the uae energy sector 2006tional presence and role in the uae oil and gas industry. this did not...

The UAE Energy Sector 2006

A Special Report From Oil and Gas Investor andGlobal Business Reports

Imagine a country barely 30 years old, dominated by barrendesert and scorching summer temperatures, yet possessing aGDP set to touch $139.4 billion within two years, a high per

capita annual income ($29,000) and a sizeable annual trade sur-plus. You are no doubt thinking that no such place exists, thatsuch figures for such an inhospitable and young country are im-possible?

If you are then think again. The United Arab Emirates wasoften dismissed as a backward desert region, yet this youngcountry offers much more than historically met the eye. Botheconomically and politically it has emerged as an importantstate, growing on the world stage and demanding to be noticed.

Although a late starter in the oil-export business, the Emi-rates’ current eminence seems obvious when considering that,according to latest estimates, it possesses 97.8 billion barrels ofoil, the equivalent of 9% of the world’s total. Combine this withits strategically important location along the southern approachto the Strait of Hormuz on the Persian Gulf—a vital transitpoint for world crude oil—and its status as a pre-eminent oilproducer is boosted.

Born out of the remnants of the British colonial presence inthe Persian Gulf, the UAE was established in 1971. A federa-tion of seven emirates (Abu Dhabi, Ajman, Al Fujairah, Dubai,Ras Al Khaimah, Sharjah and Umm Al Quwain), it has under-gone a rapid transformation from the loosely assembled undevel-oped desert emirates that the British left in their wake. Beforethe discovery of oil in the 1950s the economy was dependant onfishing and the declining pearl industries. Now it is as distinctfrom its medieval past as the skylines of Abu Dhabi and Dubaiare from their low-rise beginnings.

Since 1962, when Abu Dhabi became the first of the emiratesto begin exporting oil, both the country’s economy and societyhave been transformed. The UAE’s per capita annual GDP is ona par with leading Western Eu-ropean nations, it is a memberof the World Trade Organiza-tion (WTO), and it has becomea major international businesscenter and one of the most sta-ble and untroubled countries inthe world.

If the change since the coun-try’s formation has been rapidthen the development of theeconomy in the last decade canbe considered supersonic. TheUAE now ranks 24th amongtop global exporters, aboveIndia and Australia. Its nominalGDP has risen from $69 millionin 2001 to $103 million in2004—14% a year. And theeconomy has grown by 6% peryear on average over the pastdecade and 9% from 2003 to2005.

The UAE Central Bank pre-dicts that the economy willgrow by more than 8% this yearand inflation will drop to 4%.

Confidence, although shaken by the readjustment in the Dubaistock market in March, remains high and UAE companies areprojecting the image of a vibrant and growing economy throughtheir increasing global presence. The recent high-level maneu-verings surrounding Dubai Port World’s (DPW) takeover ofP&O illustrated the level of global clout the UAE now enjoys.

It is also currently undergoing free-trade agreement negotia-tions with both the U.S. and EU. The business environmentcharacterized by “free zones” and absence of taxes, created bythe late president Sheikh Zayed bin Sultan Al Nahyan and lateprime minister and vice president Sheikh Maktoum Bin RashidAl Maktoum, is as “western friendly” as any one will find east ofEurope.

In recent years the government has undertaken several pro-jects to diversify the economy and reduce its dependence on oiland gas revenues. The non-oil sectors of the economy presentlycontribute 70% of the UAE’s total GDP and around 30% of itsexports. The federal government has invested heavily in sectorssuch as aluminum production, tourism, aviation, telecommuni-cations and re-export commerce. Yet in spite of this, there is nogetting away from the fact that the UAE’s hydrocarbon industrywas and will remain the main driver of this rapidly developing

THE UAE ENERGY SECTOR: AN INTRODUCTION

Punching Above Its WeightAs a politically and economically stable global oil and gas player, the UAE is undoubtedly a key market inthe most important oil and gas region in the world.

This special report was prepared byLondon-based Global Business Reports. Theauthors are Elouisa Dalli([email protected]) and Gregory Wilcox([email protected]).

June 2006 ▪ oilandgasinvestor.com UAE-3An aerial view of Dubai Dry Docks, the largest repair, conversion and building yard in the Persian Gulf region.

nation.By far the biggest deposits of oil in the

emirates are to be found in Abu Dhabi.The emirate controls more than 85% ofthe UAE’s oil output and more than 90%of its reserves, making it a global player inthe oil market in its own right. Its domi-nance will become even greater in thecoming years as it increases its productionand exports of natural gas.

Yet it would be a mistake to view theUAE hydrocarbon sector as a one-emi-rate show. While the other emirates havenot been blessed with the same naturalreserves as its dominant neighbor—Dubaioil production peaked in 1991 at 410,000barrels per day—the UAE has a dynamicoil and gas market and key competenciesare present across all the former Trucialstates.

Dubai, with its world-class repair, con-version and building shipyard, Dubai DryDocks, plus the presence of Jebel Ali, thelarge industrial free zone, has become thelocation of choice for many companiesserving the oil and gas industry not onlyin the UAE but across the Middle East.Sharjah, too, is home to many servicecompanies and is also, after Abu Dhabi,the largest gas producer. And Fujairah isdeveloping its industrial base; its abilityto serve the oil and gas sector will onlyincrease.

Historically, the UAE has followed itsown path, distinguishing itself from itsfellow Arab and OPEC partners. Eversince the 1930s, when the British govern-ment had the right to reject or approvethe granting of oil concessions in theGulf, there has always been an interna-tional presence and role in the UAE oiland gas industry. This did not stop withthe first oil shock in 1973. While SaudiArabia expelled international oil compa-nies, the UAE continued to welcomethem.

The important role of international oilcompanies in the UAE continues to thisday. The Abu Dhabi National Oil Co.(Adnoc), the dominant Emirati oil com-pany, brought in ExxonMobil in June2004 as a strategic partner in the devel-opment of the Upper Zakum Field with a28% ownership after a competitive bid-ding process. The company knew itneeded the technology and expertise thatan international powerhouse such asExxonMobil could provide, to raise its ca-pacity from 550,000 barrels per day to750,000 by 2008 and 1.2 million by 2010.

The international feel to the sector istestament to the receptiveness of UAEcompanies to new technologies and com-petencies that international firms, bethey multinationals such as Halliburtonor smaller independents such as NordicWell Services, offer. Since the earliestdays of oil discoveries, the UAE hasdemonstrated its realization of the needfor constant technological improvementsto keep pace with demand and its fellowoil producing competitors.

Foreign companies in the UAE havecreated a sense of legitimacy and globalexcellence. The UAE realized that for itsindustry to grow and develop, it neededWestern technology. Foreign companieshave brought with them efficiencies builtup through years of experience and haveinevitably been invaluable in the coun-try’s aim to increase production.

The optimism surrounding the industryhere is partly due to this willingness toembrace new technologies. Indeed, nowthat the country is aiming to boost thelevels of production from its current 2.6million barrels per day to 3.6 million by2010 (a sharp increase considering that in2000 the country was producing2,492,000 barrels per day), internationalcompanies are more welcome than ever.Adnoc, with foreign help, is also cur-rently developing four new fields and hasalready increased its production 25%from the past two years.

In turn, the legitimacy and expertiseimparted by the foreign presence has cre-ated an ever-more confident and expertlocal industry. Local oil-focused compa-nies are replicating their fellow Emiraticompanies, such as DPW, in increasinglymaking themselves noticed beyond theUAE borders

Throughout the UAE, projects arebeing initiated with the upgrading of in-frastructure being the order of the day.One such undertaking is the project toincrease capacity at the onshore Bu HasaField that includes the construction ofnatural gas separation units, and thedrilling of natural gas reinjection wellsand water injection. The avowed aim isto push the sustainable production capac-ity from its present day 550,000 barrelsper day to 730,000 by year-end.

