Energy profile of United Arab Emirates
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Introduction
The overall performance of the UAE's economy is heavily dependent on oil exports, which account for over 30 percent of total gross domestic product (GDP). Growth in real GDP was 7.2 percent in 2005, partially due to higher crude oil prices. For 2006, real GDP growth is forecast to slow to 5.1 percent. The non-oil segment of the UAE's economy also is experiencing strong growth, particularly the petrochemicals and financial services sectors.
The UAE is a federation of seven emirates – Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras al-Khaimah, and Umm al-Qaiwain. Political power is concentrated in Abu Dhabi, which controls the vast majority of the UAE's economic and resource wealth. The two largest emirates – Abu Dhabi and Dubai – provide over 80 percent of the UAE's income. In June 1996, the UAE’s Federal National Council approved a permanent constitution for the country. This replaced a provisional document which had been renewed every five years since the country’s creation in 1971. The establishment of Abu Dhabi as the UAE’s permanent capital was one of the new framework’s main provisions. The current head of state, Sheikh Mohamed bin Rashid Al Maktoum, took office in January 2006, following the death of his brother Sheikh Maktoum bin Rashid al-Maktoum.
In recent years, the UAE has undertaken several projects to diversify its economy and to reduce its dependence on oil and natural gas revenues. The non-oil sectors of the UAE's economy presently contribute around 70 percent of the UAE's total GDP, and about 30 percent of its total exports. The federal government has invested heavily in sectors such as aluminum production, tourism, aviation, re-export commerce, and telecommunications. As part of its strategy to further expand its tourism industry, the UAE is building new hotels, restaurants and shopping centers, and expanding airports and duty-free zones. Dubai has become a central Middle East hub for trade and finance, accounting for about 85 percent of the Emirates’ re-export trade. The UAE has been a member of the World Trade Organization (WTO) since 1995, and has one of the most open economies in the region. It began negotiations in March 2005 with the United States on a possible free trade agreement.
The UAE and Iran continue to dispute the ownership of three islands, Abu Musa and the Greater and Lesser Tunb Islands, which are strategically located in the Strait of Hormuz. All three islands were effectively occupied by Iranian troops in 1992. The Mubarak field, which is located six miles off Abu Musa, has been producing oil and associated natural gas since 1974. In 1995, the Iranian Foreign Ministry claimed that the islands are "an inseparable part of Iran." Iran rejected a 1996 proposal by the Gulf Cooperation Council (GCC) for the dispute to be resolved by the International Court of Justice, an option supported by the UAE. In early 1996, Iran took further moves to strengthen its hold on the disputed islands. These actions included starting up a power plant on Greater Tunb, opening an airport on Abu Musa, and announcing plans for construction of a new port on Abu Musa. In the dispute, the UAE has received strong support from the GCC, the United Nations, and the United States. Although Iran remains a continuing concern for officials in Abu Dhabi, they have chosen not to escalate the territorial dispute. Iran is one of Dubai’s major trading partners, accounting for 20 percent to 30 percent of Dubai’s business.
Oil
Under the UAE's constitution, each emirate controls its own oil production and resource development. Although Abu Dhabi joined OPEC in 1967 (four years before the UAE was formed), Dubai does not consider itself part of OPEC or bound by its quotas.
The UAE's current OPEC production quota (effective July 1, 2005) is 2.44 million barrels per day (bbl/d), and its current crude oil production as of May 2006 is 2.50 million bbl/d. The UAE's total production capacity is 2.50 million bbl/d, so it does not have any spare capacity at the current level of production.
The Abu Dhabi National Oil Company (ADNOC) selected ExxonMobil in April 2005 as a strategic partner in the development of the Upper Zakum field, with a 28 percent ownership stake, after a competitive bidding process. A binding contract between ExxonMobil and ADNOC was finalized in March 2006. ExxonMobil is set to undertake a program of upgrades to the Upper Zakum field to raise its capacity from the current 550,000 bbl/d to 750,000 bbl/d, and introduce enhanced recovery technologies to extend the productive life of the field. The Japan Oil Development Company (JODCO) already holds a 12 percent stake in the field from a previous investment in 1972, when the field was first developed.
