09
Feb
2024

ADNOC’s evolution: Emirati major revs up for leader role in global energy transition

Only Subscribers can read the full Article

  • UAE’s biggest oil company rejigs group structure to generate cash and lead in clean energy investments
  • Upstream gas and LNG export projects running on nuclear and renewables being developed at home
  • Abroad, Emirati major seeks opportunities in CCS and hydrogen, highlighted by 10% stake in Storegga
  • ADNOC CEO-led COP28 dealt energy sector’s most gas-friendly agreement, shining light on transitional fuels

In recent years, the Abu Dhabi National Oil Company (ADNOC) has made bold moves to transition from its legacy as a top Middle Eastern oil producer to championing gas and LNG growth, while investing heavily in low-carbon opportunities, such as carbon capture and storage (CCS) and hydrogen.

Although the appointment of its CEO as president of COP28 in Dubai was controversial, the event was seen as a success by the legacy energy sector and hailed as “pragmatic” – a word that could be applied to ADNOC’s approach as it vies to position itself as a leading player within the global energy transition.

Methane intensity commitment

The UAE is among the world’s leading oil producers, and the Middle East’s third biggest after Saudi Arabia and Iraq. It produced 4.02 million barrels/d in 2022, and the vast majority of its oil exports (98%) were shipped to Asia, Energy Institute data shows.

When it comes to natural gas, the UAE was the world’s 15th, and the Middle East and North Africa (MENA) region’s sixth, biggest producer in 2022, with an output of 58 Bcm. However, it consumes more gas than it produces. That year it imported 0.9 Bcm as LNG and 18.5 Bcm through pipeline from Qatar to meet its meet its requirements, which stood at 69.8 Bcm. ADNOC supplies ~60% of the gas consumed by the UAE.

In the LNG world, with little feedgas to spare, it is a relatively small player, supplying just under 4 mt in the first three quarters of 2023, or 1.32% of the global total.

The Middle East, home to about a third of the world’s oil supply, had the biggest share (26%) in the upstream sector’s scope 1 and 2 emissions in 2022. It is forecast to produce 7% more oil and generate 4% fewer emissions in 2028, the International Energy Agency (IEA) said in its Oil 2023 forecast in June 2023.

The IEA highlighted that while some of the region’s producers, such as Iran, Iraq and Qatar, “have more room to improve than others” in terms of emissions, in the UAE, ADNOC “has already committed to a methane intensity of 0.15% by 2025 and to reduce its greenhouse gas (GHG) intensity by 25% by 2030.”

Against this backdrop, the Emirati major is positioning itself as a lower-emitting operator to attract offtakers with energy transition targets of their own. While seeking to “responsibly” increase its oil production to 5 million barrels/d by 2027 and continuing to advocate for natural gas as “an important” transition fuel, not only for the UAE but also globally, it is also investing heavily in transitional opportunities, including CCS and hydrogen.

“Over the last few years, ADNOC has transformed from essentially being an Abu Dhabi resource-focused entity, to one where it is rapidly expanding its global footprint, funded by bringing in overseas investment through transactions with investment funds and partial IPOs [initial public offerings] of its drilling and gas units,” an industry source tells Gas Matters.

Historically, ADNOC has carried out clean energy investments in conjunction with Emirati state-backed venture Masdar. Established by the UAE government in 2006, its aim is to diversify the country’s economy and energy resources for future generations. Recently, the wider ADNOC group has taken a more direct role in its investment of low-carbon projects.

Greening upstream

In 2022, a new shareholder structure was revealed for Masdar when ADNOC joined TAQA, a government-controlled energy holding company, and the Mubadala Investment Company, one of Abu Dhabi’s sovereign wealth funds, as Masdar shareholders.

The oil major describes Masdar as “an important pillar of ADNOC’s strategy to accelerate its net-zero ambition to 2045 by expanding clean energy production, unlocking new opportunities for industrial development and driving decarbonisation.” Masdar has an ambitious plan for the UAE to reach at least 100 GW of renewable generation capacity and up to 1 mt of green hydrogen production by 2030.