Upgrades of Bu Hasa’s fellow Emiratioil fields, the Asab and Bab, are alsounder way, again driven by the desire forincreased production.

Increased domestic consumption ofelectricity and the growing demand fromthe burgeoning petrochemical industryhave provided incentives for the UAE toincrease its use of natural gas. During thelast decade natural gas consumption inAbu Dhabi alone has doubled. The coun-try is blessed with 212 trillion cubic feet

of gas. This is the fifth-largest reserve inthe world, after Russia, Iran, Qatar andSaudi Arabia.

The largest reserve in the UAE is inAbu Dhabi, where the non-associatedkhuff gas reservoirs beneath the UmmShaif and Abu al-Bukhoosh oil fieldsrank among the world’s largest.

Yet this has not stopped the countrylooking further afield for supplies to sup-port its increased gas needs. The DolphinEnergy project is the largest energy initia-tive in the Middle East and aims to sup-ply substantial quantities of gas fromoffshore Qatar to the UAE. The crossbor-der project, which also involves the de-livery of Omani gas, is a first andhighlights the innovative approach beingtaken to the energy needs of the countryand the emphasis placed on cooperation.

All the above paints a picture of an in-dustry moving forward with confidenceand that has much to offer potential en-trants to the market. Yet the optimism isfurther enhanced when one looks at thebroader geopolitical picture of the oil in-dustry. This illustrates why a look at theUAE’s oil and gas sector is so timely.During the production of this report, oiland oil-producing states have dominatedthe news. The first half of 2006 has seenincreasing unease in three crucial oil-pro-ducing nations. The troubles in the Nige-rian delta, the attempted terrorist attackon the Abqaiq oil-processing facility inSaudi Arabia, and the growing disputeover Iran’s nuclear ambition havebrought into closer focus the need for sta-ble, guaranteed sources of oil at a timewhen the world’s thirst for “black gold”shows no sign of abating.

The UAE’s reputation as the region’smost stable country, both politically andeconomically, means its importanceshould not be underestimated. At a timeof rising global production and demandand high oil prices, the UAE is ready andmore than able to capitalize on the op-portunities that have been created. It alsooffers a safe and attractive environmentfor business, in stark contrast to some ofits OPEC partners.

At times of skyrocketing oil and gasprices, ever-more global demand for en-ergy and uncertainties surrounding sup-plies from several of its OPEC partners,the UAE is poised to play an ever-moreimportant role on the global energy stage.

The scope for growth across the sectoris huge and this report seeks to present aclear and balanced picture of the sector atpresent, the challenges and opportunitiesthat exist and how it might evolve duringthe boom period the industry is experi-encing. The UAE is undoubtedly a keymarket in the most important oil and gasregion in the world, and given its deter-mination to keep its place among thosenations that are quick to realize the needto adapt to both consumer demands andchanging circumstances, it should in-crease its prominence. �

UAE-4 Oil and Gas Investor ▪ June 2006

Foreign companies

in the UAE have created

a sense of legitimacy

and global excellence.

The past three years have seen the price of oil rise by morethan $40 and this year, one has not been able to pick up anewspaper without there being significant coverage and anal-

ysis on whether the industry can expect to see further increases.This has led people to ask the age-old question: “Is the era ofcheap energy over?” At press time, the price of crude oil had hit arecord high of $72 per barrel and the expectation was that itwould not stop there.

While the value of oil in real terms is still below those of theearly 1980s, the recent hike in cost has created a flurry of pre-dictions and a buzz throughout the industry as everyone seeks tocapitalize on the increased amounts of money to be made.When meeting the UAE oil and gas community, the general at-mosphere was one of uncontained excitement. As MohamedFawkey, of International Development Co., boasted, “Anyonecan succeed in this market now.”

Yet the strength of the UAE industry has been in part createdby steady and sensible growth, so it would seem pertinent toshare the prevalent views within the emirates on what they feelwill happen to the oil price and how they plan to react to it.

A quick glace at any news channel will confirm that many ofthe factors that drove world oil markets in 2005 are present in2006—namely geopolitical disquiet in the Middle East, drivenmainly by Iran’s nuclear ambitions and continued strong globalconsumption.

There is little doubt that spiraling prices are the result of un-certainties about future market conditions and it is fair to saythat a price range of $50 to 55 has replaced the $15 to $30 range

as the sustainable long-term crude price. Geoff Taylor, chief executive of Dubai Dry Docks, feels that

for the meantime, at least, this is where the price will stay. “I donot see the price of oil plummeting. Even if it does drop, it isnot going to fall back to $25 a barrel…It would probably go to$45 a barrel, but I do not even see that happening as OPECcountries would not let it.”

The obvious consequence of this prevalent view is that therenow exists greater incentives for national oil companies and oilmultinationals to increase spending on exploration and devel-opment. This has a trickle-down effect as E&P firms are onceagain looking into opening fields that had been shut becausethey were not viable when oil prices were low.

This growth in oil price has posed questions of oil producers.The Abu Dhabi National Oil Co. (Adnoc), the dominant Emi-rati oil company and standard bearer for the hydrocarbon sectorin the UAE, is aware of its duty. It sees its role during this cur-rent climate as one of reinvesting the profits gained into the fu-ture of the oil industry. It plans to spend billions to increase itsoil infrastructure and expand both its upstream and downstreamcapabilities.

Adnoc chief executive H.E. Yousef Omair Bin Yousef re-cently acknowledged the part the company has to play in help-ing the consumer in this current era of price volatility. Adnocsees stability as the key to the industry’s growth and, therefore,attaches a great importance to its ability to both raise capacityand stabilize world prices.

The present climate though has encouraged many companiesto predict annual growth rates of between 15% to as much as25%, all on the generally held assumption that the oil price willremain high.

This view is also held within the financial sector of the UAE.Michael Ladenburg, head of corporate finance at the NationalBank of Abu Dhabi, says, “I see the oil price remaining at signif-icant levels, which will in turn aid the development of industryacross the country.”

Yet it might be wise to question whether a continued rise inthe price of oil would really be as beneficial for all concerned ascurrently believed. A recent World Bank report, while conclud-ing that prices would remain high for a prolonged period, calcu-lated that if prices rise above $90 for more than a year, worldoutput would decline 1.5%.

Hussein M. Sultan, chief executive of Dragon Oil, is of theopinion that “whether [the price of oil] will shoot up to US$100a barrel is a difficult question. I honestly feel that the right pricefor everyone for the next couple of years is in the range ofUS$45 to US$60 a barrel, though the upstream companies willprobably want more. This is the price that is fair to both con-sumers as well as producers.”

He is aware though that if the price does stay in his preferredrange that the benefits to be accrued are enormous. “The indus-try here in the UAE is geared for substantial investments in pro-jects that will substantially increase the production of oil andgas. We need more gas to run our power utilities, our industriesand also for petrochemical projects. There will also be invest-ments downstream and new refineries will be built to meet thegrowing demand. So as long as the demand continues to growand the oil price remains at a reasonable level, then we shouldsee more investments in the oil and gas industry.”

THE UAE ENERGY SECTOR: OIL POTENTIAL

The Price of OilEven at $50 oil, the prospects of increased oil E&P in the UAE remain high.

Samir J. Fancy, chief executive of Topaz Energy and Marine Ltd., says, “If(these higher oil prices) had happened 20 years ago, the world wouldhave entered a serious economic recession.”

UAE-6 oilandgasinvestor.com ▪ June 2006

A paradigm shift has occurred and weare now seeing some independents basinginvestment decisions on a $55-per-barrelprice, with multinationals being morecautious in benchmarking their invest-ment plans on the premise of $35 a barrel.But will they soon be benchmarking ateven higher levels? The honest answer is,as many in the UAE have acknowledged,that one cannot tell. While fears existthat increased tension across the Strait ofHormuz in Iran will push prices as high as$90 or even $100, others feel the marketwill be able to cope.

