Published quarterly by BUSINESS MONITOR INTERNATIONAL LTD
                                           BUSINESS         INTE...
UAE Oil & Gas
                         Report Q1 2006
                         Including 5-year industry forecasts by BMI
...
UAE Oil & Gas Report Q1 2006




© Business Monitor International Ltd                                  Page 2
UAE Oil & Gas Report Q1 2006




CONTENTS

New This Quarter…. ...............................................................
UAE Oil & Gas Report Q1 2006



       Table: Global Oil Consumption (000b/d) ...............................................
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New This Quarter….
    Macroeconomic Forecasts
    Real GDP growth is forecast by BMI at ...
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    Emarat and ENOC. IOC upstream involvement is extensive, and set to rise as more Abu Dh...
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SWOT Analysis

United Arab Emirates Political SWOT


Strengths                       Stan...
UAE Oil & Gas Report Q1 2006




United Arab Emirates Economic SWOT


Strengths                      The UAE is a member o...
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United Arab Emirates Business Environment SWOT


Strengths                      The UAE i...
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Regional Market Overview
Middle East/Africa Region
                 While the Arabian Gul...
UAE Oil & Gas Report Q1 2006



                 Oil use of 8.52mn b/d in 2001 reached an estimated 10.23mn b/d last year....
UAE Oil & Gas Report Q1 2006



                 in 2005 and is forecast to reach 26.11mn b/d by 2010. Angola and Iraq hav...
UAE Oil & Gas Report Q1 2006




Table: Middle East/Africa Gas Consumption (bcm)



Country               2003         200...
UAE Oil & Gas Report Q1 2006




Table: Middle East/Africa Gas Production (bcm)



Country                2003         200...
UAE Oil & Gas Report Q1 2006




Table: Middle East/Africa LNG Exports/(Imports) (bcm)



Country                2003     ...
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Business Environment Rankings
UAE
             The overall business environment is attrac...
UAE Oil & Gas Report Q1 2006



                Main characteristics of the region are the high level of oil/gas reserves,...
UAE Oil & Gas Report Q1 2006




Economics – long-term risk
             Using the BMI Country Risk Rating Service, the lo...
UAE Oil & Gas Report Q1 2006




Business Environment Overview
Political Risk Summary
             The UAE is comprised of...
UAE Oil & Gas Report Q1 2006




Red Tape
             Despite a reputation as a welcoming destination for investment, the...
UAE Oil & Gas Report Q1 2006



             are caveats. Non-GCC owners are not given access to the full range of legal p...
UAE Oil & Gas Report Q1 2006




Oil Market Outlook

              After the high drama of the third quarter, with hurrica...
UAE Oil & Gas Report Q1 2006



              Assuming some seasonal weakness in the second quarter (which will be determi...
UAE Oil & Gas Report Q1 2006




Regional Supply and Demand
Middle East/Africa
             Both the Middle East and Afric...
UAE Oil & Gas Report Q1 2006




Table: Oil Production (000b/d) – Middle East/Africa



                           2003   ...
UAE Oil & Gas Report Q1 2006




Table: Oil Consumption (000b/d) – Middle East/Africa



                          2003   ...
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Global Market Outlook
2006: A Year Of Recovery

             Demand growth is set to move...
UAE Oil & Gas Report Q1 2006




Table: Global Oil Consumption (000b/d)



                                  2003        2...
UAE Oil & Gas Report Q1 2006




Table: Global Oil Production (000b/d)



                                 2003      2004 ...
UAE Oil & Gas Report Q1 2006




Industry Forecast Scenario
Oil and Gas Reserves
             Our view is that the UAE's p...
UAE Oil & Gas Report Q1 2006




Gas Supply and Demand

             Over the last decade, gas consumption in Abu Dhabi ha...
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Uae Oil & Gas Report

