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A key corporate proxy at the forefront of the Washington’s attempts to counteract the increasing influence of China and Russia across the Middle East is the Abu Dhabi National Oil Co (ADNOC), in line with the U.S.-sponsored ‘relationship normalisation’ deal signed last year between Israel and the UAE. A vital part of ADNOC’s role in this agreement is to boost its crude oil output from the current 4 million barrels per day (bpd) to 5 million bpd by 2030 at the latest and last week saw an announcement from the company that it has discovered a new crude oil, condensate, and natural gas site that holds around 1 billion barrels of oil equivalent.
Located in the Block 4 onshore concession, the discovery is likely to have recoverable reserves of at least 480 million barrels, according to the operator of the site, Japan’s INPEX last week, based on a provisional recovery rate of 40 percent for crude oil and 70 percent for natural gas and condensate. It also marks the first such find in the Block 4 onshore concession and the initial signs are that further finds may well be discovered in the site, according to ADNOC. The new crude oil find will also significantly augment ADNOC’s ongoing efforts to establish Murban as the centrepiece of what it intends to be the pre-eminent oil futures trading platform in the Middle East – the ICE Futures Abu Dhabi platform (IFAD).
Launched on 29 March 2021 by ADNOC in partnership with the Intercontinental Exchange (ICE), IFAD was built initially around a Murban futures contract, with this light, sweet crude oil grade accounting for around half of the UAE’s total near-4 million bpd crude oil production before the outbreak of the COVID-19 pandemic. According to ICE and ADNOC at the time of the launch of IFAD, Murban futures were the second physically delivered futures contracts traded on a regional exchange after Dubai Mercantile Exchange’s Oman crude futures, and Murban remained a deliverable grade in the Platts benchmark Dubai and Oman crude assessments. ICE and ADNOC partnered with BP, GS Caltex, INPEX, PetroChina, PTT, Shell, ENEOS, Total, and Vitol to launch the trading platform, but ICE subsequently announced additional agreements with Chevron, Trafigura, and Occidental to explore using the contract to price crude exports from the U.S. to Asia. At the end of November, ICE announced that over one million futures contracts had traded on IFAD since the launch – equivalent to one billion barrels of Murban crude oil. “Murban futures are adding to price discovery in Asia and [the] physical delivery mechanism has worked smoothly since launch and open interest continues to grow,” Mike Muller, head of Vitol Asia told OilPrice.com.
The ongoing expansion of IFAD feeds into the corollary build-out of the strategically vital UAE port in Fujairah as a global crude oil storage hub. Already the world’s third biggest bunkering centre, Fujairah is set to continue to benefit from its highly advantageous strategic position outside the perennially politically sensitive Strait of Hormuz and outside the rest of the Persian Gulf as well. Fujairah offers an unencumbered direct port on the Gulf of Oman – but on the eastern side of Oman itself – which means that any oil kept there is able to avoid any blockade that Iran might again impose on ships passing through the Strait of Hormuz. This embargo option has become increasingly attractive to Iran following the finalisation of its Guriyeh-Jask oil pipeline. The pipeline allows Iran’s oil to flow without going through the Strait whilst it blockades 30 percent of the rest of the world’s oil supply. Fujairah’s geographical position also allows any oil kept there to avoid any future problems that may arise with Oman if the Sultanate succumbs to China’s current wooing of it to become part of its ‘One Belt, One Road’-related sphere of influence.
Fujairah is already the key hub from which the UAE’s Murban oil is exported, making its way there through the 360 kilometre Abu Dhabi Crude Oil Pipeline from the Habshan onshore field in Abu Dhabi and capable of transporting 1.8 million bpd. ADNOC is also currently developing underground oil storage caverns in Fujairah that can hold 42 million barrels, including Murban, with the project expected to be completed in 2022. According to recent statements from the Fujairah port development authorities, it may add a tenth berth shortly as part of plans to boost overall storage capacity across the site in the next three to four years.
These energy-specific developments are, in turn, foundation stones in the UAE’s broader ‘Operation 300 Billion’ plan that intends to raise the contribution of the country’s industrial sector to AED300 billion (US$81 billion) from the current AED133 billion within the next 10 years. This objective – itself part of the UAE’s Circular Economy Policy 2021-2031 – will be achieved in large part through the creation of 13,500 industrial companies over that period, covering the manufacturing, construction, electricity, gas, mining and quarrying sectors in the first instance.
Running in parallel with all of this are joint security initiatives with the U.S. and Israel, as analysed in depth in my new book on the global oil markets, with the latest development in this area being the defence deal signed in early December between the UAE’s defence conglomerate, Edge, and Israel Aerospace Industries (IAI). According to a statement from the two companies, they will produce ‘170 M’ advanced modular unmanned service vessels that will be usable for both commercial and military purposes, including carrying out advanced anti-submarine warfare. The new product will also be usable for intelligence, surveillance, reconnaissance, mine detection and sweeping, and as a deployment platform for certain types of aircraft, according to Edge. This follows the agreement made just after the August 2020 relationship normalisation deal that the U.S. will provide the UAE with the latest F-35 fighter planes.
