12 DEC – The OPEC Member That Could Derail The Production Cut Plan

After a week of contentious OPEC+ discussions, in which the UAE played a key role, it appears that the Abu Dhabi National Oil Company (ADNOC) is now aggressively pursuing market share. The UAE was very vocal during the OPEC+ meeting about its resentment of having to carry the burden of COVID-19 demand destruction and the global energy transition. Abu Dhabi’s Crown Prince Mohammed bin Zayed and ADNOC’s CEO Sultan Ahmed Al Jaber have now clearly decided that it is time to reap the rewards of their large-scale oil and gas investments. Today’s announcement made by ADNOC that it has awarded U.S. oil company Occidental an oil and gas exploration concession in its second competitive bidding round is a clear sign that the OPEC member is determined to increase production capacity to 5 million bpd by 2030. Occidental will own 100% of the concession during the exploration phase and will be required to invest around $140 million to explore the 4,212 square kilometer project.

This is the second concession given to Occidental by ADNOC. In February 2019, Occidental won Onshore Block 3 in Abu Dhabi’s first competitive bid-round. According to the agreement, ADNOC will be able to own up to 65% of the concessions during their 35-year production phase. If successful, the ADNOC-Occidental joint venture could provide a much-needed boost to the nation’s oil output. Despite a brutal year for oil markets, ADNOC wants to increase its production capacity by 25% by 2030.

The ADNOC-Occidental news followed last week’s Abu Dhabi Supreme Petroleum Council’s announcement that recoverable unconventional oil reserves have increased by 22 billion barrels, and conventional reserves by 2 billion. It is expected that several other concession agreements for the 2nd bid round will be soon announced. It is unclear which companies are favorites to win these concessions, but some Russian companies are expected to do well.

In a drive to extend its overall revenue base, ADNOC also announced that it has officially launched its second trading arm, ADNOC Global Trading (AGT), which is a joint venture between ADNOC (65%), Eni (20%), and OMV (15%). The new trading venture will be focusing on trading refined products globally. ADNOC, Aramco, and several other national oil companies are now determined to compete with the traditional trading giants VTTI, Vitol etc. As indicated by ADNOC’s CEO Al Jaber, the trading arm will be a cornerstone of ADNOC’s 2030 growth strategy.

Increased trading shares and higher overall production are the main cornerstones for success. ADNOC is clearly determined to take a more active role in oil markets, refusing to wait for others to reap the possible rewards in the coming decade.  ADNOC also saw its first derivatives trade earlier this year and is preparing for ICE Futures Abu Dhabi (IFAD), which will launch Murban Futures on March 29, 2021.

ADNOC’s current strategy, which has clearly moved on since the widely publicized Oil and Gas 4.0 Strategy, is a complete, integrated, future-proof market strategy. Its defense mechanisms against a potential low oil demand – low oil price scenario now include an open and all-out attack on market-share and hydrocarbon revenue stabilization. Without a doubt, Abu Dhabi is now on a collision course with the production cut strategy of OPEC+. It can be expected that new rifts will emerge within the group before the January 4, 2021 agreement comes into play.

Abu Dhabi is no longer convinced that it will benefit from complying with OPEC’s demands. It doesn’t necessarily want to leave or reshape the cartel, but a more aggressive market share strategy suggests it is focused on maximizing revenue. By including crude oil and petrochemicals trading options, the national oil company is preparing for long-term changes to all its markets. In the coming months, the full intentions of Abu Dhabi will likely be revealed, but recent developments suggest that it is determined to move forward aggressively.

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