Samir J. Fancy, chief executive ofTopaz Energy and Marine Ltd., says,“When the price of oil started to reachbetween $30 and $40, some said theworld would not be able to cope. But thisdid not happen. The markets are moreefficient today; market efficiency haschanged the relevance of the price of oil.If this had happened 20 years ago, theworld would have entered a serious eco-nomic recession.”

What is clear is that the industry in theUAE has adapted to the changing timesand is gearing up for increased spendingand work that the current oil price af-fords. If the price does continue to rise,

then perhaps the world markets andeconomies could be able to cope, but theprevalent view is that the doomsday sce-nario of $100 to $200 prices will notemerge.

As Fancy says, “There has been aparadigm shift in recognition of the in-trinsic value of oil,” meaning that whilethe era of low prices may be gone forever,it would simply be wild speculation to say

that $100 will soon be breached. The new acting secretary general of

OPEC, Mohammed Burkindo, echoesDragon Oil’s Sultan by recently statingthat OPEC would like to see oil priced ata level acceptable to both consumer andproducer and that he expects it to movetowards $50 this year. Even at this levelthough, the prospects of increased spend-ing remain. �

June 2006 ▪ Oil and Gas Investor UAE-7

A reactor vessel fabricated for a major oil and gas client in the UAE by Adyard in Abu Dhabi.

“Natural Gas is the future,” extols Khalil Al Khouri,general manager of Setegi Thermax Systems, and allindications go to show that he is right. The growing

economy and the onset of the Dolphin project all point towardsan economy that will be driven not so much by oil as by gas.

The needs of the country, with its ever-expanding demandfor cheaper and cleaner fuel combined with its own vast reservesand ingenuity at utilizing them, mean natural gas is and willplay an increasingly leading role for the Emirates throughoutthe 21st century.

The development of the UAE cannot be looked at in isola-tion from its hydrocarbon industry; without the latter, the suc-cess of the former would not have been possible.

Yet the buzz word around all the Emirates is diversification.While oil and gas may have had a significant part to play in theshort history of the UAE, the aim of those in power is to weanthe economy’s dependence off oil and gas. Therefore, during thepast decade new energy-intensive industries have sprung up,adding to the already present plants, such as the Abu Dhabi

Water and Electricity Authority (Adwea), which is responsiblefor producing large amounts of fresh water using desalinationplants.

In highlighting two sectors the UAE has developed, one seesthat the future energy requirements of the UAE are risingsharply. The Dubai Aluminum Co. (Dubal), a huge aluminum-processing plant in Dubai established in the late 1970s, requiresits own 1,450-megawatt power station comprising 18 industrialgas turbine generators, and has the ability to import 200megawatts of electricity from Dubai Electricity and Water Au-thority’s power station in neighboring Jebal Ali.

Bourouge, a partnership of Abu Dhabi National Oil Co.(Adnoc) and Borealis, recently awarded four contracts for itsproposed major expansion of its petrochemical complex inRuwais to be called Bourouge 2. This multi-billion-dollar pro-ject will be able to produce 2 million tons of enhanced poly-olefins per annum. The consequence of these developments isthat the UAE’s total primary energy demand, which is alreadyhigh in per-capita terms, is projected to grow 2.9% per year. In

THE UAE ENERGY SECTOR: NATURAL GAS

The Fuel of the FutureWith tremendous gas reserves and growing gas demand, the UAE is aiding the growth of Gulf economiesthrough use of clean fuel.

An Arabian Industrial Gases Co. plant in the UAE.


Dubai alone it is estimated that dailyelectricity demand will reach 8,513megawatts by 2011, an increase of morethan 100% from 2005.

With this drive to create an indigenousindustrial sector comes certain energy re-quirements, and the irony is that in diver-sifying the economy away from itshydrocarbon roots, it is in fact increasingthe need for natural gas. During the lastdecade, natural gas consumption in AbuDhabi has doubled, and it currentlystands at nearly 4 billion cubic feet (Bcf)per day.

The response to this new reality hasseen the UAE embark on a massive,multi-billion-dollar program of invest-ment in its natural gas sector, including ashift toward gas-fired power plants andthe transformation of the Taweelah com-mercial district, Abu Dhabi, into a natu-ral gas-based industrial zone.

The second phase of the UAE’s $1-bil-lion onshore natural gas developmentprogram (OGD-2) at the Habshan com-plex directly over the Bab oil and gasfield was completed in early 2001. Thissecond phase included the constructionof four trains to process a daily average of1 Bcf of gas, 300 to 500 tons of gas liquids(NGLs), 35,000 to 55,000 tons of con-densate and up to 2,100 tons of sulphur.Additional capacity expansion is plannedin the third phase, OGD-3, and will in-volve the construction of two additionalgas-processing trains. This is essentiallydesigned to produce higher volumes ofNGLs and condensate and reinjection ofgas into oil fields.

The rise in consumption of natural gasboth in terms of using it for power to do-mestic application has created opportuni-ties for companies both local and foreign.Lootah BC Gas is one such company thatnoticed the openings present in the Emi-rates. Established in 1997 Lootah BCGas, a joint venture of the Lootah Groupand Terasen, a Canadian company, wasformed primarily to focus on gas pipelinenetworks with the onset of the gas-distri-bution project in Sharjah. This was com-pleted in three phases using more than800 kilometers of piping, the expansionof which is ongoing.

The company has since ventured intoDubai where it is involved in LPG distri-bution systems and into Abu Dhabiwhere it has just completed the FEED(front-end engineering design) forAdnoc. The growth in the company’sportfolio mirrors the growth in demandfor gas across the country.

Dan Danesh, Lootah BC Gas’ generalmanager, says, “Ten years ago we identi-fied that gas distribution would becomepart of the everyday energy life here asthe Gulf countries expanded. The changeoccurred earlier in Europe and NorthAmerica; here they had much more oil.But as the Gulf moves to get more andmore developed, there is a greater needfor more and more energy.”


The expansion of the gas-distribution systems in Dubai andAbu Dhabi will offer yet more opportunities for companies likeLootah BC Gas. Yet, the chance for companies based in theUAE to go forth and operate elsewhere in the Middle East isalso present as rising gas usage is not simply an Emirati phe-nomenon as Danesh points out. “Jordan is thinking about distri-bution. Saudi Arabia is looking at distribution. Oman is lookingat distribution. All these countries have matured to a levelwhere they have gone from using gas for power to using gas fordomestic uses.”

While the rise in oil price has created excitement in the UAEoil sector, the appreciation that gas, in both an industrial anddomestic sense, is “coming in a big way” has also stirred theimagination of what is possible for companies in the gas sector.“It is a new era for the company—the culture has totallychanged,” says Salah abd El Bari, general manager of Unigas.“We are now trying to capitalize on the current boom phase ofthe ‘gas industry’ in the UAE.” Unigas is a Sharjah-based indus-trial gas company that, due to the changing landscape broughtabout by the increasing use and demand for gas, is diversifyinginto the pipeline sector.

This is not a unique example. Throughout the UAE, compa-nies are latching onto the new reality and reaping the benefits.“The growth over the past five years has been phenomenal—and the asset base we have now compared with five years agohas completely changed. It seems as if we are a totally differentcompany. We have a growth rate of 40% per year. It all looksvery beautiful on a financial statement!”