  1. 1. Published quarterly by BUSINESS MONITOR INTERNATIONAL LTD BUSINESS INTERNATIONAL LTD UAE BUSINESS Oil & Gas MONITOR Report Q1 2006 international Including 4-year industry forecasts Business Monitor International  2006 Business Monitor International. All rights reserved. Mermaid House, 2 Puddle Dock All information contained in this publication is copyrighted in the name of London EC4V 3DS UK Business Monitor International, and as such no part of this publication may Tel: +44 (0)20 7248 0468 be reproduced, repackaged, redistributed, resold in whole or in any part, or Fax: +44 (0)20 7248 0467 used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or email: subs@businessmonitor.com retrieval, or by any other means, without the express written consent of the web: http://www.businessmonitor.com publisher.
  2. 2. UAE Oil & Gas Report Q1 2006 Including 5-year industry forecasts by BMI Part of BMI's Industry Survey & Forecasts Series Published by: Business Monitor International Publication Date: March 2006 Business Monitor International © 2006 Business Monitor International. Mermaid House, All rights reserved. 2 Puddle Dock, London, EC4V 3DS, All information contained in this publication is UK copyrighted in the name of Business Monitor Tel: +44 (0) 20 7248 0468 International, and as such no part of this publication Fax: +44 (0) 20 7248 0467 may be reproduced, repackaged, redistributed, resold in email: subs@businessmonitor.com whole or in any part, or used in any form or by any web: http://www.businessmonitor.com means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.
  3. 3. UAE Oil & Gas Report Q1 2006 © Business Monitor International Ltd Page 2
  4. 4. UAE Oil & Gas Report Q1 2006 CONTENTS New This Quarter…. .........................................................................................................................................5 SWOT Analysis.................................................................................................................................................7 United Arab Emirates Political SWOT .................................................................................................................................................................. 7 United Arab Emirates Economic SWOT ................................................................................................................................................................ 8 United Arab Emirates Business Environment SWOT............................................................................................................................................. 9 Regional Market Overview ............................................................................................................................10 Middle East/Africa Region........................................................................................................................................................................................ 10 Table: MEA Oil Consumption (000b/d) .............................................................................................................................................................. 10 Table: Middle East/Africa Oil Production (000b/d) ............................................................................................................................................ 11 Table: Middle East/Africa Oil Refining Capacity (000b/d)................................................................................................................................. 12 Table: Middle East/Africa Gas Consumption (bcm) ............................................................................................................................................ 13 Table: Middle East/Africa Gas Production (bcm) ............................................................................................................................................... 14 Table: Middle East/Africa LNG Exports/(Imports) (bcm).................................................................................................................................... 15 UAE .......................................................................................................................................................................................................................... 15 Business Environment Rankings .................................................................................................................16 UAE .......................................................................................................................................................................................................................... 16 Middle East/Africa Region........................................................................................................................................................................................ 16 Business Environment Ranking................................................................................................................................................................................. 17 Economics – long-term risk ...................................................................................................................................................................................... 18 Politics – long-term risk ........................................................................................................................................................................................... 18 Oil & Gas Growth .................................................................................................................................................................................................... 18 Oil/Gas Reserves ...................................................................................................................................................................................................... 