were still lifting crude oil in the same proportions as their shareholdings and were paying taxes and royalties to the government.

On Aug. 16, 1979, the Dubai government said it had decided to buy back 100,000 b/d of DUMA-DPC's production. It was then estimated that 50% of DUMA-DPC's output was bought back in order for the Dubai Petroleum Department to market it directly. That practice was brought to an end on Aug. 16, 1980, according to an official announcement at the time.

However, it was reported in November 1989 that the Dubai government (Shaikh Muhammad bin Rashed and his British advisers) had been marketing up to 50% of the crude oil production.

Conoco also had 30% in the Dubai Exploration Onshore (DEOL), a JV between the US firm and DUMA-DPC formed in 1989 to explore a 1,150 sq km onshore area on the coast south of Dubai City, which DPC had relinquished in the 1970s. The concession covered about 25 km from east to west and 40 km from north to south. But DEOL abandoned this bloc after a negative three-year drilling programme. A depth target of 14,000 was reached with no promising result.

Other Concessions: In 1974, Dubai granted Texas Pacific an offshore concession of 1,954 sq km near the Mubarak oilfield off the coast of Sharjah. Exploration gave no encouraging results. In 1987, South Eastern Drilling Co. (SEDCO) and Houston Oil & Minerals got a 35-year concession covering a 6,075 sq km.

Offshore drilling by SEDCO was interrupted in 1979 at a depth of 14,670 feet.

In June 1980 SEDCO suspended work on its second well (onshore) because of technical difficulties. Drilling reached a record depth of 16,760 feet. This was the first onshore well to be drilled in Dubai since 1968.

In June 1980, Arco International Oil & Gas, a unit of Atlantic Richfield, got a 3,078 sq km onshore block in the Margham area, with a 35-year E&P agreement based on a deal first signed on Feb. 26, 1980, by Shaikh Rashid. The deal provided for a first well to be drilled as soon as a preliminary geophysical study was done.

Arco Dubai did the work accordingly. In March 1981, the state-owned British National Oil Co. (BNOC) got a third interest in the acreage and was to invest $1m in geophysical operations and $5m in each well to be drilled. A few years later BNOC was bought by BP and its stake in the Margham gas/condensate field, which Arco found in 1982, was transferred to BP Exploration.

Later BP withdrew from the venture and Arco sold a 25% interest in the field to Gulfstream Resources Canada. In September 1998 Gulfstream sold its interest back to Arco in what the Canadian company then called "a comprehensive strategic agreement". That deal also involved its share in a gas venture in Qatar led by the US major. In late 1999 Arco became part of BP, as in the case of Amoco.

In late 2000, the government of Dubai took over the Margham area from BP and set up a wholly-owned company, Margham Dubai Establishment (MDE), to operate the field. Margham produces about 25,000 b/d of condensate (up from 20,000 b/d in 2002) and 500 MCF/d of gas (up from 230 MCF/d in 2002, compared to 450 MCF/d in 1994 - a level maintained until a new stream was added to the system in 2005).

The condensate is processed by Dubai's refinery at Jebel Ali. Run by the state-owned Emirates National Oil Co. (ENOC) the refinery has a capacity of 120,000 b/d. But the refinery consists of two different splitters, one for sweet condensate and the other is for sour condensate. Because it was difficult for ENOC to procure sweet condensate, the refinery has been operating at the rate of 60,000 b/d. Under a US$350 million upgrading project launched in late 2005. Now this is being tendered by ENOC. Once completed, the refinery will be able to process 120,000 b/d of sour condensate in order to produce high-quality fuels including lead-free gasoline. The plant's output of naphtha will be improved significantly. This will have very low sulphur content, which commands a high premium on the market. (Until now, the refinery only blends gasoline, and does not produce, with MTBE produced by a nearby plant - see below).

The gas from Margham and nearby fields is being processed by a plant expanded in 2003 and operated by Dubai Natural Gas Co. (Dugas). The gas is then pumped by pipeline to Jebel Ali where it is consumed by power plants. In a restructuring of the petroleum sector in late 2000, ENOC acquired ownership of Dugas. Dugas also runs a 500,000 t/y MTBE plant built at Jebel Ali.

MDE in 2002/03 found and quickly developed Khubai, about 20 km from Margham, and South-West Margham fields under a programme which raised the system's gas capacity from 450 MCF/d to 500 MCF/d in 2005. With VECO Engineering Corp. of Canada having acted as a project management consultant (PMC) and Worley of Australia having done the FEED work, a $45m EPC contract for this was awarded in late January 2002 to Solar Turbines Int'l Co. of the US. A 20-km pipeline was built from Khubai to the Margham centre. Western Geophysical has done a 3D seismic survey over a large onshore area including the three fields.

The recoverable oil reserves of DUMA-DPC's four offshore fields have been put at less than 3 bn barrels. Some independent experts say the recoverable reserves are less than 1.6 bn barrels. Proven reserves of natural gas are estimated at 4.1 TCF, compared to 196.1 TCF in Abu Dhabi, 10.7 TCF in Sharjah, and 1.1 TCF in Ras Al Khaimah.