Naji Skaf, general manager of Arabian Industrial Gases(Aigco), says growth here is attributable to the increasing de-mands of the industrial sector. And with further investment inthe downstream market and other industries expected duringthe next five years, one can see why companies such as Aigcoare so bullish about the future. The market for service providersof gas to the oil and power industries is bright and due to get

even brighter. Skaf says, “On the oil side, the UAE has been lagging behind

in adding value. It is still pretty much a crude oil exporter. Ithink the Saudi market may need to be copied whereby youkeep the oil in the country and add value to it further down thechain. The UAE needs to copy this model, but by investing inpetrochemical plants.

“This should occur over the next 10 years, enabling plenty ofopportunities for ancillary industries.” But one project—Dol-phin—epitomizes and encapsulates the future of energy usagemore than any other.

At this time, a 48-inch export pipeline is being laid oversome 370 kilometers through joint Qatari-UAE waters from thespecialist pipelay vessel, Castoro-6. This is the largest andlongest subsea line in the Gulf Country Community (GCC).That alone is impressive enough, but when told that this is thefinal piece of an “energy jigsaw,” the creation of which is a behe-moth in terms of its financing, construction, cooperation re-quired and innovation displayed, then one begins to understandthe importance of the Dolphin project.

The largest energy initiative ever undertaken in the MiddleEast is the logical, yet innovative, solution of marrying enor-mous gas supply, namely Qatar’s offshore North Field, with athirsty market, namely the UAE, especially Dubai. It is possiblythe best illustration of what the UAE, along with desired coop-eration, is capable of in the hydrocarbon sector.

This unique strategic energy initiative, costing some $4.4 bil-lion, will produce large quantities of natural gas from Qatar’s off-shore North Field—the largest single gas field in the world—andtransport it by pipeline to Qatar’s Ras Laffan industrial city.There it will be processed, so that valuable byproducts are ex-tracted for sale elsewhere. Meanwhile up to 2 Bcf a day of re-fined gas will travel by export pipeline to the UAE fordistribution to customers throughout the Emirates and in Oman.This very brief overview of the project’s basic structure does notdo it justice in either importance or size.

In terms of importance it cannot be overestimated. DolphinEnergy will become the UAE’s main gas resource supplier assoon as it has reached full production. Once fully up and run-ning, it will be processing 2 Bcf of gas a day, allowing it to sup-ply around 20 billion cubic meters (Bcm) of gas annually toTaweelah.

Of this 10%—or the equivalent of 33,000 daily barrels ofoil—will be sold to Oman, still leaving 18 Bcm daily (equiva-lent to 300,000 barrels of oil) for direct use in the UAE econ-omy. What this ultimately means for the Emirates is that it hassecured a stable source for 30% of all gas to be used in the Emi-rati power stations.

Such a distinction and role is not one that Dolphin Energytakes lightly. Dolphin Energy’s chief executive, Ahmed Ali AlSayegh, comments, “This fact does not, and will not, make ustoo proud or complacent. On the contrary, it makes us highlyconscious of the weight of responsibility that we shall carry, on adaily basis, to provide the UAE with the energy it needs. Theconcept has become more than a reality—it is now a duty thatwe shall take very seriously indeed.”

Aside from the mere statistics associated with the project, itsimportance also resides in geopolitical terms; an example of re-gional cooperation, bringing together three GCC members andrealizing such an ingenious project bodes well for future partner-ship. That the UAE took the initiative once again demonstrates

“I think the Saudi market may need to be copied….”Naji Skaf,Arabian Industrial Gases Co.

Dubai has established itself as a Western-style business center in theMiddle East region.


the country’s realization forconstant innovation and im-provement to support the de-velopment of substantial,long-term, industrial invest-ments for its future well-being.

The innovation the UAEhas shown with the Dolphinproject is not limited to itsuniqueness. That Abu Dhabihas the fourth-largest gas re-serves in the Middle East, andyet the Dolphin project wasdeemed necessary to cope withincreased gas demands, mayseem bizarre. But it has allowedthe UAE to husband its owngas reserves for long-term use,such as injecting it into declin-ing oil fields.

Once up and running (latestpredictions are that it will be infirst-quarter 2007), Dolphin Energy willhave an immediate impact. This impactwill only grow with time for a secondstage to its project—allowing for a further1.2 Bcf of gas to be supplied from Qatar ata future date—is being planned. Withthis in mind, an export pipeline is beingbuilt so that it can take the 60% addi-tional quantity of gas without difficulty—however, additional wells, sea lines andprocessing facilities will be required.

Sayegh says, “We shall also have tomake a new agreement with our good

friends in the Qatar government—with-out whom, of course, none of what we dowould have been possible. The matter isnow under study. And this is to stress thevery important role Dolphin will assumeas a principal gas supplier to the UAE,once the gas begins to flow.”

In terms of financing it also illustrateswhat is possible—drawing on original so-lutions, Dolphin Energy went out to re-gional and world financial markets in late2003 to seek initial bridge financing. Thiswas based on a shareholders’ agreement to

provide some 30% of total fundingwith 70% sought from banks world-wide.

In the first tranche, completed inmid-2004, $1.36 billion was raisedthrough a conventional loan facilityat very competitive rates. The secondtranche, which combined innovativeIslamic as well as conventional com-ponents, raised $3.45 billion lastsummer on even more favorableterms—and enabled Dolphin Energyto retire the first tranche. Now, thefocus is on long-term financing—aiming to secure permanent facilitiesover 10 to 15 years, consistent withthe life of the project.

What is not in doubt is that thishas remolded the industry and energylandscape of not just the UAE but ofthe entire region. The first intercon-nected gas grid between three coun-

tries allows the resources of one countryto benefit the development of two others.With its emphasis on aiding the growth ofGulf economies through use of clean fuel,it has also answered the questions posedby the global environmental lobby.

Throughout the globe there is an ever-increasing shift towards gas and cleaner,more environmental friendly fuels in gen-eral. In adapting in such a dramatic way,it is fair to say that the Dolphin project isat the forefront of the new energyparadigm. �

A National Drilling Co. facility.

June 2006 ▪ oilandgasinvestor.com UAE-11


There is a prevailing mood of optimism in the UAE oil-field-service sector. “Anyone can succeed in this marketin the next three years. Ten years ago it was a big chal-

lenge for companies like ours to grow—now growth is ex-pected,” says Mohammed Fawkey of InternationalDevelopment Co., one of the major suppliers of equipmentto the oil and gas sector in Abu Dhabi.

The newly found wealth and increased number of “petrodol-lars” have permeated the industry and the service sector is expe-riencing a “boom time” that is characterized in several waysfrom expanding scopes of operations, a growing diversificationof services offered and a general fattening of wallets.

The service industry in the UAE is multifaceted and al-though large international companies such as Halliburton andSchlumberger play very visible and important roles, the numberof local companies busy expanding their operations in the coun-try, as well as within the region, is noticeable. This is a dynamicsector built up during the past few decades as hydrocarbon pro-duction developed.

Stringent regulations, such as minimum local-content re-quirements for foreign operators, have allowed the developmentof local proficiencies, which during the past few years haveflourished with the increasing number of foreign entities enter-ing this buoyant market.

The Bin Ghalib Group of Cos. is a good example of a localcompany now acting in much the same manner as many of itsmore illustrious and better-known foreign competitors. Estab-lished some 25 years ago, this family-based company offers engi-neering and automation solutions to the industry. MohammedBin Ghalib, the group’s chief executive, boasts, “Twenty yearsago it would have been hard to find a local company doing whatwe are doing now.”

He is alluding to the fact that, although he is rightly proud ofthe company’s emphasis and history as a local entity, it is nowlooking beyond the Emirati borders. “We are looking to serveother parts of the region, countries such as Pakistan,Afghanistan, Bangladesh and Iran, places near to us. Beingbased here allows us to expand to these areas.”

This growing confidence is indicative of two important facts:the high level of local knowledge and expertise and the currenthigh oil price. “Because of the high oil prices, dying companieshave been rejuvenated. There are now new players in the mar-

ket from China, Korea and India, not just the usual complementof Americans, Europeans and Canadians. There are a lot of op-portunities for everyone. The industry is booming.”

