Future in Petrochemicals

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With oil prices reaching an all-time high, the members of the Gulf Co-operation Council (GCC) are set to continue reaping the benefits of their oil-based economies. Abu Dhabi in particular, with its extensive natural resources, is keeping energy in the forefront of its economic policy.

Oil prices have reached a record high of almost $100 per barrel. Abu Dhabi is currently producing 2.6m barrels per day (bpd), but is investing an estimated $20bn in the coming years to increase production to 3.5m bpd by 2011. This investment will also be used to increase natural gas production levels from 6.5m cubic feet per day to 9.5m cubic feet during the same period.

During the recent Middle East Economic Digest (MEED) conference in Abu Dhabi, Khaldoun Al Mubarak, chairman of Abu Dhabi's Executive Affairs Authority, said, "Energy will remain the backbone of our economy, and that does not only include oil, as we are seeking a major development programme for our sour gas production, as well as the petrochemical sector."

Sour gas contains hydrogen sulfide, a potentially dangerous substance making production and transport more costly and challenging due its corrosive properties. Sour gas accounts for the majority of the 213bn cubic feet of identified natural gas reserves in the United Arab Emirates (UAE). The Abu Dhabi National Oil Company (ADNOC) is currently evaluating bids to tap the sour gas reserves contained in the emirate's Shah field.

Royal Dutch Shell, US-based Occidental Petroleum, ExxonMobil and ConocoPhillips are all bidding for the multi-billion-dollar development contract with the winner expected to be announced by the end of the year.

The original tender announced in April included the Bab and Shah gas fields. It was later split because of the complexity of the project, allowing for the Bab field to be developed separately at a later date. The winner of the current tender will have a 40% stake in the project, while ADNOC will retain the rest. The development is expected to produce 3bn cubic feet of gas per day to be used for re-injection in oil fields and as a source of energy for downstream industrial activities.

The government is keen to facilitate the growth of downstream petrochemicals industries and attract foreign investors to the sector in coming years. Because transporting it is so costly, the fact that Abu Dhabi has supplies on hand makes it even more competitive, pegging the sector to become a cornerstone of the economy.

Investments in the GCC's petrochemicals sector are expected to grow to an estimated $120bn in the next five years with the goal of satisfying the growing demand from surging economies such as India and China. According to the Gulf Organisation for Industrial Consulting (GOIC), Saudi Arabia accounts for 63% of total petrochemicals investments while the UAE, Qatar and Kuwait are well positioned to attract additional investment. Next January, Abu Dhabi will host the GCC 11th Industrialists' Conference on the Gulf petrochemicals industry organised by the GOIC to create a GCC petrochemicals vision for 2020.

At the MEED conference, Kito de Boer, managing director of international consulting firm McKinsey and Company Middle East, estimated that Abu Dhabi will have an investible surplus of $800bn by 2020, due to the inflow of revenues from oil production. He added, "Abu Dhabi will have the highest concentration of wealth [...] on the planet due to its vast natural endowment."

Abu Dhabi continues to capitalise on its vast natural resources through prudent investments and collaboration with the private sector. Oil, sour gas and petrochemicals will all play a vital role in the emirate's future, and will help provide the fuel for economic diversification.

**Correction: The previous Abu Dhabi briefing, dated November 14, 2007, misstated the name of the company that purchased a 7.5% holding in the US firm Carlyle Group. It was Mubadala, not Abu Dhabi Investment Authority (ADIA).

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