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Article Excerpt
At the helm of the United Arab Emirates federation, Abu Dhabi powered into the twenty-first century on the back of ever-increasing oil revenues, well-established petrochemical industries, and massive oil-financed overseas investments. For the foreseeable future and despite worsening global conditions, these sectors and strategies will remain the central pillars of the emirate's economy; Abu Dhabi will continue to be a major oil producer and to control the world's greatest sovereign wealth funds. And since 2004, its dynamic new leadership has also begun to diversify the economy. By maximizing Abu Dhabi's competitive advantages and reaching out to the most capable foreign partners, a plethora of new sectors have been launched. These include high-technology heavy industries, a pioneering renewable-energy sector, extensive real-estate projects, and up-market "cultural tourism." Having been carefully selected and nurtured, these sectors will be responsible within a few years for a potent and vibrant new economy providing plentiful employment and domestic investment opportunities. Unlike the more urgent and seemingly problematic diversification that has taken place in Dubai and elsewhere in the Gulf, Abu Dhabi's astutely managed economic development should allow the emirate to carve out a high-profile and sustainable niche, even during this time of global financial crisis.
THE OIL AND GAS ECONOMY
With several major discoveries since the 1970s, both onshore and off, Abu Dhabi's share of global oil reserves has continued to grow and now stands at about 8 percent: some 98 billion barrels, which represents about 94 percent of the UAE total. (1) Production currently averages 2.7 million barrels today, but the Supreme Petroleum Council has recently invested over $20 billion in oil infrastructure with a view to expanding Abu Dhabi's capacity by 30 percent to nearly 3.5 million barrels per day by 2010. Almost all of this excess will be sold to Asian buyers. (2) Even at this higher rate, and assuming no further discoveries, it is estimated that Abu Dhabi's reserves will still last another 90 years. (3)
The early days of one or two major concession holders are long gone. Today, several foreign companies hold stakes in Abu Dhabi's oil industry, including British Petroleum (BP), the inheritor of Abu Dhabi interests in the old Iraqi Petroleum Company, as well as Campagnie Frangaise des Petroles, Royal Dutch Shell, Exxon Mobil, Total and the Japan Oil Development Company (JODCO). Most of the foreign companies keep renewing their stakes, with some already extended until 2026. (4) It is believed that their expertise and technological input continue to be welcomed. Since 1971, a "national" oil company--the Abu Dhabi National Oil Company (ADNOC)--has always held a controlling stake in the various concessions. ADNOC holds a 60 percent stake in the largest onshore concession, the Abu Dhabi Company for Onshore Oil Investments (ADCO); a 60 percent stake in the largest offshore concession, the Abu Dhabi Marine Areas company; and a 51 percent stake in the Zakum Development Company (ZADCO), another major offshore concession holder. (5) In any case, there are handsome profits for all concerned, with Abu Dhabi's total oil exports in 2007 estimated to have been worth over $260 billion. (6) Of this, it is thought that ADNOC's share was $67 billion, a figure likely to have risen to nearly $90 billion during the price hikes of 2008. (7) Even in 2009, with prices predicted to average little more than $50 a barrel, ADNOC revenues are expected to exceed $45 billion. (8)
Although its gas reserves are not comparable to those elsewhere in Gulf, especially those of Qatar, Abu Dhabi nevertheless controls a sizeable 3.4 percent of the world's natural gas: some 200 trillion cubic feet. (9) As is true of the oil industry, the major offshore concession holder--the Abu Dhabi Gas Liquefaction Company (ADGAS)--is majority-owned by ADNOC, which holds a 70 percent stake, while the remainder is divided among BP, Total and Mitsubishi Gas. (10) Similarly, the major onshore concession holder, Abu Dhabi Gas Industries (GASCO), is majority owned by ADNOC, which holds a 68 percent stake, while the remainder is divided among Total, Royal Dutch Shell and Partex. (11) In the near future, a new concession to be shared by ADNOC and Conoco-Phillips will exploit untouched areas of the Shah and Bab onshore gasfields. (12) Although controversial, given the reportedly high sulfur and carbon-dioxide content of Shah's gas, (13) this will boost Abu Dhabi's current daily gas production of about 4.5 billion to nearly 6 billion cubic feet per day. (14) And by the end of 2009, GASCO will have completed the final phase of the Habshan Gas Complex, one of the world's largest gas plants. (15) Despite these increases, Abu Dhabi will still face gas shortages, as some 85 percent of the emirate's power plants are gas fuelled. (16) These shortages have already stalled major development projects, including the construction of an Abu Dhabi-financed desalination
plant in the poorer emirate of Umm al Qawain, (17) and it seems that construction projects in the capital itself have been slowed down because of this. Hope for a solution had been pinned on the massive Dolphin Gas project, which established Qatar as a co-supplier and committed Abu Dhabi to the large-scale transportation and marketing of Dolphin gas to Dubai, Oman and other net importers in the region. (18) However, despite 2 billion cubic feet per day of Dolphin gas now being piped in from Qatar, (19) the problem has not yet been solved.