18 Licensing/Regulation ................................................................................................................................................................................................ 18 Competitive Environment.......................................................................................................................................................................................... 18 Business Environment Overview .................................................................................................................19 Political Risk Summary............................................................................................................................................................................................. 19 Economic Risk Summary .......................................................................................................................................................................................... 19 Business Environment Risk Summary ....................................................................................................................................................................... 19 Legal Code/Corruption............................................................................................................................................................................................. 19 Red Tape................................................................................................................................................................................................................... 20 Foreign Direct Investment ........................................................................................................................................................................................ 20 Tax Regime .......................................................................................................................................................................................................... 21 Oil Market Outlook .........................................................................................................................................22 Table: Crude Price Forecasts 2006 .................................................................................................................................................................... 22 Revised Forecasts ..................................................................................................................................................................................................... 22 Table: Oil Price Forecasts.................................................................................................................................................................................. 23 Regional Supply and Demand.......................................................................................................................24 Middle East/Africa.................................................................................................................................................................................................... 24 Table: Oil Production (000b/d) – Middle East/Africa......................................................................................................................................... 25 Table: Oil Consumption (000b/d) – Middle East/Africa ..................................................................................................................................... 26 Global Market Outlook ...................................................................................................................................27 © Business Monitor International Ltd Page 3
  5. 5. UAE Oil & Gas Report Q1 2006 Table: Global Oil Consumption (000b/d) ........................................................................................................................................................... 28 Table: Global Oil Production (000b/d)............................................................................................................................................................... 29 Industry Forecast Scenario ...........................................................................................................................30 Oil and Gas Reserves................................................................................................................................................................................................ 30 Oil Supply and Demand............................................................................................................................................................................................ 30 Gas Supply and Demand........................................................................................................................................................................................... 31 LNG .......................................................................................................................................................................................................................... 32 Refining and Oil Products Trade .............................................................................................................................................................................. 32 Revenues/Import Costs ............................................................................................................................................................................................. 32 Table: UAE Oil & Gas – Historic Data & Forecasts ........................................................................................................................................ 33 Other Energy ............................................................................................................................................................................................................ 