As companies such as Bin Ghalib develop and regional mar-kets mature, the possibilities for further expansion look strong.

This “can do” approach is noticeable beyond the walls of theBin Ghalib Group headquarters and is facilitated by two circum-stances, which, when combined, constitute the UAE’s maincompetitive advantage over its fellow Gulf neighbors. First, theUAE’s enviable location at the heart of the world’s most impor-tant oil and gas region, and secondly, the growing confidence inthe UAE economy coupled with a business-friendly environ-ment.

Whether companies are in Abu Dhabi, Dubai, Sharjah or Fu-jairah, the notion that they are based in a regional and ever-more viable global logistics and trading hub is more thanappropriate. Fadi Michel Matta, president of the Africa andMiddle East office of National Oilwell Varco, an Americancompany focused on providing a slew of equipment and servicesto the sector, acknowledged the huge advantage of the UAEover and above even its closest Gulf neighbors. “There are nologistical problems in being based here in Dubai.”

That the UAE is an attractive place for anyone wanting tooperate in the Middle East, the North Africa region and even asfar afield as the former Soviet states is a view widely held in theindustry and testament to the ease of doing business in theUAE.

Yet, having already generated a strong reputation as a hub forthe hydrocarbon industry, the country is not resting on its lau-rels. Determined to push back the boundaries of what is possi-ble, institutions such as the Abu Dhabi Chamber of Commerceand Industry (ADCCI) are looking to entice more foreign com-panies to the UAE.

ADCCI’s newly elected president, Salah Salem Bin OmaeirAl Shamsi, says, “We want to market Abu Dhabi as an oil andgas hub. We have the infrastructure for communications, wehave the market and then we have the competitive advantageof a good business environment. It is a “one stop shop.” Thereare so many things that mean that this is a good place to baseyourself. The UAE is a young country, but it has developed veryquickly due to the open economy and open minds present here.”

Today, tapping into the beneficial economic regime and loca-tion are a host of service companies that operate around theglobe and so have much to which to compare the UAE. Onesuch heavyweight is Petrofac International, serving the Gulf re-gion’s oil and gas sector from its Sharjah base since 1991.

Maroun A. Semaan, chief executive of Petrofac (E&C), says,“There are many benefits to working in a modern environmentof a dynamic tax-free economy with high growth rates andabundance of support services. Being based here has offered usthe opportunities to serve our key clients around the region inan efficient manner.

“One can go to Kuwait in the same time as one can drive toAbu Dhabi and there are several daily flights to Doha and Mus-cat. Modern infrastructure and good communication are keys toour success.”

Based in the UAEPetrofac is by no means alone in finding that they have much

THE UAE ENERGY SECTOR: OILFIELD SERVICES

Rolling With Good Times Tax-free zones, proximity to the hydrocarbon industry and a long history of marine services contribute tothe UAE’s growing attractiveness as an oilfield-services center.

“Twenty years ago it would

have been hard to find a local company

doing what we are doing now.”

Mohammed Bin Ghalib,

The Bin Ghalib Group of Cos.

to gain by basing their Gulf operations inthe UAE. Many service companies havebased their regional headquarters in theEmirates. Semaan continues, “We havesince consolidated our position here asthe base for international operations ofthe company executing mainly lump-sumturnkey projects (EPC) for the upstreamindustry. This has proved to be a wise de-cision—the UAE is well-placed in theGCC region to support markets like Iran,the Caspian Region, Georgia, Kazakhstan,Russia as well as North and West Africanmarkets.”

The creation of tax-free zones such asJebel Ali, Dubai, and Hamriya, Sharjah,to name but two of the 32 present in theUAE, have allowed foreign companiessuch as SGS Gulf Ltd. and National Oil-well Varco to set up their Middle Eastheadquarters in the UAE. This has en-abled them to bypass laws dominantthroughout the region, not just the UAE,that require more than 50% ownership bya local company.

Combined with world-class infrastruc-ture and economies of scale, this allowsboth home-grown and foreign companiesto capitalize on the enviable location withwhich the UAE is blessed.

Mike Manion, SGS’ country manager,says, “The advantage of being here is thatwe can create companies whereby we canhave branches of the SGS in nearby re-gions—places like Bahrain. We can createa company within the free zone, and regis-ter it here too, then we can operate inother Gulf countries without a sponsor oragency agreement. It gives us the abilityto work elsewhere as an independentcompany.”

The philosophy present in the UAE oiland gas service sector—perhaps distinctfrom other parts of the UAE economydominated by monopolies such as Etisalat,its telecommunications giant—is the fact

that competition is soundly encouraged.After the first oil shock in 1973, whilemany of its OPEC brethren were seen tobe expelling foreign companies, the UAEcontinued to keep the door open to them.

Competition is seen as healthy. Withlittle government interference, the qualityand standards within the industry roseand, with them, new companies broughtnew technologies. This has allowed themarrying of foreign technologies withlocal know-how, which in turn has cre-ated more synergies to be built upon.

This “Western” feel to the sectormeans foreign companies need not thinktwice before coming to serve the ever-ex-panding hydrocarbon industry in theUAE. There exists a symbiotic relation-ship between the foreign companies andthe UAE producers. While there is muchfor the foreigners to gain, the benefits arenot simply one-sided.

With the rise in oil prices has come arise in the importance of efficiency. Forexample, when the oil price was a mere$10 a barrel, lost drilling time cost pro-ducers very little. Any time lost todaymeans a huge loss of revenue that cannotbe reclaimed.

This realization has underlined theneed for foreign expertise and know-how.Companies that have worked all over theglobe apply their own experiences andlessons to the UAE market. Foreign com-panies coming to the UAE tend to place alot more emphasis on research and devel-opment than their local counterparts—re-search that could limit revenue lossthrough mistakes.

Companies such as Nordic Well Ser-vices, an engineering and service firm spe-cializing in thru-tubing interventions andrigless workovers, have seen the opportu-nities present and come preaching theirgospel of “increased efficiency” and founda receptive audience ready to convert.Though not necessarily with a missionaryzeal, Sonny Sola, Nordic Well Servicesmanaging director, is excited by what thefuture may hold for companies like his.

“The message we preach is that youneed new technology to increase produc-tion and efficiency. And the sector is be-coming more receptive to this message.Change is occurring in the industry acrossthe region—the realization is that youneed foreign help and cooperation inorder to progress.”

With the avowed aim, not only in theUAE, but across the oil-producing world,to step up levels of production, the successmay well depend on just how receptivecountries are to new technologies. To thisextent Sola foresees hard work ahead.“This is not an easy market to penetrate.It is a very conservative area and you haveto be different, to offer something newand be able to show the benefits andvalue of your product in order to achievesuccess.”

But, in general, the need for further for-eign assistance from service companies

Maroun Semaan, president and CEO, Petrofac

June 2006 ▪ oilandgasinvestor.com UAE13

such as Nordic Well Services or Petrofac,is generally accepted if the increased lev-els of production over the coming yearsare achieved. The importance of jointventures and the need for them in theUAE is emphasized by the ADCCI’sShamsi. “Abu Dhabi has a long history of

working with project partners. Look at allour companies in the industry today.They are all involved in joint venturesand they are all unique.”

That oil prices and increased levels ofproduction have changed the landscapeof the sector during the past three years

can no better be seen by observing thechanging fortunes of fabrication compa-nies. Samir J. Fancy, chairman of TopazEnergy and Marine Ltd., which owns Ad-yard, one of the region’s most respectedEPC contractors and based in the indus-trial zone of Mussafah, Abu Dhabi, is ex-tremely excited about the prospects ofincreased work in this market.