Several projects to upgrade infrastructure at existing oil fields are planned or underway. A project to increase the capacity of the onshore Bu Hasa field is underway, including construction of natural gas separation units, drilling of natural gas reinjection wells, and water injection. The goal is to increase sustainable production capacity to 730,000 bbl/d from the present 550,000 bbl/d by the end of 2006. A natural gas reinjection project also is planned for the onshore Bab field, which is expected to increase capacity to 300,000 bbl/d from the current 200,000 bbl/d. Bids for management of the project were received in May 2006. Upgrades planned for the onshore Sahib, Asab, and Shah (SAS) fields are set to raise capacity from the current 385,000 bbl/d to 465,000 bbl/d. Bids for the project were received in March 2006. Three small fields, al-Dabb-iya, Rumaitha, and Shanayel, have been brought onstream over the past year, offsetting production declines at more mature fields.
The UAE has two refineries operated by ADNOC. The Ruwais refinery produces light products mainly for export to Japan and elsewhere in Asia. Fuel oil from Ruwais is sold as bunkers by ADNOC and also used for domestic electric power generation. The Italian engineering firm Technip completed a $480 million expansion of the Ruwais complex to a capacity of 420,000 bbl/d in January 2006, including refits of existing units and expansion of units for production of unleaded gasoline and low-sulfur fuel oil. Umm al-Nar, also owned by ADNOC, has a capacity of 88,000 bbl/d. Since its construction in 1976, the Umm al-Nar plant has undergone debottlenecking as well as a recent expansion.
UAE has three other refineries. The Emirates National Oil Company (ENOC) Jebal Ali condensate refinery, with a capacity of 120,000 bbl/d, began operations in Dubai in May 1999. Metro Oil has a 90,000-bbl/d refinery in Fujairah. A 71,250-bbl/d, second-hand unit was set up by the Sharjah Oil Refining Company in 2001. Also, a feasibility study on a possible new refinery in Fujairah is being undertaken.
In October 1998, the International Petroleum Investment Company (IPIC), the UAE’s downstream investment outfit, purchased 50 percent of the Hyundai Oil Refinery Company of South Korea for $500 million. The UAE is the second-largest crude oil supplier to South Korea after Saudi Arabia. IPIC’s overseas holdings also include a 10 percent stake in Spain’s CEPSA and a 19.6 percent share of Austria’s OMV.
Natural Gas
According to Oil and Gas Journal (1/1/06), the UAE’s natural gas reserves of 214.4 trillion cubic feet (Tcf) are the world's fifth largest after Russia, Iran, Qatar, and Saudi Arabia. The largest reserves of 198.5 Tcf are located in Abu Dhabi. Sharjah, Dubai, and Ras al-Khaimah contain smaller reserves of 10.7 Tcf, 4.0 Tcf, and 1.2 Tcf, respectively. In Abu Dhabi, the non-associated Khuff natural gas reservoirs beneath the Umm Shaif and Abu al-Bukhush oil fields rank among the worlds largest.
Increased domestic consumption of electricity and growing demand from the petrochemical industry has provided incentives for the UAE to increase its use of natural gas. Over the last decade, natural gas consumption in Abu Dhabi has doubled, and it currently stands at around 4 billion cubic feet per day (bcf/d). The development of natural gas fields also results in increased production and exports of condensates, which are not subject to OPEC production quotas.
The past few years have seen the UAE embark on a massive, multi-billion dollar program of investment in its natural gas sector including a shift toward natural gas-fired power plants and the transformation of the Taweelah commercial district into a natural gas-based industrial zone. An ambitious plan, the Dolphin Project, to interconnect the natural gas grids of Qatar, the UAE, and Oman, also is underway. Most of the UAE's increased natural gas needs in the next decade are to be satisified with imported natural gas from Qatar. Much of the natural gas development in the UAE itself involves the extraction of natural gas liquids (NGLs) and reinjection of the gas to maintain pressure in oil fields.