34 Table: UAE Other Energy – Historic Data & Forecasts .................................................................................................................................... 34 Key Risks to BMI’s Forecast Scenario...................................................................................................................................................................... 34 Economic Outlook..........................................................................................................................................35 Table: Macroeconomic Data and Forecasts........................................................................................................................................................ 38 Competitive Landscape .................................................................................................................................39 Table: Key Domestic And Foreign Companies In the UAE Oil And Gas Sector................................................................................................. 40 Overview/State Role.................................................................................................................................................................................................. 40 BP – Summary .......................................................................................................................................................................................................... 41 Table: Key Upstream Players ............................................................................................................................................................................. 41 Total – Summary....................................................................................................................................................................................................... 42 ConocoPhillips – Summary....................................................................................................................................................................................... 42 ExxonMobil – Summary............................................................................................................................................................................................ 42 Table: Key Downstream Players ........................................................................................................................................................................ 42 Emarat/Eppco/ENOC – Summary............................................................................................................................................................................. 43 Shell – Summary ....................................................................................................................................................................................................... 43 Dolphin – Summary .................................................................................................................................................................................................. 43 Company Monitor...........................................................................................................................................44 Abu Dhabi National Oil Company (ADNOC) ...................................................................................................................................................... 44 Dolphin Energy Ltd (DEL) .................................................................................................................................................................................. 47 Company Analysis .................................................................................................................................................................................................... 47 Emarat – Emirates General Petroleum Corporation ........................................................................................................................................... 50 Company Analysis .................................................................................................................................................................................................... 50 Emirates National Oil Company Limited (ENOC)............................................................................................................................................... 52 Company Analysis .................................................................................................................................................................................................... 52 SWOT Analysis ......................................................................................................................................................................................................... 52 BMI Forecast Modelling .................................................................................................................................54 How we generate our industry forecasts................................................................................................................................................................... 54 Energy Industry ........................................................................................................................................................................................................ 55 Cross checks ............................................................................................................................................................................................................. 55 Sources ..................................................................................................................................................................................................................... 55 © Business Monitor International Ltd Page 4