“We are at the tip of the comingspend. Already we are getting used to thehigher oil prices, but oil companies donot simply make decisions the day the oilprice reaches $50. And so we are now be-ginning to see the change of increasedlevels of business and work, and we feelfar more is to come and we are gearing upfor it.” Ordinarily a fabrication yardwould have a backlog of two to sixmonths of work, yet the order book forAdyard is already full through first-quar-ter 2007.

This is not an isolated case; at a time ofincreasing demand for energy all the oilcompanies are trying to sell their productsat this market price and obviously lookingat investment to enable them to boostproduction—especially in the UAE.Now, more and more companies are in-vesting in maintenance. This change re-ally happened two years ago but in theopinion of Fritz Hoffbauer, chief execu-tive of IMCC, it was already too late.

Petrofac played a major role in the realization of the multi-billion-dollar Azerbaijan-Georgia-Turkey(AGT) pipeline project.


“If companies had invested earlier theywould have been in a better position asfabrication and engineering yards werenot so busy and steel prices were halfwhat they are now—they would havemade a big saving!”

The result, in a region where there willsoon be a shortage of quality fabricationcapability of the kind possessed by Ad-yard and IMCC, is that a bottleneck willbe created. The fabrication business hasalways been very competitive with tightmargins, but now the UAE is seeing thatcompanies are having to think morestrategically.

Hoffbauer continues, “We have to becareful in selecting the right projects tobid for, so as to avoid high-risk projects aswell as ensuring decent margins. There isso much on the market now that ourmain worry is that we don’t overheat, soas to ensure that we have some spare ca-pacity for six to eight months’ time.”

So while there is much for the servicesector to cheer about, the increased levelsof work that three years ago would havebeen considered manna from heavenhave brought with it some problems.With major projects every piece of kit iscrucial to timelines and the consequenceof more business and higher spending onmaintenance is that the market has be-come much tighter.

International Development Co.’sFawkey illustrates the sea change that theservice sector in the UAE has undergone.“The landscape has been changed byhigh oil prices. Everyone wants to makequick profits now. This is reflected by theactivities of the contractors—it is now asupplier’s market.

“Previously, the market was controlledby the end-users. There are projects nowwhere the end-users are begging the con-tractors to show interest and bid. Themarket is extremely busy—it has neverbeen like this in the Middle East.”

Schlumberger, a global leader, hasbeen present in the UAE for 50 years andis well-placed to offer a fair picture of theservice sector there. Based on the reason-able assumption that future increasedproduction will require increased mainte-nance of existing wells, along with pro-ducers returning to operate in “brownfields,” Schlumberger is shooting for 15%to 20% year-on-year growth. Yet, it doeshave some reservations about the future.

While companies such as Schlum-berger spend $500 million a year on re-search and development, there is aworrying growth on the horizon of for-eign companies, especially from China,entering the market with an emphasis oncheaper costs. Ihab Gueneid, Schlum-berger’s marketing manager in the UAE,says, “They place no importance on re-search and development. Rather, theytake obsolete technology from companiessuch as ours. If the buyer is going afterprice and not technology then they canundercut the market.”

Despite the fact that the UAE servicesector is currently buoyant, those withthe aim of increasing efficiency andhence production need to be weary of po-tential “good deals” in the future. The re-ceptivity to new technology will betested, and the success of the UAE sectorand how easily it ramps up oil productionmay well depend on how welcome com-panies from China and Korea are made tofeel.

Yet the change in the UAE servicesector from just three years ago is appar-ent from the current general mood of op-timism and excitement. Companies suchas Petrofac are committed to the UAEbecause favorable business conditionsabound, and although the market is get-ting tight and tough choices may beneeded to be taken in the near future, itis unlikely to become a victim of its ownsuccess.

A sea of optimismA century ago, the view from the Tru-

cial coast would have been dominated byweather-beaten dhows that have sailedthe Arabian Gulf waters for 5,000 yearsalongside smaller vessels carrying pearldivers to the oyster beds. This was thenthe driver of the Emirati economy.

Today the vista has changed. But onlyslightly, for while the vessels one sees aregenerally larger and more costly, they arestill to be found serving the interests ofthe main economic driver—the oil andgas sector. Along with the increase infabrication work, offshore activities inthe Gulf are crucial to the future of theindustry with several marine companiesratcheting up the level of their operationsin response to the rocketing demand.

Once again the primary driver of thischange is the price of oil. The needs ofthe industry have evolved quickly andthe UAE is developing accordingly tomeet these demands. One such exampleis the creation of Dubai Maritime City.Due for completion in 2007, this world-class facility aims, along with the pres-ence of Dubai Dry Docks, to make Dubaia global maritime hub with all the majorshipping companies basing major opera-tions there.

Such moves in the public sector havebeen complemented by developments inthe private sector. Companies of varyingsizes and geographical scope have rushedin to fill the capability void that existed afew years ago.

Ship operators already present in theregion have found an increasing amountof work coming from the oil and gas sec-tor. Although there have always beenvery apparent synergies between the ma-rine and hydrocarbon industries, it is fairto say that, in the Gulf especially, the dis-tinction between the two sectors has be-come increasingly blurred and this willonly continue under the present marketconditions.

Based in Dubai, Mubarak Marine was

P.O. Box 61425, Jebel Ali Free Zone, Dubai, UAE

Tel: +971-4-881 9033 Fax: +971-4-881 9034

Email: [email protected]

Other members of ImageGrafix group of companies:

- ImageGrafix Engineering Services Pvt. Ltd.

(Chennai, India)

- ImageGrafix Canada Inc. (Toronto, Canada)

www.kiwisoft.de

www.liwacom.de


established in 1979 as a ship operator. Within five years, thecompany was already to be found serving the oil and gas indus-try. Now much of the business is focused on providing, amongother things, supply boats and hook-up barges to offshore opera-tors.

Juma Mubarak, Mubarak Marine’s managing director, at-tributes much of the increased focus on the oil and gas sectorand, subsequently, the recent growth of the company to the ris-ing oil price. He notes that, in the past two years, “all oil compa-nies have aggressively looked for equipment. In turn we havetried to be more aggressive in meeting market expectations.” Heforesees his fleet growing as much as fivefold.

Such developments have created a growing number of oppor-tunities for companies serving the offshore sector as PrashantKamath, managing director of Solas Marine Services, concedes.“We have tapped into the growing number of ships coming intoDubai and the UAE. This has allowed us to become more ag-gressive in reaching our objectives. With the increase in oil andgas exploration, the opportunities for companies like ours havegrown as well. We have grown by 30% over the last three years.”

Today’s buoyant market and long-term spending commit-ments on infrastructure by the majors, alongside the UAE’s de-sirable location, have allowed marine-based companies toexpand not only the size of the business but also their geographi-cal scope. With more than 80 vessels, operating not only in theMiddle East but also Southeast Asia and the Caspian Sea Basin,the Topaz Energy and Marine ship-owning division (Nico Worldand BUE Marine) is recognized as one of the most diversifiedand modern offshore fleets in the world.

This clout is very attractive for oil and gas companies requir-ing offshore support services. Based in Dubai for 33 years, Topazhas managed to strengthen its core ship-owning business to pro-vide greater market reach and expanded capabilities.

It has achieved this by integrating companies that add valueto the Topaz brand. Its acquisition of BUE Marine in 2005meant that the company’s geographical footprint has extendedfar beyond its original imprint of the Arabian Gulf. Of the po-tential growth of the marine offshore-support service sector,Topaz’s Fancy says, “We are committed to making substantial in-vestments in new-build vessels both in the Arabian Gulf andCaspian over the next two to three years.”

The presence of world-class and ever-expanding offshore oiland gas support services in the UAE is augmented by the pres-ence of Dubai Dry Docks, the largest repair, conversion andbuilding yard in the whole Gulf region and among the biggestoperations in the world.