The second phase of the UAE's $1 billion onshore natural gas development program (OGD-2) at the Habshan complex located directly over the Bab oil and natural gas field was completed in early 2001. This second phase included the construction of four trains to process 1 bcf/d of natural gas, 300-500 tons per day (t/d) of natural gas liquids (NGLs), 35,000-55,000 t/d of condensate and up to 2,100 t/d of sulfur. Additional capacity expansion is underway in the third phase, OGD-3, and will involve the construction of two additional natural gas processing plants. Bechtel was awarded the initial engineering and design work for OGD-3 in May 2002, which was completed in 2003. The U.S.-based engineering firm Foster Wheeler was awarded a project management contract for OGD-3 in January 2005, and several other contracts have been awarded since then for various aspects of construction. OGD-3 is scheduled for completion in early 2008.
Dubai’s natural gas consumption has been growing by nearly 10 percent annually due to expansion of the emirate's industrial sector, a switch to natural gas by its power plants, and the need for an enhanced oil recovery (EOR) system based on natural gas injections for its mature oilfields. Dubai natural gas demand will average 810 Mmcf/d in 2005, with major swings between summer and winter consumption patterns. Until mid-2001, Dubai’s entire natural gas supply came entirely from fellow UAE member Sharjah. BP operates three fields and the 800-Mmcf/d Sajaa processing facility in conjunction with the Sharjah government. In May 2001, a pipeline from the Maqta area of Abu Dhabi to Dubai commenced operations, initially delivering 200 Mmcf/d of natural gas. The capacity of the pipeline was raised to 800 Mmcf/d in a project completed in 2004.
The Dolphin Project aims to develop links between the natural gas infrastructures of Qatar, the UAE, and Oman. It will allow the export of non-associated natural gas from Qatar's massive offshore North Dome field. A Statement of Principles for the project was signed in March 1999 between the UAE Offsets Group (UOG) and Qatar Petroleum. The two firms signed a natural gas sales agreement in March 2001, with natural gas supplies expected to start in late 2006. Estimated to cost $8-$10 billion over the next decade, the project will begin as a subsea pipeline from Ras Laffan in Qatar to a landfall in Abu Dhabi, which will then be extended to Dubai and northern Oman. It will start at 48 inches in diameter, narrowing to 30 inches by the time it reaches Oman. In its initial phase, the pipeline is to carry 3 Bcf/d of Qatari natural gas to the UAE and Oman, accounting for nearly 10 percent of total world natural gas supplies shipped by pipeline.
In October 1999, UOG and ADNOC issued a joint declaration dividing up natural gas distribution between them. Natural gas from the Dolphin Project will be the exclusive supply for natural gas-fired power plants, except in the Western Region of Abu Dhabi, and will also supply natural gas for ADNOC contracts with Dubai. Natural gas from the Dolphin Project will use the ADNOC distribution network until the project develops its own network. In March 2000, UOG signed a contract with two foreign firms, TotalFinaElf and Enron, after securing purchase agreements with Abu Dhabi, Dubai, and Oman. In May 2001, however, Enron announced that it was backing out of the project, and selling its 24.5 percent stake back to UOG. UOG sold this share to Occidental Petroleum in June 2002 after receiving bids from several foreign companies. Upstream development in Qatar began in 2003, financing for the subsea pipeline was concluded in late 2004, and initial deliveries of natural gas to the UAE are expected to begin in the first quarter of 2007. After several years of delays, Dubai signed a binding natural gas sales contract with Dolphin Energy in May 2005.
Oman already has a natural gas pipeline to Fujairah in the UAE, and until supplies from Qatar become available, Fujairah is importing natural gas from Oman, under a contract held by Dolphin Energy. Supplies of 135 Mmcf/d of Omani natural gas commenced in January 2004 – the first natural gas transmission across national borders on the Arabian Peninsula. Eventually, Qatari natural gas will be supplied to Fujairah, and the direction of the pipeline will be reversed by 2008, allowing for Omani imports of Qatari natural gas.
