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Bull Markets, Resource Nationalism and the UAE Response - International Law Office

International Law Office

Energy & Natural Resources - United Arab Emirates

Bull Markets, Resource Nationalism and the UAE Response

September 25 2006


The many and varied reasons for the continuing high prices for crude oil - robust demand, resource nationalism, energy industry kidnappings, war, terror and political premiums, and hurricane season - have triggered market and policy responses in even the resource-rich countries of the Gulf.

The most recent responses in the United Arab Emirates have been threefold. The UAE government:

  • plans to increase the production of crude oil and natural gas;

  • is taking steps to increase refining capacity in order to capture a greater share of the crude oil value chain; and

  • plans to diversify its export routes, thereby avoiding the Straits of Hormuz, which separate the Arabian Peninsula from Iran and are one of the well-known choke points in the world oil transport market.

First, the United Arab Emirates plans to increase sustainable crude oil production capacity by nearly one million barrels per day (b/d) to 3.58 million b/d by the end of 2006. The various UAE governments and government-controlled companies are taking a number of steps to reach this goal.

One of the ways in which the governments plan to achieve this goal is through revitalizing production in the offshore oilfields of the Emirate of Dubai. The Dubai Petroleum Authority, a new entity wholly owned by the government of Dubai, will take over operations in April 2007 when the existing 45-year-old concession agreement comes to an end. The announcement of the handover was accompanied by very amicable public statements from both sides, a welcome change from the recent rhetoric of resource nationalism.

In addition, ConocoPhillips and the International Petroleum Investment Company (IPIC), an investment vehicle for the UAE government, announced a memorandum of agreement to cooperate in exploration and production operations in the Middle East. The United Arab Emirates also plans to improve recovery rates and recovery factors by introducing new technology and additional advanced production techniques.

The second response from the United Arab Emirates has been a plan to increase domestic refining capacity and capture a greater share of the crude oil value chain. On July 19 2006 IPIC and ConocoPhillips announced that they had entered into heads of agreement for the construction of a 500,000 b/d refinery in the Emirate of Fujairah on the shores of the Indian Ocean. The refinery is expected to be focused on the export market and is intended to capture the value inherent in the current shortage in refining capacity. The heads of agreement will be followed by a joint feasibility study which, if successful, will be followed by a joint venture between IPIC (51%) and ConocoPhillips (49%). It is thought that the 500,000 b/d refinery would be built instead of a previously announced 300,000 b/d refinery for Fujairah.

The third recent response is yet another IPIC project. IPIC proposes to build a 350-kilometre oil pipeline from the Habshan oilfield to the existing port facilities in Fujairah, thereby avoiding the need to transport these crude oil exports through the Straits of Hormuz. A feasibility study for the pipeline is being prepared.

It seems that the United Arab Emirates has every intention of maintaining its privileged position as one of the world's top 10 crude oil exporters. With the number of projects under construction in the region, it is reasonable to expect that more production, transport and refining projects will be announced in the future in order to keep up with crude oil demand and capitalize on high prices.


For further information on this topic please contact Sean Korney or Sara Costa Apostolides at Denton Wilde Sapte by telephone (+971 4 331 0220) or by fax (+971 4 331 0201) or by email (sean.korney@dentonwildesapte.com or sara.costaapostolides@dentonwildesapte.com).



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