Chief executive Geoff Taylor only sees an increase in thelevel of importance of the oil and gas sector to the operation.Aiming for at least 40% of work coming from offshore compa-nies, he says, “For the offshore side I see nothing but growth forthe next five years—marginal fields are now viable fields so therequirement for FPSOs (floating production, storage and offload-ing vessels) or movable structures is going to explode. Geograph-ically speaking, we are in a great position for this boom. We arenear the loading ports for the hydrocarbons so there is a ready-

UAE-16 Oil and Gas Investor ▪ June 2006

made market for offshore exploration al-ready here.”

At a time when a lot of rigs are going tobe up for repair, a major aim for DubaiDry Docks is to service more offshore rigs.Taylor has also identified that there is po-tential in the new building market andidentified the potential in building off-shore structures. So a new fabrication fa-cility called the Safina project—with aninvestment of $60 million—will be com-pleted in September, capable of meetingthese needs.

The FPSO market is a good illustrationof the growing global clout the UAE pos-sesses in the maritime sector. Dubai DryDocks has become one of the leadingtanker-conversion yards in the world.

This has generated work for large fabrica-tion yards, such as those owned by IMCCand Adyard, to make modules and turretsfor FPSOs.

Before, the tankers were integrated inSingapore, but now the UAE has an ad-vantage. The conversion can be done inone area, meaning shipping costs for themodules are competitive, creating a priceadvantage over anyone operating outsideof the Gulf area.

Increased offshore activity affecting theoutlook and plans of marine-service com-panies to meet the growing demands ofthe oil and gas sector and the marrying ofmarine and hydrocarbon capabilities is oc-curring throughout the UAE. Gogas, anoffshore service company based in AbuDhabi, is actively pursuing the increasedlevel of offshore maintenance work pre-sent.

Nabil Atta, general manager, says, “Wehave the offshore background as we ownour own marine vessels—our two lines ofwork complement each, making us attrac-tive to companies seeking offshore main-tenance work.”

Once Dubai Maritime City is up andrunning, Dubai and, by extension, theUAE will be able to lay claim to being theglobal hub for the maritime sector overand above Singapore—something thatcan only benefit the hydrocarbon indus-try. Synergies are being created and, alongwith the cluster of world-class fabricationfacilities, the outlook for the offshore sec-tor is bright. �

“For the offshoreside I see nothing butgrowth for the next fiveyears….”Geoff Taylor,Dubai Dry Docks

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June 2006 ▪ oilandgasinvestor.com UAE-17


Hussain M. Sultan is recognized within the UAEoil and gas sector as one of the local leadinglights. Sultan is group chief executive and board

member of Dubai-based Emirates National Oil Co.Ltd. (Enoc), a conglomerate whose reach stretchesfrom E&P to marketing and also has real estate hold-ings. Global Business Reports met with Sultan to dis-cuss the company, the local business environment andopportunities for growth.

GBR What role did you have to play in the earlydays of the industry here in Dubai and the UAE?

Sultan My role in the earlier days of the industrybegan in 1969, assisting in the modernization of thedownstream and, in particular, the petroleum-retail-ing sector, initially in Dubai and the other emirates,and later in Abu Dhabi.

Since 1974, with the formation of Enoc Group, I have en-joyed an instrumental role in its development and diversifica-tion into the various businesses and the creation of a small, fullyintegrated energy group, that is involved in retailing, refining,shipping, liquid storage, gas, oil trading, etc.

GBR Would the industry in the UAE be where it is todaywithout the technological input of foreign companies and multi-nationals?

Sultan Current industry trends in the UAE reflect the hugemelting pot that the Emirates have become due to the influx offoreign investment and multinationals. Undoubtedly, the Emi-rates have witnessed an amazing level of growth since their for-mation a mere 35 years ago. This is due to the visionaryleadership of our rulers, who encouraged the development of theregion with opportunities to invest, zero tax on personal andcorporate income, and low import duties.

This has resulted in the UAE becoming a business andtourism hub in one of the richest countries in the world. As wellas technological input, the human factor is an important ingre-dient in the UAE’s growth and an expatriate-friendly environ-ment has been encouraged since the UAE’s inception. Foreignlabor and expertise contributed immensely to the present UAE.

GBR Enoc’s motto is “Your partner in progress.” How muchemphasis do you place on the value of partnerships and jointventures, and is this view of cooperation commonplace with theUAE oil and gas sector?

Sultan As a wholly owned company of the government ofDubai, Enoc aims to promote Dubai’s interests in the oil and gassector through the development of both downstream and up-stream activities.

Our vision is to be the reliable and responsible energy partnerof choice and, through each of our business segments, we en-courage economic diversification in Dubai and the UAE.

Joint ventures act as key drivers for our business. We are nota public company, and therefore we are not growing as fast as wewould like, given our limited resources. Seeking strong partner-ships and joint ventures in the UAE and overseas is crucial forour future growth.

A significant partnership is our liquid-storage business, lo-cated in Jebel Ali and Fujairah, one of the world’s largest bunkerports that has established itself as one of the two major bunkersuppliers in Asia in the last three years. We are a major player asa bunker supplier.

Shipping also represents an important area of ourbusiness. Through a recent partnership with AbuDhabi and Oman governments, as well as France-based Thales, we have formed Gulf Energy Mar-itime. Within a short space of time, GEM becamewell-placed in achieving its goal of tripling its fleetsize and has secured an enviable position as a signifi-cant player in the tanker industry.

GBR Enoc has a presence in more than 20 coun-tries. Where do you foresee operating next and why?

Sultan We go wherever we feel we can contributeand benefit both the place where we operate and our-selves. The Singapore market is thriving, demonstrat-ing sustained excellence in infrastructure, which, for atrading company like Enoc, heralds interesting times.

Asia is an important region for us and we are now investingin a major storage facility in Singapore that is scheduled to becommissioned in the fourth quarter of this year. The 840,000-cubic-meter project will comprise 30 tanks and act as a spring-board for Enoc’s presence farther into Asia, and specificallyChina—the region’s fastest-growing oil market.

Many oil-producing countries have found themselves withlarge surpluses they can invest. The Asian region has reactedswiftly to this changing reality and one clear manifestation ofthis has been the growth of Islamic banking. Singapore has alsomade significant strides in this direction.

The new set of circumstances in Asia presents unprecedentedopportunities to corporations to grow and thrive. For a tradingcompany like Enoc, these are interesting times.

We have seen tremendous increases in consumption of petro-leum products and crude oil in the Asian economies. Since theregion is short of crude, of necessity, petroleum finished prod-ucts and crude have to be sourced from other parts of the globeeither to be processed here or consumed. Changing technicalspecifications also increase the potential for trading opportuni-ties. Freight markets add to the arbitrage opportunities that pre-sent themselves to market players.

GBR The Middle East is constantly viewed as an area of in-stability. What can companies like Enoc do to reassure the in-ternational oil and gas community on security?

Sultan Instability is a relative term. Every country in theworld has a degree of instability. We choose the areas where weoperate in as well as the projects, after very careful study. Wechoose the right partners and operate in a strictly commercialsense, and so far we have been able to live with a volatile mar-ket and changing political conditions.

GBR Where do you think the industry is heading in theUAE and where do you expect the price of oil to go?

Sultan The oil and gas industry is currently booming withcrude oil prices continuing to rise. Last year saw big changes forboth gas retailers and consumers across the Emirates, with thedecision taken by the federal government of Dubai to approvesmall price increases. The agreement was taken as part of grad-ual steps to stem substantial and spiraling losses in the petro-leum business of all the distributing companies in the region.

