Despite Abu Dhabi’s history and reputation as a major oil exporter, the emirate is integral to the UAE’s ongoing transformation from an economy dependent on fossil fuels to one fuelled by clean energy. This clean-energy transition has already seen Abu Dhabi host the Arab world’s first nuclear power plant, as well as the largest single-site solar power plant in the world at the time when it was built.
With the COP28 UN Conference on Climate Change taking place in the UAE in November and December 2023, the event looms large on the horizon, and the emirate that is home to the country’s largest constituent economy and the federal capital in Abu Dhabi City is propelling a clean energy transition forwards.
That being said, hydrocarbons are set to continue to play a critical role in the UAE’s economy, with 30% of national GDP directly attributable to the oil and gas sector, along with 13% of federal exports.
Indeed, Abu Dhabi is poised to benefit from a growing realisation among national leaders that natural gas is still required as a transition fuel, particularly in the wake of Russia’s invasion of Ukraine, and the sanctions applied to Moscow’s exports of the fuel.
Structure & Oversight
The UAE joined the Organisation of the Petroleum Exporting Countries (OPEC) in 1968 and continues to play an important role in the oil-focused bloc. Abu Dhabi is home to the vast majority of the UAE’s energy reserves, having first discovered commercial oil in 1958 – onshore in the Murban Bab-2 well and offshore at Umm Shaif.
Upper Zakum is the largest offshore field, holding about 50bn barrels of crude. The field’s production capacity increased from 500,000 barrels per day (bpd) in 2006 to 750,000 bpd at the end of 2017. It is expected to further increase to 1m bpd by 2024 and continue producing oil until at least 2050.
Murban and Upper Zakum are thus the names given to Abu Dhabi’s primary crudes; futures contracts for Murban have been traded on the ICE Futures Abu Dhabi exchange since 2021, though the light sweet crude accounts for one-half of the emirate’s total production. Some UAE crude oil grades are included in the basket of crude oil grades that make up the Dubai/ Oman benchmark, an international price marker for medium, sour crude oil from the Middle East.
At the federal level, the main players in the energy sector are the Ministry of Energy and Infrastructure (MoEI) and Etihad Water and Electricity, which assumed the duties previously assigned to the Federal Electricity and Water Authority. At the emirate level, Abu Dhabi’s Department of Energy (DoE) sets local policy direction, in line with the UAE Energy Strategy 2050 and a corresponding goal to reach net-zero emissions. The UAE strategy seeks to achieve an energy mix comprising 44% clean energy, 38% gas, 12% clean coal and 6% nuclear. The latter should be achieved in 2024, with the activation of the fourth unit of the Barakah nuclear power plant delivering 5600 MW of capacity.
DoE also licenses companies and organisations operating in the sector, and monitors their compliance with quality and sustainability standards.
Energy Players
The national oil major is ADNOC, a vertically integrated group that is aiming to spearhead the clean energy transition. ADNOC’s group managing director and CEO, Sultan Al Jaber, is also UAE minister of industry and advanced technology, chairman of Abu Dhabi Future Energy Company ( Masdar), COP28 president designate and the UAE’s climate change special envoy. ADNOC’s board is chaired by Sheikh Mohamed bin Zayed Al Nahyan, president of the UAE and ruler of Abu Dhabi.
Other major energy players include the three major energy utilities: Emirates Water and Electricity Company (EWEC), Abu Dhabi National Energy Company (TAQA), and the Emirates Nuclear Energy Corporation (ENEC). TAQA is a global integrated energy company listed on the Abu Dhabi Securities Exchange (ADX) that provides 1m customers with power and water.
In 1988 Abu Dhabi formed the Supreme Petroleum Council (SPC), the composition of which mirrored ADNOC’s board of directors, to regulate and manage petroleum and energy affairs.
In December 2020 the government merged the SPC with a newly formed council, wrapping its energy affairs watchdog into a broader body to direct its low-carbon economic progress known as the Supreme Council for Financial and Economic Affairs. The new council’s board members, who are appointed for a three-year term, include Al Jaber and Khaldoon Khalifa Al Mubarak, CEO of Abu Dhabi sovereign wealth fund Mubadala Investment Company.