Electricity
The UAE’s soaring demand for electric power, coupled with volatile swings in peak loads, led the Emirates in 1997 to form a Privatization Committee for the Water and Electricity Sector. In early 1998, the committee called for a comprehensive restructuring, including the elimination of the state-owned Abu Dhabi Water and Electricity Department (ADWED). ADWED was transformed into a regulatory body, the Abu Dhabi Water and Electricity Authority (ADWEA).
TotalFinaElf and Tractebel were awarded a contract by ADWEA in August 2000 for an upgrade to the Taweelah A-1 plant, which gives a 20 percent ownership stake to each of the foreign partners, with the rest remaining with ADWEA. The upgrade was completed in May 2003, and the facility now has an installed capacity of 1,350 megawatts (MW).
Another step in the reorganization was the expansion of the Taweelah cogeneration facility. The expansion, known as Taweelah A-2, is the UAE’s first independent water and power project (IWPP), and reached financial close in April 1999. It is the second independent power project in the Gulf after Oman’s al-Manah facility. With a price tag of some $800 million, the expansion added about 763 MW of power and 50 million gallons of desalinated water to the UAE’s supplies. The first 370-MW came online in July 2000. The rest of the generating units became operational in August 2001. The Taweelah A-2 project is run by Emirates CMS Power, a joint venture between CMS Energy (40 percent ownership interest) and the newly-formed Emirates Power Company (EPC) (60 percent).
The al-Taweelah Power Company manages the Taweelah B facility. It currently has an installed capacity of 1,070 MW, and was purchased in July 2005 by the Taweelah Asia Power Company, a joint venture including Marubeni and BTU Power of the U.S., with 60% held by a subsidiary of ADWEA. The company is building an additional 1,045 MW plant on the same site, which is slated to become operational in 2008.
The Umm al-Nar Power Company operates the plant by the same name with an 850-MW, 162-million-g/d facility. ADWEA received bids in November 2002 for the partial privatization of the company, which will be structured similarly to the two Taweelah IWPPs. The sale of a 40 percent share was awarded to a consortium including Tokyo Electric Power (TEPCO), Mitsui, and International Power of the UK in April 2003. It reached financial close in June 2003. The consortium will be undertaking a 1,550-MW capacity expansion at the site, to be completed in mid-2006. In mid-2008, the old 850-MW generation unit will be handed back over to ADWEA for decomissioning.
The Abu Dhabi Water and Electricity Authority (ADWEA) signed a contract for the Shuweihat IWPP project in August 2001 with a consortium of CMS Energy and International Power PLC. The $1.6 billion deal provides for the construction and operation of a 1,500-MW combined cycle plant with a desalination capacity of 100 million gallons per day. Construction began in early 2002, and commercial operation began in August 2004.
Dubai has a separate entity which handles its electricity, the Dubai Electricity and Water Authority (DEWA). DEWA, unlike ADWEA, owns and operates its own generating plants. DEWA issued a tender in March 2006 for the construction of a 2,000 MW power plant and desalination facility, Jebel Ali M, with bids due in June 2006.
The UAE also is taking part in a $1 billion plan to build a regional power grid throughout the countries of the Gulf Cooperation Council (GCC). The first phase of the plan would link Saudi Arabia, Kuwait, Bahrain and Qatar; the UAE and Oman would join the grid in the second phase of the plan. GCC electricity ministers signed a final agreement on the project in June 1999. The plan is based on the assumption that each country will have its own unified power grid, and the UAE is doing its part by connecting all the power stations along its western coast with the central region. A contract for implementation of the grid interconnections was awarded to Electricite de France (EdF) in early 2003.
Further Reading
- Abu Dhabi National Oil Company (ADNOC)
- CIA, 2007. The United Arab Emirates. The World Factbook. Central Intelligence Agency.
- EIA, 2006. Country Profiles: United Arab Emirates.
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