READ UAE’s Masdar signs deal with Verbund to explore green hydrogen production in Spain

ADNOC-specific investments include the 1.5 mtpa Habshan CCS facility in Abu Dhabi, which reached final investment decision (FID) in September. The project, to be built, operated and maintained by subsidiary ADNOC Gas, will include carbon capture units at the 6.1 Bcf/day Habshan gas processing plant, pipeline infrastructure, and a network of wells for CO2 injection.

ADNOC says carbon capture is key in delivering its 2045 net-zero ambition. Since 2016, it has operated a carbon capture, transportation and storage facility at Al Reyadah, which has the capacity to process up to 800,000 tons of CO2 per year captured at an Emirates Steel Arkan facility.

ADNOC is also focusing on greening its upstream operations. In October it revealed plans for the world’s first large-scale natural gas development to operate with net-zero emissions of CO2. The Hail and Ghasha offshore development project, part of Abu Dhabi’s Ghasha Concession that is set to produce more than 1.5 Bcf/d of gas before 2030, will leverage nuclear and renewable power from the grid, capture 1.5 mtpa of CO2, and help produce low-carbon hydrogen to replace domestic fuel gas use, the major says.

“Natural gas is an important transition fuel and ADNOC will continue to responsibly unlock is gas resources to enable gas self-sufficiency for the UAE, grow our export capacity and support global energy security,” it said in a 5 October press release.

International opportunities

Last month, ADNOC secured a 10% stake in Storegga, a global CCS and hydrogen player with projects in the US, Norway and the UK, where it is developing the 10 mtpa Acorn CCS project in Scotland. Described by ADNOC as “strategic,” the move catapulted it into the global carbon sequestration market.

“It doesn’t feel like a last-minute effort to jump on the [clean energy] bandwagon,” says one commentator.

ADNOC is also seeking to diversify its vast chemicals business through international acquisitions. For example, it is pursuing a takeover of Covestro, a German plastics and chemicals company that produces, among other things, foam chemicals used as insulation for buildings.

Keen to increase its liquidity, the ADNOC group has carved out various business segments and IPO’d six of them since 2017, raising over USD 8 billion, through listings on the Abu Dhabi Securities Exchange (ADX). ADNOC Gas, which owns and operates the UAE’s 5.8 mtpa Das Island liquefaction facility, was brought to market in March 2023.

One industry commentator says the move follows ADNOC’s recent trajectory of generating “as much cash as possible.” The gas IPO generated gross proceeds of around USD 2.5 billion – approximately 5% of the company’s total issued share capital.

According to the IPO announcement, international institutional investors, excluding the UAE, generated approximately USD 25 billion in orders for the IPO – around 10 times the total offering size. By all accounts, the market offering proved extremely successful for ADNOC. By opening up its investment and shareholding structure, the firm can gain further access to international opportunities.

Oil and gas ambitions

Meanwhile, ADNOC’s oil business had a bumper 2023. It is expected to have produced 3.05 million boe/d last year, of which 77% was liquids, according to Rystad Energy estimates. The research hub predicts the group’s production will increase to approximately 3.6 million boe/d by 2026.

ADNOC has also expressed great gas ambitions, not only to diversify its own portfolio but also assist the UAE in reaching gas self-sufficiency. “The company’s long-term growth remains supported by the maintenance of production capacity, the UAE’s goal to achieve gas self-sufficiency and the development of its vast low carbon solutions,” ADNOC said in its Q3 ‘24 results.

In its Q2 ‘23 management analysis, the firm’s gas business said it would target a production growth of up to 5 million boe/d by 2027. Its plans include a USD 3.6 billion contract to expand gas processing infrastructure in the UAE via new facilities, including its most recently announced project, Ruwais LNG, which ADNOC said in December is set to be the first LNG export facility in the MENA region to run on clean power.

READ Ruwais LNG marketing gets underway as ADNOC signs 1 mtpa deal with ENN

Consisting of two 4.8 mtpa trains at Al Ruwais Industrial City in Abu Dhabi, the project is set to more than double the UAE’s liquefaction capacity to 15.6 mtpa. FID is expected this year, with full capacity reached by 2032.