The long-term plan is the acquisition of, or at least access to, gas from much further afield. Abu Dhabi would export its hydrocarbon expertise, satisfy its own energy needs, and perhaps even re-export non-Gulf gas to its more resource-scarce neighbors. Notably, following closely in the footsteps of an Omani deal to exploit Iranian gas fields, (20) Abu Dhabi's Mubadala Development Corporation has acquired Singapore-based Pearl Energy, which in turn holds concessions to exploit Indonesia's Sebuku gas field and the Jasmine field in the Gulf of Thailand. And through its Liwa Energy subsidiary company, Mubadala has also bought into hydrocarbon-exploration companies in Algeria and Libya. (21) Similarly, other Abu Dhabi entities have bought into overseas explorations, including the Abu Dhabi National Energy Company (referred to as Taqa energy), which now has a stake in North Sea and Canadian operations, (22) and the International Petroleum Investment Company (IPIC), which has developed an interest in Kazakhstani gas discoveries. (23)
OIL-RELATED INDUSTRIALIZATION
In addition to some basic agricultural developments and small-scale import-substitution industries, most of which have concentrated on producing basic construction materials since the first oil boom, Abu Dhabi has established heavy, state-owned export-oriented industries. Most of these have concentrated on the production of metals, plastics, fertilizers and petrochemicals. These all require abundant energy to manufacture and therefore best capitalize on Abu Dhabi's competitive advantages. The most prominent of these downstream industrial companies are Fertil, established in 1980 and co-owned by the ADNOC and Total; (24) the Abu Dhabi Polymers Company, or Borouge (established in 1998); (25) and Emirates Aluminium (EMAL), which operates the world's largest aluminium-processing facility on Abu Dhabi's man-made Taweelah island. Most of these exports are believed to be destined for India, Bangladesh, Sri Lanka and Malaysia. (26)
As with the hydrocarbon industry, over the next few years the sector will continue to expand, gas shortages notwithstanding, with both the Mubadala Development Corporation and the Abu Dhabi Basic Industries Corporation (ADBIC), planning to build massive new aluminium plants. (27) By 2013, IPIC will have built a new Chemicals Industrial City. Capable of producing 7 million tons per year of aromatics and ammonia derivatives, it will be the world's largest such complex. (28) Also, ADBIC is planning to invest a further $4 billion into its Abu Dhabi Polymers Park. By 2011, it is expected that this will have led to a doubling in the emirate's polymers production. (29) Other projects will include those belonging to the new Emirates Iron Company, the Emirates Cement Factory and the Al-Nasser Industrial Enterprises parastatal. (30) The government has put its full weight behind these developments, having increased spending on industrial infrastructure by over 400 percent since 2001. (31) Soon it promises the completion of the $10 billion Khalifa Port and Industrial Zone on Taweelah and has committed a further $8 billion for other sector-specific infrastructure projects. (32) A new unit, ZonesCorp, has been set up to administer these new districts, provide organizational support and build residential camps for laborers. (33)
OVERSEAS INVESTMENTS AND SOVEREIGN WEALTH
Of equal, if not greater, importance to Abu Dhabi's economy since the 1970s has been the channeling of surplus oil revenues into long-term overseas investments rather than simply gold or short-term paper. Conceived as a means of buffering the domestic economy in case the international oil industry falters, most of these investments have been made through a handful of government-owned authorities or government-backed companies. Indeed, most of the latter simply state that their sole shareholder is "the Government of Abu Dhabi." Today, their combined assets are thought to be in excess of $1 trillion, and until last year, they were generating some 10 percent in annualized returns. (34) This compares very favorably with the world's other sovereign-wealth-managing countries, notably Singapore and Norway, with $490 billion (35) and $390 billion, (36) respectively. It places Abu Dhabi far ahead of other Gulf investors such as Kuwait, with $260 billion; (37) Dubai, with about $100 billion; (38) and Qatar, with a modest $60 billion. (39)
By far the most prominent of Abu Dhabi's sovereign wealth funds is the Abu Dhabi Investments Authority (ADIA). Founded in 1976, it reached about $100 billion in overseas assets by the mid-1990s (40) and about $360 billion by 2005. (41) Now symbolically housed in the tallest building in Abu Dhabi, the Samsung-ADIA complex, (42) it has been estimated that ADIA reached nearly $900 million in early 2008. (43) Although there may have been a slight drop by the end of the year as the global recession continued to worsen, (44) it is likely that ADIA is still the world's largest sovereign wealth fund. Following Sheikh Khalifa...
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