  6. 6. UAE Oil & Gas Report Q1 2006 New This Quarter…. Macroeconomic Forecasts Real GDP growth is forecast by BMI at 5.6% for 2006, following an estimated 6.4% in 2004. We are assuming 4.6% growth in 2007 and 4.7% in 2008, followed by 4.5% in 2009-2010. Inflationary pressures are the biggest concern in the UAE economy, particularly in Dubai where steep rental prices rises have been stoking inflation estimated at around 15-20%. Though the emirate's capping of rental rises on leased properties in November last year will have taken some of the pressure out of the system, price pressures will continue to be felt. Business Environment In the BMI Business Environment Ranking matrix, the UAE receives a lower composite score of 39, demoting the Gulf state to third out of 16 countries included in the MEA region. The overall business environment is attractive in a regional context, thanks largely to low levels of perceived political and economic risk, plus the country's abundant oil and gas resources, and widespread participation by foreign companies. The UAE's reserves to production ratio (RPR) is one of the region's highest. The state is also one of the most open and westernised Middle Eastern countries in terms of its hydrocarbons sector. Oil Market In Q405, the OPEC basket price averaged around US$54.00 per barrel (/bbl), down from some US$57.50 in Q305. The average price for 2005 was approximately US$51.10/bbl, with the US crude price reaching US$56.70. For the opening quarter of 2006, our forecasts are for an OPEC basket price of US$51.50. Assuming some seasonal weakness in the second quarter (which will be determined largely by US gasoline inventory positions), followed by a hurricane-free Q3, we are predicting an OPEC basket price for 2006 averaging US$51.30/bbl – broadly unchanged from the previous year. Our forecasts for the US, Brent and Urals are US$56.80, US$54.80 and US$50.80/bbl respectively. Industry Forecast Scenario BMI expects productive capacity to have reached 3.0mn barrels per day (b/d) by 2007, falling short of government targets. Actual production is unlikely to be above 2.84mn b/d by 2010. We are assuming 2006 production averaging 2.7mn b/d (including gas liquids), providing exports of just under 2.4mn b/d. Overall UAE gas consumption is forecast to reach at least 57bn cubic metres (bcm) by 2010. Production of gas is on the rise, with 70bcm achievable by 2010 – providing exports of 13bcm. Competitive Environment The UAE has a state-controlled oil and gas sector. The biggest government vehicle is ADNOC, which dominates the Abu Dhabi upstream oil sector. It accounts for almost half of the UAE's oil production and 36% of refining capacity. It operates as part of joint ventures with IOCs. Other major state companies are downstream participants © Business Monitor International Ltd Page 5
  7. 7. UAE Oil & Gas Report Q1 2006 Emarat and ENOC. IOC upstream involvement is extensive, and set to rise as more Abu Dhabi upstream projects are offered. Foreign groups are active in oil production, gas exports, lubricants supply and petrochemicals schemes. © Business Monitor International Ltd Page 6
  8. 8. UAE Oil & Gas Report Q1 2006 SWOT Analysis United Arab Emirates Political SWOT Strengths Standards of living are high for nationals, and comfortable for most expatriate workers. Consequently, there are few demographic pressures that would suggest looming social problems. Despite heightened security measures over the past few years, there is little evidence that al-Qaeda has the capacity or the desire to attack targets within the UAE. The monarchy enjoys strong support nationwide. Weaknesses Lack of democracy poses long term risks given trends towards greater popular participation elsewhere in the region. Sheikh Khalifa bin Zayed assumed the presidency after the death of Sheikh Zayed al-Nahyan. However, he is equally conservative and is unlikely to make concerted efforts to address constitutional issues. The succession lineage is rather murky, raising concerns of longer term instability. Opportunities The UAE co-operates closely with other GCC states in security and economic policy. The UAE is typically a ‘dove’ within OPEC, sympathetic to the needs of consumer states, which is good for its relations with the West Dubai has experienced a smooth political succession following the death of former ruler Sheikh Maktoum bin Rashid al-Maktoum in January 2006, with new ruler Sheikh Mohammed bin Rashid al-Maktoum welcomed by most of the public. Threats There is a long-running territorial dispute with Iran, which continues to affect bilateral relations. The state’s openness has resulted in militants using its good international transport connections in the past. This suggests that some, albeit limited, risks of terrorism exist. © Business Monitor International Ltd Page 7
  9. 9. UAE Oil & Gas Report Q1 2006 United Arab Emirates Economic SWOT Strengths The UAE is a member of the Gulf Co-operation Council, which, as well as being a free trade zone, is targeting a common currency by 2010. The UAE has one of the most liberal trade regimes in the Gulf, and attracts strong capital flows from across the region. In common with most Gulf states, there are a high number of expatriate workers at all levels of the economy. The UAE has successfully diversified its economy, minimising its vulnerability to oil price movements. Weaknesses The UAE’s main trading partners are other Gulf states, which increases the vulnerability of the non-oil sectors to oil price volatility. The state’s location in a volatile region means that its risk profile is, to some extent, affected by events elsewhere. US concerns about regional militant groups and Iranian WMD programmes could affect investor perceptions over the medium term. Opportunities Oil prices are expected to stay high over the forecast period. Economic diversification into gas, tourism, financial services and high-tech industry offers some protection against volatile oil prices. Its construction, tourism and financial sectors are growing rapidly, driven by domestic and foreign investment. Threats Heavy subsidies on utilities and agriculture and an outdated tax system contribute to persistent fiscal deficits. There are fears that bubbles could be forming in the construction sector and also the stock market. © Business Monitor International Ltd Page 8