Advances
ADNOC is becoming increasingly streamlined, with several of its 14 subsidiaries under partial public ownership. Two of ADNOC’s largest operating companies, ADNOC Onshore and ADNOC Offshore, account for most of the UAE’s oil and gas production.
In 2022 the UAE’s proven crude oil reserves amounted to 113bn barrels, giving it the world’s fifth-largest endowment, which also accounted for 7.2% of the worldwide total, according to the OPEC Annual Statistical Bulletin 2023.
However, in late 2020, ADNOC announced that it would invest $150bn to bring a planned increase forward to 2027 in its production capacity to 5m bpd. As of November 2022 daily production capacity averaged just over 4m bpd, though actual output was frequently lower in line with OPEC targets.
The move to increase capacity was underpinned by an increase in the UAE’s reserves base – due to technological advances and new discoveries – to 289.9trn standard cu feet (scf) of natural gas, making it home to the sixth-largest proven gas reserves in the world.
The 2022 discoveries comprised one at Bu Hasa, Abu Dhabi’s biggest onshore field, with a crude oil production capacity of 650,000 bpd. The discovery in Bu Hasa included 500m barrels of oil from an exploration well, which offers substantial additional premium-grade Murban oil resources. A discovery of nearly 100m barrels was announced that year in Abu Dhabi’s Onshore Block 3, operated by US-based Occidental Petroleum. In a third discovery, around 50m barrels of light and sweet Murban-quality crude were found in the Al Dhafra Petroleum Concession. These complemented the February 2020 discovery of over 80trn scf of gas resources at Jebel Ali in Dubai.
Network
ADNOC Distribution is the UAE’s largest fuel and convenience retailer, having 511 stations and 351 convenience stores in the UAE as of June 2023. In 2017 the company listed on the ADX, before expanding public ownership to 23% of its shares in 2021 and entering the MSCI and FTSE emerging market benchmark indices. The company reported that net profit increased by 22% to Dh2.74bn ($745.8m) in 2022.
In addition to the UAE, ADNOC Distribution operates in Saudi Arabia, where it added 22 new service stations in 2022 and 2023 to grow its network to 64. In the first quarter of 2023 it acquired a 50% stake in TotalEnergies Marketing Egypt, a top-four retailer in the North African country, absorbing a portfolio comprising 240 fuel retail stations, more than 100 convenience stores, 250 lube changing stations and car wash sites, as well as wholesale fuel, aviation fuel and lubricant operations.
ADNOC Drilling is the exclusive provider of drilling services in Abu Dhabi, and one of the largest drilling and competition service companies in the world, owning 115 rigs. The company debuted on the ADX in October 2021, marking the exchange’s largest-ever listing at the time, raising $1.1bn from an 11% share offering. Shareholders welcomed news that revenue rose 18% in 2022 to $2.67bn.
Another player is Fertiglobe, a joint venture with Netherlands-listed fertiliser and industrial chemicals company OCI, which is the world’s largest seaborne exporter of urea and ammonia combined, rounds out the group of companies ADNOC listed in 2021.
ADNOC is the owner of 24% of Masdar, alongside TAQA and Mubadala. In December 2022 TAQA acquired a 43% controlling stake in Masdar’s renewables business, with Mubadala retaining a 33% interest and ADNOC owning the remaining 24%. In addition, ADNOC holds a 43% controlling stake in Masdar’s new green hydrogen joint venture, while Mubadala holds a 33% interest, and TAQA a 24% stake.
Important Listings
In May 2022 Abu Dhabi-based petrochemicals company Borouge, a joint venture between ADNOC and Austria’s Borealis, announced it had attracted more than $83.4bn in demand for a domestic initial public offering (IPO). The offering was nearly 42 times oversubscribed, with Borouge raising more than $2bn to mark the ADX’s largest-ever debut, as well as becoming ADNOC’s fourth unit to list on the exchange. Investors were keen to tap a strong dividend pipeline matching Borouge’s positioning as a leading international provider of innovative and differentiated polyolefin solutions.
In November of that year ADNOC announced it would continue to streamline its operations through the listing of ADNOC Gas, a consolidated entity combining the operations, maintenance and marketing of ADNOC Gas Processing and ADNOC LNG. ADNOC Gas debuted on the ADX in March 2023, raising $2.5bn via the listing of a roughly 5% stake in the new business.