According to Rystad Energy, Ruwais LNG, which was previously planned to be built in Fujairah, another emirate of the UAE, could present extremely competitive economics, making it more cost effective than proposed LNG projects in Mexico, the US and Canada.

In 2023, as part of its growth strategy, ADNOC Gas awarded contracts totalling USD 4.9 billion, out of which USD 3.6 billion was contracted to expand its gas processing infrastructure in the UAE. This includes facilities that will supply the Ruwais industrial complex, the company said in its Q4 ‘23 results on 12 February.

Rystad Energy noted in March 2023 that almost USD 44 billion of greenfield investments are forecast to be made on UAE oil and gas projects, due to be approved between now and 2026, which is USD 6 billion short of the nation’s cumulative investments of the past 13 years. The UAE’s capex share of gas investment is expected to climb to 60% between 2023 and 2026.

Hosting COP28

The 2022 strategic review for ADNOC’s distribution business deemed 2023 “the UAE year of sustainability,” principally as the country looked ahead to Dubai hosting COP28 last November. But the appointment of ADNOC CEO Sultan Al Jaber as president for last year’s conference caused controversy. Environmental groups and politicians around the world decried the oil and gas industry’s participation in what was previously considered a conference by and for the advancement of renewables and decarbonisation.

The irony of ADNOC’s massive fossil fuel portfolio was not lost on COP28 commentators, but Al Jaber ultimately proved a popular host, for what the legacy energy sector has deemed the most pragmatic climate event yet.

READ COP28 deal sees role for ‘transitional fuels’ and CCS

The topline takeaway from COP28 was that the world’s energy system must transition away from fossil fuels in “a just, orderly and equitable manner.” Notably, the gas sector was given a boost as the final agreement noted: “transition fuels can play a role in facilitating the energy transition while ensuring energy security.”

Where ADNOC and Al Jaber were able to shine at the climate summit was in its push for methane emissions abatement. As part of the conference agreement, 50 oil companies announced a pledge to cut methane emissions and end routine flaring by 2030.

The company has set itself a target to decrease its upstream methane intensity to 0.15% by 2025 and its overall methane emissions entirely by 2030, bolstered by a pledge to eliminate flaring across its operations. According to ADNOC, its promise is expected to contribute to the UAE’s goal of having one of the lowest flaring volumes and intensities amongst oil and gas producing countries.

Shift in focus

Overall, ADNOC has major growth potential, and its efforts to diversify its portfolio to include some of the world’s most unique clean energy developments, both at home and abroad, will likely help to promote the firm to an even bigger scope of international investors.

ADNOC is not looking to abandon its fossil fuel roots just yet, and this could dent its wider perception as a leading transitional player. But major reshuffling within its business arms indicates a shift in focus and drive to play against other majors with a keen eye for decarbonisation. - NM

Contact the editor:

Kostya Tsolakis
[email protected]

Subscription Benefits

Our three titles – LNG Business Review, Gas Matters and Gas Matters Today – tackle the biggest questions on global developments and major industry trends through a mixture of news, profiles and analysis.

LNG Business Review

LNG Business Review seeks to discover new truths about today’s LNG industry. It strives to widen market players’ scope of reference by actively engaging with events, offering new perspectives while challenging existing ones, and never shying away from being a platform for debate.

Gas Matters

Gas Matters digs deep into the stories of today, keeping the challenges of tomorrow in its sights. Weekly features and interviews, informed by unrivalled in-house expertise, offer a fresh perspective on events as well as thoughtful, intelligent analysis that dares to challenge the status quo.

Gas Matters Today

Gas Matters Today cuts through the bluster of online news and views to offer trustworthy, informed perspectives on major events shaping the gas and LNG industries. This daily news service provides unparalleled insight by drawing on the collective knowledge of in-house reporters, specialist contributors and extensive archive to go beyond the headlines, making it essential reading for gas industry professionals.

Did you know that your Internet Explorer Browser is out of date?

Your MS Internet Explorer browser is out of date, and will not be fully compatible with our website. For best browsing experience we recommend that you upgrade your IE browser to a more recent version or use an alternative, more recent browser.