  10. 10. UAE Oil & Gas Report Q1 2006 United Arab Emirates Business Environment SWOT Strengths The UAE is a member of the Gulf Co-operation Council, a six member free trade zone, and has been a member of the WTO since 1996. The state has invested large amounts in infrastructure. The UAE’s diversified economy reduces risks. An effective production sharing framework means high levels of IOC participation and growing joint venture investment. Oil and gas reserves are vast and under-utilised, providing a high R/P ratio that facilitates medium- to long-term production growth. Weaknesses Due to the state’s federal nature, regulations are not identical across the emirates. The regional economy is oil-dependent. This has historically been very cyclical, which increases risks for long term projects. Growth in oil production is subject to OPEC policy and substantial ongoing investment that can be guaranteed only with continuing IOC participation. Opportunities Large number of free trade zones offering tax holidays and full foreign ownership. Comparatively relaxed rules on expatriate employment. The UAE’s social stability and relative prosperity means that there is far less concern for security than in some other Gulf states. Strong global demand for oil means OPEC needs to expand capacity and output, allowing UAE oil production to remain at a high level. Threats The state has a good record on corruption in comparison with regional peers, although not up to western European standards. Strong oil prices have massively increased liquidity in the region. This has resulted in strong financial inflows, increasing risks that projects of lower investment potential are currently being funded. Abu Dhabi in particular has less near- to medium-term oil and gas production upside potential than other Gulf states and investment opportunities elsewhere in the region could make IOCs less enthusiastic regarding longer-term UAE participation. © Business Monitor International Ltd Page 9
  11. 11. UAE Oil & Gas Report Q1 2006 Regional Market Overview Middle East/Africa Region While the Arabian Gulf states will continue to dominate oil supply in the region, backed by huge and largely untapped reserves, West and North Africa have an important role to play, with Angola's offshore deepwater wealth an increasingly important factor. Nigeria is faced with domestic political problems that could hamper oil expansion, while Libya is exploiting the return of US oil companies to aim for rapid supply growth. Gas is another important export product for the region, largely in the form of LNG. The Gulf, North Africa and Nigeria play a growing role in the supply of the world's gas. Table: MEA Oil Consumption (000b/d) Country 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 229 242 257 272 288 306 324 343 Angola 33 37 43 50 57 65 75 87 Bahrain 35 37 38 39 40 41 42 44 Egypt 550 566 583 600 618 637 656 676 Iran 1472 1551 1598 1645 1695 1746 1798 1852 Iraq 350 450 550 600 650 700 760 800 Israel 182 185 187 190 193 196 199 202 Kuwait 238 266 271 277 282 288 294 299 Libya 227 234 241 248 255 263 271 279 Nigeria 315 321 337 354 372 390 410 430 Oman 51 53 56 59 62 65 68 71 Qatar 37 41 43 44 46 48 50 52 Saudi Arabia 1629 1728 1763 1815 1870 1926 1984 2043 South Africa 513 525 546 562 585 608 633 658 Turkey 668 688 715 744 774 805 837 870 UAE 296 306 315 325 334 344 355 365 BMI universe 6825 7229 7542 7824 8121 8428 8755 9072 other MEA 2638 2664 2691 2718 2745 2772 2800 2828 Regional total 9462 9894 10233 10542 10866 11200 11555 11900 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. © Business Monitor International Ltd Page 10
  12. 12. UAE Oil & Gas Report Q1 2006 Oil use of 8.52mn b/d in 2001 reached an estimated 10.23mn b/d last year. It should average 10.54mn b/d in 2006 and then rise to around 11.90mn b/d by 2010. The UAE accounted for 3.1% of 2005 regional consumption, with its market share expected to unchanged through to 2010. Table: Middle East/Africa Oil Production (000b/d) Country 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 1857 1933 1965 1980 1985 1995 2000 2025 Angola 885 991 1230 1450 1650 1800 1950 2000 Bahrain 42 41 38 37 36 36 35 35 Egypt 749 708 696 680 660 650 630 610 Iran 3999 4081 4050 4050 4050 4100 4200 4250 Iraq 1350 2027 1900 2200 2500 3000 3200 3500 Israel 0 0 0 0 0 0 0 0 Kuwait 2238 2424 2450 2460 2500 2500 2550 2600 Libya 1488 1607 1640 1645 1650 1680 1710 1750 Nigeria 2263 2508 2550 2560 2585 2600 2650 2700 Oman 823 785 780 770 800 800 790 775 Qatar 917 990 995 1000 1000 1050 1100 1150 Saudi Arabia 10222 10584 10700 10750 11000 11100 11500 11750 South Africa 30 26 24 24 22 20 20 20 Turkey 45 42 36 33 30 27 27 25 UAE 2547 2667 2675 2700 2730 2760 2800 2835 BMI universe 29455 31414 31729 32339 33198 34118 35162 36025 Syria 590 590 580 580 570 570 570 570 Yemen 475 480 485 490 510 510 510 510 other MEA 820 930 930 920 910 900 900 900 Regional total 31340 33414 33724 34329 35188 36098 37142 38005 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. Regional oil production was 30.41mn b/d in 2001, and last year averaged an estimated 33.72mn b/d. It is set to rise to 38.01mn b/d by 2010. The UAE last year accounted for 7.9% of regional oil supply, but its market share is expected to be down to 7.5% by the end of the forecast period. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 21.89mn b/d. This total had risen to an estimated 23.79mn b/d © Business Monitor International Ltd Page 11
