China National Petroleum Corporation has picked up two stakes worth Dh4.3bn($1.17bn) in offshore fields in Abu Dhabi, making China one of the largest foreign energy partners in the UAE, Abu Dhabi National Oil Company said.
PetroChina, which is majority-owned by state-backed CNPC, was awarded a 10 per cent interest both in Umm Shaif and Nasr as well as the Lower Zakum concessions, the Abu Dhabi-controlled oil major said in a statement on Wednesday.
The latest offshore pacts present a platform to “explore opportunities further downstream”, Adnoc group chief executive, Dr Sultan Al Jaber, said. “CNPC’s involvement in our offshore concession areas will help to maximise the returns from what are very attractive, stable and long-term opportunities.”
China is the biggest oil importer, with its crude consumption set to rise 4.6 per cent year-on-year to 12.05 million barrels per day this year, according to estimates by CNPC’s research division. Consumption of refined products such as plastics and compounds, which are vital for Chinese growth and development of its expanding middle class, is forecast to grow about 31 per cent year-on-year to 47.8 million tonnes in 2018.
PetroChina, the country’s biggest oil producer with concessions in Iraq, paid a participating fee of Dh2.1bn to enter Umm Shaif and Nasr and Dh2.2bn for Lower Zakum, according to the statement.
The Chinese oil major joins French counterpart Total, Italy’s Eni, Japan’s Inpex as well as an Indian consortium led by ONGC Videsh in Lower Zakum. The French company won a 20 per cent stake in Umm Shaif and Nasr concession on Sunday. The twin concessions will be operated by Adnoc Offshore on behalf of all partners. Adnoc will retain a 60 per cent stake across the various split concessions, with the remainder shared between various partners.
Indian and Chinese state-owned oil giants' moves to secure concession rights in Abu Dhabi will help guarantee their long-term security of supply, said Vandana Hari, founder and chief executive of Singapore-based energy advisory firm Vanda Insights.
"Being already operational and among the lowest-cost producers, the project doesn’t carry the risk of greenfield offshore developments, which producers are increasingly steering clear of in favour of short-cycle and more economical fields," she said.
"China and India are not only the fastest-growing oil markets, but also bracing for a spike in their crude imports, given limited or declining domestic production and rising refining capacity."
PetroChina will work with partners to raise production capacities at Lower Zakum from 300,000 bpd to 450,000 bpd over the next ten years. Umm Shaif and Nasr, which is the only concession in the group to hold gas reserves, will see capacities raised to 460,000 bpd and 500 million cubic feet of gas per day.
Adnoc’s possible downstream cooperation with China comes as the Abu Dhabi major prepares to announce a strategy to grow its refining and product capacities. Ms Hari noted that the recent announcements by Adnoc to collaborate with stakeholders Total and CNPC in the downstream segment fell into a "quid-pro-quo pattern" where the UAE could take stake in downstream projects in the consuming countries.
"That is the surest way for a Middle Eastern producer to lock in a market for its crude amid intensifying competition," she said. "The state-run Middle Eastern companies, traditionally upstream giants, also stand to capture more value with downstream stakes – whether through expanding their own refining capacity or buying equity in overseas refineries."
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The UAE has earmarked around $109 billion in a five-year spending plan, that also includes exploration for unconventional gas resources as well as downstream ventures abroad. Abu Dhabi, which produces much of the oil for the UAE, has targeted increasing upstream capacity to 3.5 million bpd this year. The Opec producer’s output for February stood at 2.79 million bpd. The UAE is also working to double refining and triple petrochemical capacities by 2025.
Chinese firms have made inroads into Abu Dhabi concessions since last year, when PetroChina’s parent CNPC was awarded an 8 per cent stake in Abu Dhabi Onshore as well as a 40 per cent stake in Al Yasat concession in February. A CNPC affiliate – China National Petroleum Engineering & Construction Corporation (CPECC) - also won in November an engineering procurement and construction contract to expand production capacity at the onshore Bab field by 30,000 bpd from the current 420,000 bpd.