ADNOC Gas is now one of the world’s largest gas processors, with capacity of 10bn standard cu feet per day (scfd), enabling it to support the UAE’s ambition to become self-sufficient in gas while increasing gas’s use in domestic industry, and expanding export capacity.
ADNOC Logistics and Services (ADNOC L&S), which delivers crude oil, refined products, dry bulk and liquefied natural gas (LNG) to international customers, raised $769m when it began trading in June 2023, generating an annual-record order book for $125bn in the process. With aggregate oversubscription of 163 times, the IPO attracted the highest-ever oversubscription level for a UAE bookbuild IPO. The cash has helped ADNOC L&S complete a $2bn fleet expansion with the purchase of four very large crude oil carriers, with each able to carry 2m barrels of crude per voyage in running on a more sustainable LNG shipping fuel.
ADNOC L&S’s IPO completed the parent company’s sixth listing to date, with the combined floats attracting more than $385bn in total demand.
Advancing Towards Net Zero
In 2020 ADNOC announced a series of sustainability goals in line with national net-zero obligations, including a pledge of a 25% reduction in greenhouse gas intensity by 2030. In August 2023 ADNOC brought forwards its net-zero scope-1 and scope-2 emissions target to 2045, declaring it will phase out methane entirely by 2030.
This foundation-stone commitment underpins ADNOC’s positioning as a worldwide provider of low-carbon energy, as does a target to achieve in-country value (ICV) sourcing of half of its value chain. ADNOC pioneered ICV in 2018, under which companies with in-country credentials are favoured in the tender process to derive the optimum value from national oil and gas resources. The scheme has since been rolled out across the UAE under the Ministry of Industry and Advanced Technology.
“Gulf countries, along with the rest of the world, have channelled trillions of dollars into the oil and gas sector. Although alternative energy sources are unlikely to entirely replace these traditional resources, they will contribute to meeting the growing global energy demand,” Ahmad El Tannir, general manager of Al Masaood Energy, a UAE-based oil and gas supplier and contractor, told OBG. “With various government initiatives aimed at modernisation and carbon reduction, the UAE is progressing towards producing oil and gas with minimal carbon emissions.”
Indeed, ADNOC is operating an energy transition framework with an initial $15bn of investment to decarbonise operations, grow low-carbon solutions, leverage technology and partnerships, and promote biodiversity and nature-based solutions. A new ADNOC vehicle, the Low Carbon Solutions and International Growth Directorate, has been established to advance sustainability goals, acting as an umbrella company for Masdar and ADNOC’s hydrogen operations.
The framework brought the US and the UAE to sign a strategic partnership that secured $100bn of investment in domestic clean energy by 2035. The deal, known as the Partnership for Accelerating Clean Energy (PACE), was struck during the Abu Dhabi International Petroleum Exhibition and Conference in November 2022. It spans four pillars: green supply chains, emissions management, nuclear energy and industrial and transport decarbonisation.
Solar
EWEC plans to increase total solar generation capacity by 606% to 7.3 GW by 2030, requiring an additional 3 GW of solar power capacity by 2029, in addition to the 1.5 GW (alternating current) of solar power procured from a new Al Ajban solar photovoltaic (PV) independent power project once the plant starts commercial operations in 2026.
In January 2023 EWEC issued a request for proposals for the new plant, which is expected to help cut domestic CO emissions by up to 2.4m tonnes per annum (tpa), and has received bids from Saudi Arabia’s ACWA Power, France’s EDF Renewables, Japan’s Marubeni Corporation, and a consortium consisting of China’s Jinko Power and Japan’s JERA.
Abu Dhabi-based entities are also looking overseas to expand their power generation footprint. In 2023 Masdar and Ethiopia signed an agreement to develop a 500-MW solar project across two separate facilities in the Horn of Africa. This, along with a $2bn deal to develop 2000 MW of solar projects in Zambia with state-owned partner Zesco, underscores how much Abu Dhabi’s energy champions are actively exporting their renewables know-how overseas.