  13. 13. UAE Oil & Gas Report Q1 2006 in 2005 and is forecast to reach 26.11mn b/d by 2010. Angola and Iraq have the greatest production growth potential, although the latter remains bogged down in local political issues. Table: Middle East/Africa Oil Refining Capacity (000b/d) Country 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 450 450 450 600 600 600 600 600 Angola 39 60 60 60 260 260 260 260 Bahrain 249 249 249 249 249 249 249 249 Egypt 730 730 730 730 730 730 730 730 Iran 1584 1624 1624 1700 1750 2000 2200 2200 Iraq 644 644 644 644 700 850 850 850 Israel 220 220 220 220 220 220 220 220 Kuwait 905 905 905 905 1000 1350 1350 1350 Libya 343 375 460 460 460 550 550 550 Nigeria 440 500 540 540 540 540 540 540 Oman 85 85 85 150 235 235 235 235 Qatar 137 137 137 137 137 137 137 137 Saudi Arabia 1911 2061 2061 2061 2300 2300 2500 2500 South Africa 490 490 490 490 490 490 490 490 Turkey 643 641 670 670 750 750 750 750 UAE 645 620 800 1000 1000 1000 1000 1000 BMI universe 9515 9791 10125 10616 11421 12261 12661 12661 other MEA 725 730 733 770 808 849 891 936 Regional total 10240 10521 10858 11386 12229 13110 13552 13597 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. Refining capacity for the region was 9.61mn b/d in 2001, rising gradually to an estimated 10.86mn b/d last year. Angola, Algeria, Oman, Iraq and Iran are all expected to increase significantly their domestic refining capacity, with the region's total capacity forecast to reach 13.60mn b/d by 2010 – well ahead of oil demand, therefore implying substantial net exports of refined products. The UAE's share of regional refining capacity in 2005 was 7.4%, and its market share is set to remain at this level in 2010. © Business Monitor International Ltd Page 12
  14. 14. UAE Oil & Gas Report Q1 2006 Table: Middle East/Africa Gas Consumption (bcm) Country 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 21 21 22 25 29 33 38 44 Angola 1 1 2 2 3 4 4 5 Bahrain 10 10 10 11 12 13 14 15 Egypt 25 26 28 32 36 40 44 47 Iran 83 87 90 100 104 110 115 125 Iraq 2 2 3 3 4 5 5 5 Israel 0 2 3 5 6 7 8 8 Kuwait 9 10 10 11 13 17 19 21 Libya 6 6 6 6 7 7 8 8 Nigeria 8 8 9 10 11 11 12 12 Oman 10 11 11 17 17 17 16 16 Qatar 12 15 16 16 16 17 18 18 Saudi Arabia 61 64 67 71 76 81 87 93 South Africa 2 2 3 4 6 8 10 10 Turkey 21 22 25 30 35 40 46 50 UAE 38 40 42 45 49 52 55 57 BMI universe 307 325 345 389 423 462 498 535 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. © Business Monitor International Ltd Page 13
  15. 15. UAE Oil & Gas Report Q1 2006 Table: Middle East/Africa Gas Production (bcm) Country 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 83 82 88 94 101 110 120 130 Angola 1 1 2 2 3 6 9 12 Bahrain 10 10 10 9 8 8 8 7 Egypt 25 27 40 48 55 60 65 68 Iran 82 86 90 100 125 140 150 165 Iraq 2 2 3 4 5 6 7 8 Israel 0 2 3 5 6 7 8 8 Kuwait 9 10 10 11 12 13 14 15 Libya 6 7 8 12 15 18 20 23 Nigeria 19 21 23 25 28 31 33 35 Oman 7 7 7 8 8 8 9 9 Qatar 31 39 43 47 52 57 63 69 Saudi Arabia 61 64 67 71 76 81 87 93 South Africa 0 0 1 1 1 3 5 5 Turkey 1 1 1 1 1 1 1 1 UAE 44 46 53 58 60 64 67 70 BMI universe 381 403 447 495 555 613 665 718 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. In terms of natural gas, the region last year consumed an estimated 345bcm, with demand of 535bcm targeted for 2010, representing 55% growth. Production of a provisional 447bcm in 2005 should reach 718bcm in 2010, which implies net exports rising from last year's 102bcm to 184bcm by the end of the period. The UAE's share of gas consumption in 2005 was an estimated 12.2%, while its share of production was 11.9%. By 2010, its share of gas consumption is forecast to be 10.7%, with the country accounting for 9.7% of supply. © Business Monitor International Ltd Page 14
  16. 16. UAE Oil & Gas Report Q1 2006 Table: Middle East/Africa LNG Exports/(Imports) (bcm) Country 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 27.4 25.8 27.8 29.0 30.5 32.4 34.5 36.3 Angola 0.0 0.0 0.0 0.0 0.0 2.5 5.5 7.0 Egypt na 3.0 6.0 8.0 9.5 10.0 10.5 10.5 Libya 0.8 1.1 0.6 1.9 2.8 3.7 4.3 5.2 Nigeria 12.7 12.6 14.0 15.0 17.5 19.8 21.5 23.0 Oman 9.0 9.0 10.0 16.1 15.8 15.4 15.0 14.6 Qatar 19.4 24.1 27.6 31.4 35.9 40.4 45.6 51.4 Turkey (6.5) (4.3) (4.9) (5.9) (6.9) (8.0) (9.2) (10.0) UAE 6.8 7.4 10.1 11.9 10.1 11.0 11.0 11.9 BMI universe 69.6 78.7 91.3 107.5 115.1 127.3 138.9 150.1 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. The leading LNG exporter by 2010 will be Qatar (+86%), via its many IOC-partnered schemes. There will also be growing volumes from Egypt, Nigeria, Libya and Algeria. Angola has significant longer term gas export potential, although the first volumes have yet to flow and the most rapid growth phase will occur in the next decade. Turkey is set to be a key gas importer, although LNG volumes will be modest as the country raises pipeline supplies from the likes of Azerbaijan and Iran. UAE The collection of states that forms the UAE has proven oil reserves estimated at 97.5bn barrels, or nearly 10% of the world total. It also houses the world's fifth biggest natural gas reserves at 6,060bcm and exports significant amounts of LNG to Japan. Abu Dhabi dominates the UAE oil and gas sector, with 94% of its oil (over 92bn barrels). Dubai contains just 4bn barrels of reserves, followed by Sharjah and Ras al-Khaimah, with 1.5bn and 100mn barrels respectively. The UAE is a member of OPEC and its current production quota is 2.44mn b/d, compared with recent crude oil output of 2.48mn b/d. The UAE has an estimated production capability of 2.65mn b/d (crude alone). There are also significant volumes of gas liquids that are exempt from OPEC quotas. There are six operational refineries providing capacity of approximately 620,000b/d. UAE oil consumption is around 315,000b/d, while its gas demand of 42cm falls well short of production at an estimated 53bcm. UAE electricity generating capacity stands at 5.6 gigawatts (GW) – just 0.3% of the world total. Under the UAE's constitution, each emirate controls its own oil production and resource development. Although Abu Dhabi joined OPEC in 1967 (four years before the UAE was formed), Dubai does not consider itself part of OPEC or bound by its quotas. © Business Monitor International Ltd Page 15