High oil prices are not in the best interests of consumers orproducers. I think we have reached the higher end for the pre-sent time. It is encouraging investment in the sector, but one hasto watch its effect on demand and the global economy. �

THE UAE ENERGY SECTOR: EXECUTIVE Q&A

The View From EnocEmirates National Oil Co. Ltd. has grown from its home base in the UAE to operate in more than 20countries currently. Here, its chief executive describes its past and its future.

Hussain M. Sultan,group CEO, Enoc

The UAE is a young country, yet it has managed to estab-lish itself as an important player in the international oiland gas industry. Also, as shown by its role in the Dol-

phin natural gas project and receptiveness to foreign assis-tance, the UAE possesses an innovative and individual voice.Long seen as an investment and business hub, it is nowrightly portraying itself as a regional and global energy hub.

While there is a lot to shout about and marvel at, there arealso signs and developments that should be noted when fullyconsidering the potential of this industry. The UAE possesses aneconomy built on confidence and steady growth. The country,and Dubai in particular, has for a long time been an attractivedestination for investors.

But stock-market fluctuations in the first half of 2006 may in-dicate that the confidence, on which the economy is built, maybe waning. The Dubai Financial Services market is down 41%on closing-2005 figures, while the Abu Dhabi Securities marketis down 23%.

What one needs to ask perhaps, is whether this is the start ofa worrying trend or simply, as some including the UAE CentralBank, which still predicts growth of as much as 8%, say a “read-justment” to a more realistic level—the markets having beenvastly overvalued.

Louis Scotto, president of the American Business Council ofDubai and the Northern Emirates, feels it is the latter. “It was anatural occurrence often experienced in countries or regionsthat have experienced rapid expansion.”

Yet this came on the back of another blow to the perceptionof the UAE as a safe and stable place in which to invest and dobusiness. The recent furor in the U.S. over Dubai Port World’stakeover of P&O, and with it control of six U.S. ports, gave theUAE much negative press coverage.

Many in the UAE hydrocarbon industry emphasize thebeauty of the UAE’s location not only in logistical terms, butalso in that it is known as an oasis of stability in a region that israrely placid. This perception took a hammering with the UAEname and brand being tarnished as U.S. senators refused to havean “Arabic” entity control its ports.

As Scotto concedes, it was not ideal to have arguments basedon “hype and ignorance” dominate the international media. Butas for long-term effects of this episode, in terms of U.S. invest-ment into the UAE, Scotto feels that will be minimal. “Overall,the UAE came out of it well. It showed itself as a mature andvery forward-thinking country.”

While the perception of the UAE may have been challenged,there is one recent development that has had a far more directimpact on the oil and gas sector in the UAE. It may be a boomtime but, as seen earlier with the service sector getting ever“tighter,” this bonanza does bring with it some problems.

With a plethora of projects, to both bid for and work on,many companies are finding that there exists a skills shortage.While this is being felt across the world, the shortage is particu-larly being felt in the Middle East.

Fadi Michel Matta, president of the Africa and Middle Eastoffice of National Oilwell Varco, says, “The really big problem ismeeting customer demands; therefore, we have to expand, if weare to meet this new level of work.”

Throughout the sector priorities are being readjusted and topof this new list is finding the skills to enable companies to really

reap the rewards on offer.An equally worrying sign concerning human resources is the

rising cost of living. One of the major attractions for foreigncompanies coming to the UAE is the vast pool of cheap labor itsmultinational workforce offers. Dominated by ex-pats, UAE na-tionals are in a minority in their own country. Yet the fact thatthe vast majority of the immigrants are from the sub-continentmeans the labor on offer in the UAE is inexpensive and skilled.

But concomitant with the growth in the economy has been arise in inflation. This has affected rents more than any othersector. If this trend continues, then it would not be a surprise tosee one of the main attractions for business diminish in size.Naji Skaf, general manager of Arabian Industrial Gases (Aigco),explains, “A lot of our employees are Indian ex-patriots, espe-cially the middle- and low-skilled operators, and these guys likeany other people would like to go back home.

“In Dubai it is getting tougher to save, and India is witnessinga very strong growth, with salaries increasing and the gap clos-ing. A lot of people in the past year have already sent their fam-ilies home and maybe at some point they will go home too. Ifthis happens, the UAE will lose one of its big plus points—itstalent pool.”

THE UAE ENERGY SECTOR: THE FORECAST

A Sound Future?The UAE hosts an abundance of natural and made-for-business resources, such as tax-free zones. Whatcould possibly be of worry?


An Abu Dhabi Gas Liquefaction Co. Ltd. (Adgas) facility

It is not just companies like Aigco feeling the pinch of risingcosts. Companies such as Dubai Dry Docks are having to accom-modate themselves to the new economic pressures the economicgrowth has created. Chief executive Geoff Taylor says, “Theonly negative thing we have noticed is that the growth of Dubaiis happening at such a rate that we are worried costs may get toa rate that will affect business.”

So the UAE needs to be careful that it does not become a vic-tim of its own success. With careful management, the hallmarkof the country’s growth thus far, these problems can be avoided.

What is not in doubt is that the strong presence of many in-ternational oil and gas companies in the UAE is indicative ofthe increasingly important role the Emirates play on the globalstage. The biannual Abu Dhabi International Petroleum Exhibi-tion & Conference (Adipec) is a fine example of this. Aimingfor the exchange of know-how and technology transfer to pro-vide solutions to major challenges currently encountered by in-dustry, Adipec has grown since its inception in 1984.

This year’s event will see more than 200 oil and gas compa-nies congregate to discuss how, through cooperation, they canaddress the rising production demands—a microcosm of the per-manent oil and gas community already present in the UAE.

The combination of good labor, international partners andadoption of cutting-edge technology should aid expansionaboard and entice yet more foreign companies to the UAE. Thediversity present is strong and ever-evolving. New companieswith innovative solutions to age-old problems have found alarge and welcoming audience present.

Image Grafix, established in 1996, using the very latest tech-nology, provides the hydrocarbon sector with IT-based solutionsfor, amongst other things, plant design. Managing director AmirM. Heshmati feels the UAE is the place to be. “The country isdeveloping rapidly due to the new reality that diversification isthe new name of the game—value-added industries, such as

petrochemical industries, are growing at a huge rate. Because ofthis, we expect to see 20% growth year-on-year.”

Another young company that views the UAE as the ideal lo-cation to base itself is Seacor Environmental Services (MiddleEast) Ltd. (Sesme). Primarily an oil-spill-response firm, its Emi-rates base affords it the chance to expand the scope of its work.It has mirrored the UAE economy in diversifying to offer moreservices, such as hazardous-waste removal and consultancy,alongside training and oil-spill equipment sales and service.

Simon Waterman, general manager, is extremely hopeful forthe future. “This office is very important to the larger Seacorfamily. This is a rapidly growing area, and we are looking for asignificant increase in turnover during the next 12 months.”

The characteristics of the industry here are easy to see. Inno-vative, open to joint ventures to aid growth in services, geo-graphical expansion and technological transfer, and all in a safeand business-friendly environment. The message coming out ofthis vibrant market is one of hope and expectation.

The change experienced in the UAE has been exponentialand one does not need to be a soothsayer to predict that furtherchange, especially in the oil and gas sector, is to come. The AbuDhabi Chamber of Commerce and Industry’s newly elected pres-ident, Salah Salem Bin Omaeir Al Shamsi, predicts this openeconomy will soon serve up even more juicy propositions for thepotential investor.

“We are looking for investors in both the upstream anddownstream sectors because one day the government will openup the sector,” he says. “There will be a time when the oil andgas industry will be opened more to the private sector, so com-panies have to position themselves for that.”

So it might well be a wise decision to take up Al Shamsi’schallenge as there exist plenty of investment opportunities forthose willing to enter the fray, and these could soon rapidly in-crease in number.�

UAE-20 oilandgasinvestor.com � June 2006

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