Green Finance
Abu Dhabi is fast becoming a centre for the issuance of green financing instruments that will assist domestic and global companies achieving their net-zero ambitions (see Capital Markets chapter). In April 2023 TAQA launched a green financing framework for issuing green bonds, sukuk (Islamic bond) and other debt, with proceeds earmarked for renewables, energy efficiency, sustainable water and wastewater management, clean transport, and terrestrial and aquatic biodiversity projects.
In January 2022 TAQA and EWEC raised $700m in an inaugural green bond, with the money used to refinance debt of Sweihan PV Power, an entity between TAQA, Marubeni Corporation and China’s Jinko Solar to operate the 1.2-GW Noor Abu Dhabi solar power plant.
Masdar has also drawn up a green finance framework, which restricts deployment of raised capital to only the “darkest green” sectors within the renewables industry, such as solar and wind power, dedicated renewable power transmission and distribution infrastructure, and battery storage assets.
August 2023 marked the completion of Masdar’s first green bond issuance for $750m of 10-year senior unsecured notes on the London Stock Exchange, which was more than five times oversubscribed. The bond is the first tranche in a programme that intends to raise up to $3bn to support Masdar’s equity funding commitments on new renewable energy projects at home and overseas, as it seeks to boost its global portfolio to 100 GW by 2030.
Carbon Mitigation
The PACE agreement opened space for ADNOC to partner with Occidental Petroleum to evaluate and scale up carbon capture, utilisation and storage (CCUS) programmes and decarbonisation technologies, including direct air capture. In July 2023 ADNOC announced that it had completed drilling on what it said was the world’s first fully sequestered CO injection well. The plan is to deposit CO captured from Fertiglobe’s UAE operations, amounting to about 18,000 tpa, “safely and permanently underground”.
Mussafah, Abu Dhabi, is the location of Al Reyadah, the world’s first commercial-scale CCUS facility. The project captures, compresses and dehydrates up to 90% of CO equivalent to 800,000 tpa from an Emirates Steel Arkan production facility. The carbon is transported through and injected into 43 km of buried pipeline for enhanced oil recovery at the onshore Rumaitha and Bab oilfields. ADNOC intends to expand its CCUS activities to 5m tpa by 2030.
In 2022 the UAE’s CO equivalent emissions from energy, process emissions, methane and flaring amounted to 327.8m tonnes. In August 2023 ADNOC was reportedly close to awarding a $500m contract for a CCUS facility at its Habshan gas-processing plant, with the scope including a CO recovery unit, a primary compression facility, a triethylene glycol dehydration unit, enhancement of existing tail gas treatment units and other associated facilities.
“The global move towards net zero will be driven by both decarbonisation and renewable energy, rather than relying on one or the other. COP28’s narrative highlights the need to remove CO from the environment,” Ali Al Janabi, country chairman of Shell Group of Companies, UAE & Iraq, told OBG.
Hydrogen Strategy
In January 2021 Mubadala Investment Company, ADNOC, sovereign investment vehicle ADQ, and the MoEI established the Abu Dhabi Hydrogen Alliance in order to pursue the production of blue and green hydrogen for export to international markets. More recently, in August 2022 DoE unveiled a hydrogen policy and regulatory framework designed to accelerate Abu Dhabi’s and the wider UAE’s plans to attain global leadership in low-carbon and clean hydrogen techniques. The policy aims to nurture domestic hydrogen production and consumption, with an eye to achieving hydrogen production in Abu Dhabi of more than 1m tpa by 2030.
The hydrogen policy is in line with ADNOC’s long-standing goal of achieving 1m tonnes of green hydrogen production by 2030 through Masdar. Both policies will further the UAE’s overarching National Hydrogen Strategy, established in July 2023, which seeks to produce 1.4m tonnes of low-emission green hydrogen per year by 2031 and 15m tonnes by 2050.
As with other GCC hydrogen policies, the aim is for new local sources of hydrogen to stimulate synergies with the domestic industrial base. “Sustainable energy investment is primarily expected to originate from the government, as the private sector may be hesitant to make substantial investment in areas such as clean hydrogen due to the associated risks,” Amit Pachisia, managing director of UAE-based Petromar Energy Services, told OBG. “The scale of investment necessary for such endeavours is typically within the purview of the government.”
