Abu Dhabi looks to Asia for oil concession

Importance of Asia in the energy market has risen in recent years amid fundamental changes in production, exports and prices, experts say

Experts think the UAE has started looking east for new production partners.
Experts think the UAE has started looking east for new production partners.

Abu Dhabi seems likely to choose Asian firms for the renewal of a decades-old major oil concession, sources told AFP.

According to the sources Asia appears set to win its first major concession in the Middle East after the expiry of a Second World War-era contract to exploit Abu Dhabi’s main onshore oilfields.

Industry sources also revealed to AFP that global giant China National Petroleum Corporation (CNPC) is the top contender for the Abu Dhabi bid, along with firms from South Korea and Japan.

The 75-year-old concession ran out in January so Abu Dhabi National Oil Company (ADNOC) is now reviewing bids from nine international majors to award new production sharing agreements that will have 40 years of combined longevity.

“The Far East is ‘the’ market for Gulf oil and energy-based products like chemicals,” Jean-Francois Seznec, a Georgetown University professor and oil expert, told AFP.

The experts were quoted as saying that it is inevitable that Middle East producers like the United Arab Emirates will seek to attract Asian companies as partners after seeing huge boosts in oil exports to Asia.

This will “help the UAE secure a market share in the Far East at this time of ample supplies and relatively weak demand,” Seznec said.

The new concession, planned to last for 40 years, will raise output from the current 1.5mn barrels per day (bpd) to 1.8mn bpd by 2017.

The previous concession, granted in the late 30s, was operated by Western companies ExxonMobil, Royal Dutch Shell, BP and Total, with 9.5% each, followed by Partex Oil and Gas with 2%.

A decision is expected by the end of the year or early 2015 and will be taken by the Abu Dhabi Supreme Petroleum Council - the emirate’s highest decision-making body on energy issues.

ADNOC, which currently operates production, owned the remaining 60%.

The Korean National Oil Corporation (KNOC) and Japan’s Inpex Corporation are among the nine companies bidding for the concession.

The former partners — US ExxonMobil, Royal Dutch Shell, Britain’s BP and France’s Total — are also bidding, along with Norway’s Statoil and Russia’s Rosneft.

“There is certainly a natural fit for Asian oil companies interested in these concessions,” Victor Shum, vice-president at IHS Energy Insight, told AFP.

The Middle East is the primary supplier of crude oil to Asian nations and Asia’s importance in the energy market has risen in recent years amid fundamental changes in production, exports and prices, he added.

China imports more than 6mn bpd, mostly from the Gulf compared to about 5mn from the US.

China also struck a deal to import 200,000 bpd from the UAE until 2020, while a number of other Chinese and Korean companies signed smaller concession deals in undeveloped areas of Abu Dhabi.

“With the growing supply from the United States, we expect that Middle Eastern countries would likely have to focus more on the Asian region,” said Daniel Ang, an investment analyst at Phillip Futures in Singapore.

“We already saw Saudi Arabia, Iraq and Iran cut prices and believe that this is already a step towards maintaining their market share in the Asian market,” Ang told AFP.

While demand from the United States and Europe is declining or stagnant at best, thirst for oil is increasing rapidly in Asia and emerging markets.

IHS forecasts that the Asia-Pacific share of world consumption will rise from 26.4 per cent in 2014 to 34.4 per cent by 2024.

The UAE, OPEC’s fourth-largest supplier, is one of the last nations still giving major concession rights to international oil majors.

Industry sources said ExxonMobil bid reluctantly to stay in the concession, after securing rights at the 550,000 barrel per day

Upper Zakum offshore field under improved conditions.

Total, which has operated in the UAE for the past 40 years, is confident of retaining at least its current share, an industry source said.

“There is room for everybody,” Shum said. “But Asian oil companies certainly are emerging as key investors.”

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