In a report published by the Department of Planning and Economy on August 7, the government committed to investing $20bn to raise production capacity from the current level of 2.7m barrels a day to 3.5m by 2010.
The report, titled "Abu Dhabi Economic and Social Report 2008", contains the latest figures on the emirate's economy, which remains dominated by the oil and gas sector. Oil, gas and derivatives currently account for 59% of Gross Domestic Product (GDP) - around Dh140bn ($38bn). More significantly though, they make up 80% of government revenue and 90% of total exports - suggesting that while the wider economy may be enjoying significant non-oil sector growth, the government remains heavily reliant on hydrocarbons to fund its activities.
Indeed, the non-oil sector experienced a Compound Annual Growth Rate (CAGR) of 13.34% from 2002 to 2007, increasing from Dh85bn to Dh159bn ($23bn to $43bn). This growth figure is lower than that enjoyed by the wider economy as a whole - up to 22% CAGR, from Dh147bn ($40bn) in 2002 to Dh400bn ($109bn) last year. The report predicts nominal GDP growth of 18% for 2008, converting into real GDP growth of 11% (taking into account the current high levels of inflation being experienced throughout the Gulf Cooperation Council).
The economy's high level of dependence on hydrocarbons naturally leaves it greatly exposed to price variations. The 2007 figures relate to a period when Abu Dhabi's various grades of crude averaged just over $60 a barrel (Janury-June 2007). By contrast, the half-year figures for 2008 have surged 74% to an average of $108. July, the peak of the recent bull market on oil, witnessed average prices of $135.68 for Abu Dhabi crude, $12 below the Brent peak of $147.
Speculator-busting action by Saudi Arabia and the US Federal Reserve is likely to have seen off the threat of $150 - for 2008 at least - yet the result of this summer's market frenzy is nonetheless a windfall for the United Arab Emirates (UAE), and Abu Dhabi in particular. The cash bonanza in fact comes at a useful time for the Abu Dhabi National Oil Company (ADNOC), which has been attempting to expand its natural gas production of late by developing the Shah field.
This onshore field, located approximately 180km southwest of the city, contains enormous reserves of gas, and is expected to eventually produce around 1bn cubic feet a day. However, the gas is both sour (it contains high levels of sulphur), and acidic (high levels of carbon dioxide), making it both difficult to extract and refine. ADNOC signed a deal with US firm ConocoPhillips in July to co-develop the field, though it is expected to require major capital investment, which could reach as high as $10bn. If successful, the Shah field may well provide a welcome respite from gas shortages currently affecting some of the more outlying emirates of the UAE.
Abu Dhabi holds the lion's share of natural resources in the UAE - some 94% of the UAE's total crude output comes from Abu Dhabi fields. Its stated reserves of 97.9bn barrels account for almost 8% of the world total - a tally which places it fifth in global standings. As such, its current output is relatively modest in comparison with, for example, Russia, which produces over 9m barrels a day, despite holding only 6.4% of global reserves. Abu Dhabi's low production means its reserves to production ratio - 91.9 years - is currently the highest in the world. It is likely that, given this summer's rapid escalation in the price of crude, the government has decided the time is ripe to invest in increasing output.