Despite Abu Dhabi’s multi-pronged low-carbon strategy, ADNOC is still spending the equivalent of about $1bn on fossil fuel projects, amounting to more than $100bn in the period leading up to 2030. Abu Dhabi hopes to leverage its nuclear and solar expansions to provide green hydrogen to global markets under a specialist Masdar-led venture launched in December 2022 as part of a rearrangement of the domestic energy structure (see analysis).
Size & Performance
Abu Dhabi supplies almost 3% of global oil demand through ADNOC, a proportion that will increase as and when Abu Dhabi’s oil production capacity increases to 5m bpd by 2027 and OPEC+ quotas are lifted. That said, S&P Global Ratings forecast in May 2023 that the emirate’s oil production will likely fall to approximately 2.9m bpd on average in 2023 based on an October 2022 OPEC+ announcement regarding quotas, following an average of 3.07m bpd in 2022. “We expect oil production to rise again in 2024 (3.05m bpd) and 2025 (3.15m bpd), although given the capacity expansion plans, there is an upside to these production levels,” the S&P forecast said.
Abu Dhabi accounts for all but a relatively small fraction of the UAE’s total oil and gas production, so while not exact, the calculations for the UAE serve as a reasonable proxy for the emirate’s total. In 2022 the UAE exported about 3m bpd of crude oil and condensate, nearly all of it (98%) going to the Asia-Pacific region. Japan and China were the top-two importing countries by volume, with the former taking 858,000 bpd of UAE crude oil and condensate, and China 681,000 bpd. The remainder of the UAE’s crude exports went to Europe, Kuwait and the US.
UAE imports of crude oil and condensate that year were sourced primarily from Africa and the Middle East. Sudan and Qatar were the two-top exporting countries of crude oil and condensate to the UAE by volume for their respective regions.
As for natural gas, the UAE imported 900m cu metres of LNG, down 46% on year, via pipeline from Qatar and through two floating regasification terminals. The UAE exports LNG via a single liquefaction terminal, shipping 7.6bn cu metres in 2022, down 13.3% annualised. In 2021 India was its primary export market for gas ($4.4bn), followed by China ($2.9bn), Indonesia ($704m) and Japan ($699m).
Primary energy consumption was 5.1 exajoules, up 7.1% on the year. Domestic energy demand is projected to increase steadily over the next decade, with consumption rates expected to increase by an average of 1.4% each year through to 2035, a figure that factors in energy efficiency and rationalisation to address various energy and climate concerns.
EWEC’s latest forecasts indicate that Abu Dhabi’s energy demand will continue to grow rapidly until 2030, with an average growth of 5.4% annually. This is primarily due to the expected increase in the baseload for the requirements of the manufacturing sector, which makes energy efficiency and rationalisation among the necessary solutions with respect to energy security and climate change challenges.
In 2022 TAQA’s global production of oil and gas was 123.8m barrels of oil equivalent per day. The company plans to add approximately 27 GW of power capacity by the end of this decade, taking its UAE capacity to 30 GW. In 2022 TAQA reported that net profit from its oil and gas unit more than doubled to Dh4.7bn ($1.3bn), on higher energy prices.
Downstream Operations
ADNOC Refining is the entity managing associated operations, supplying more than 40m tonnes of high-quality refined products to global markets each year, and overseeing a 1600-km domestic pipeline network. Since 2019 ADNOC Refining has operated as a joint-venture business with European energy firms Eni and OMV.
As of July 2023 the UAE had five refineries in operation, one of which was in Abu Dhabi: the Ruwais coking refinery, by far the UAE’s largest in terms of capacity, processing 817,000 bpd. In February 2019 ADNOC awarded a contract for a proposed 600,000 bpd capacity expansion at Ruwais, but cancelled the plan in 2021, citing weak economic feasibility. Another Abu Dhabi-based refinery, Umm Al Nar, was decommissioned in December 2021, with ADNOC relocating all of its personnel there to Ruwais.
ADNOC is also advancing construction of a new, $5bn hydrocarbons derivatives complex at Ruwais, under its Ta’ziz 60:40 joint venture with ADQ. Most of the industrial chemical compounds produced at the facility, which is set to begin operations in 2025, will be firsts for the UAE. They include chlo-alkali, ethylene dichloride, maleic anhydride, methanol, isopropyl alcohol and elastomers.
In January 2023 Ta’ziz signed a partnership deal with Fertiglobe, South Korea’s GS Energy and Japan’s Mitsui & Co to develop a 1m-tpa low-carbon ammonia production facility at the new complex. That followed a December 2022 agreement, the first domestic public-private partnership in Abu Dhabi’s downstream and petrochemicals sector, for UAE investors to take a 20% stake in a portfolio of projects across the zone.
Upstream Gas Plans
The UAE Energy Strategy 2050 features at its core a desire to be self-sufficient in gas by 2030. As of mid-2023 the UAE was dependent on the $7bn Dolphin Gas Project – a cross-border joint venture between the UAE, Qatar and Oman that is due to expire in 2030– for gas supplies. The project’s Ras Laffan gas-processing and compression plant, which came online in 2006, is the largest of its kind in the world. It exports about 1.9bn scfd of gas via offshore pipeline to Abu Dhabi’s 672.5 MW Taweelah gas-fired electricity and desalination plant.
The UAE’s energy transition plans will see nuclear displace an equivalent of 1bn scfd of natural gas in 2024, which, along with planned expansions of solar capacity, will make self-sufficiency more attainable.
Meanwhile, ADNOC is advancing its upstream gas aspirations. In April 2023 the national oil company made a $2bn non-binding offer to take East Mediterranean-focused NewMed Energy private. The move would have given ADNOC its first access to global gas, allowing for an expansion of downstream operations. However, that deal appeared to have stalled as of September 2023, prompting ADNOC to turn to Azerbaijan in August 2023 with the purchase of its first major international upstream asset – a 30% stake in the Absheron gas field in the Caspian Sea.
ADNOC may still have to rely on expensive new sources of gas from ultra-sour offshore fields, as well as unconventional, in this case, shale gas, to help the UAE meet its gas self-sufficiency target. In May 2023 ADNOC announced it was shelving onshore and offshore plans to extract 1.5bn scf of sour gas from the planned Hail and Ghasha development projects, due to the high costs of bids received. Despite these challenges, there remains room for optimism. Production at the Ruwais Diyab Unconventional Gas Concession has proceeded faster than first expected, piping gas directly to buyers in Al Ruwais Industrial City.
Midstream & Downstream
Gas processing expansion is set to occur through the addition of a 9.6m-tpa LNG plant in Al Ruwais Industrial City, which ADNOC decided in May 2023 to relocate away from the neighbouring emirate of Fujairah. The plant will use two 4.8m-tpa electric-powered trains, fed by a combination of solar and nuclear energy.
As that work continues, ADNOC is busy issuing contracts for work on Project 5.0, its plan to help raise gas production from existing fields and facilities by 1bn scfd, in tandem with its advance towards 5m bpd of crude oil production. The engineering, procurement and construction phase for work at its Das Island, Asab, Bu Hasa, Habshan and Habshan 5 facilities is likely to be worth billions of dollars.
ADNOC Gas is therefore engaged in a massive overhaul of its pipeline network infrastructure, awarding more than $5bn in construction and upgrade contracts for domestic work over the course of the second and third quarters of 2023.
Outlook
2022 was a year of growth for entities across for Abu Dhabi’s energy sector, a trend supported by relatively high global energy prices. While the sector’s outlook remains positive, the growth forecast for 2023-24 may be more moderate than in recent years as a slowdown in overall economic expansion could weigh on both demand and revenue. Even so, the country’s role as host to COP28 is likely to open new doors for Abu Dhabi’s enterprising energy companies, and the emirate and the wider country will likely see an uptick in strategic partnerships, as well as inbound and outbound investment.
Specialists in the extraction of unconventional gas, especially those companies that have the ability to make planned operations at the Hail and Ghasha gas fields economically viable, can take advantage of the current impasse in the megaproject. Meanwhile, ADNOC Gas is likely to remain active in upstream asset acquisitions as it seeks to match its gas supply with planned processing expansions.
Moreover, ADNOC may reopen the tender process for an expansion of the Ruwais coking refinery, and there will be plenty of opportunities for foreign companies to participate in the development of the adjoining industrial chemicals complex. Looking to new solutions, blue and green hydrogen development plans are set to spur new partnerships across production, storage, transport, security and other technologies related to the cleaner, lower-carbon fuel alternative.
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