  17. 17. UAE Oil & Gas Report Q1 2006 Business Environment Rankings UAE The overall business environment is attractive in a regional context, thanks largely to low levels of perceived political and economic risk, plus the country's abundant oil and gas resources – and widespread participation by foreign companies. The UAE's reserves to production ratio (RPR) is one of the region's highest, providing either a very long reserves life, or the potential to increase substantially output of oil and gas. Scope for output growth may be more limited than in other Gulf states, but the UAE is one of the most open and westernised Middle Eastern countries in terms of its hydrocarbons sector, with more limited state control and an established competitive landscape featuring a number of leading IOCs operating independently or in partnership with national entities. Since the previous quarter, the UAE's composite score has fallen by two points to 39, with the result that it has lost its second place in the regional league table to Qatar (which, in turn, slipped behind Libya). Given that Qatar has more to offer IOCs at present than the UAE, in spite of its much smaller output of oil and gas, the UAE cannot expect to overtake it. However, both Qatar and the UAE have the potential to knock Libya from its top spot. The UAE is relatively mature in Middle Eastern terms, without the reserves and production upside potential present in Qatar. It is, however, a stable and attractive environment in which to do business. The only real weakness is the ability to raise production levels, which is governed partly by OPEC policy and partly by capacity issues. We therefore believe it will be tough for the UAE to keep up with Qatar, but it should be able to keep South Africa, Iraq and Kuwait at bay. Middle East/Africa Region Since the previous quarter, there have been a number of significant changes in the league table of business environment ratings, although the laggards have largely held position. Qatar has slipped from first place to second, thanks to a three-point fall in its composite score. Libya has surged past both Qatar and the UAE to take the top slot, benefiting from a single-point gain in its composite score. Given that the ranking is being distorted by the use of a favourable short-term economic outlook rating, Libya's position isn't a true reflection of the overall business environment. We expect slippage later in the year, with Qatar still the best-placed country to dominate the region. South Africa remains in fourth position, even after a two-point decline in its score. Iraq moves up to take a share of fifth place, alongside Kuwait, but is another beneficiary of a flattering short-term economic rating. Oman drops from a share of seventh to equal eighth, keeping company with Israel. Egypt is down from joint ninth to outright 10th, with a three- point fall in its composite score. Nigeria has clawed its way up from 15th to a share of 14th, thanks to a higher score of 25. It shares the penultimate position with Saudi Arabia, while Iran continues to hog the foot of the table. © Business Monitor International Ltd Page 16
  18. 18. UAE Oil & Gas Report Q1 2006 Main characteristics of the region are the high level of oil/gas reserves, combined with patches of strong supply growth potential. Regulatory, licensing and competitive environments are generally improving, with more IOC money moving in and reduced government interference. However, relatively few countries in the region score highly on long-term political and economic risk assessment. Table: Middle East/Africa Business Environment Ranking Country Economics Politics – Oil/Gas Oil/Gas Licensing/ Competitive Composite Regional – LT Risk LT Risk Growth Reserves Regulation Environment Score Rank Libya* 10 6 5 6 8 6 41 1 Qatar 6 9 5 7 6 6 40 2 UAE 9 8 3 6 7 6 39 3 South Africa 6 9 4 1 10 6 36 4 Iraq* 2 3 9 10 4 7 35 5= Kuwait 8 10 3 7 2 5 35 5= Angola* 3 4 10 3 7 7 34 7 Oman 4 7 4 4 7 5 31 8= Israel 5 7 3 1 8 7 31 8= Egypt 4 6 3 3 8 6 30 10 Bahrain 7 5 2 2 8 6 29 11= Algeria 4 3 5 3 8 7 29 11= Turkey 3 6 3 3 8 5 28 13 Nigeria 1 1 5 6 5 5 23 14= Saudi Arabia 6 4 4 5 1 3 23 14= Iran 2 2 4 8 1 4 21 16 LT Economic Risk: Based on BMI Country Risk Service Long Term economic risk rating. LT Political Risk: Based on BMI Country Risk Service Long Term political risk rating. Oil/Gas Growth: Based on BMI forecasts for 2005-2010 oil/gas supply growth and oil/gas demand growth. Oil/Gas Reserves: Based on oil and gas reserves/production (R/P) ratio for last calendar year. Licensing/Regulation: Based on BMI assessment of upstream licensing framework, regulatory regime and price controls. Competitive Environment: Based on BMI assessment of number, size and type of oil/gas sector participants; extent of state involvement. Composite Score: Unweighted total of preceding six scores. Regional Rank: Highest composite score = most attractive energy sector environment within the Middle East/Africa region; lowest composite score = least attractive. Source: BMI Research. * Based on short-term economic risk rating, as long- term economic risk rating unavailable. Business Environment Ranking In the BMI Business Environment Ranking matrix, the UAE receives a composite score of 39, putting the Gulf state third out of 16 countries included in the MEA region. The component parts of UAE's score are: © Business Monitor International Ltd Page 17
  19. 19. UAE Oil & Gas Report Q1 2006 Economics – long-term risk Using the BMI Country Risk Rating Service, the long-term economic rating is 71.6, compared with a global average of 60.5. In the MEA region, UAE has the second highest score, ahead of Kuwait. The regional average is 58.0. UAE therefore scores nine out of a possible 10 in our ranking. Politics – long-term risk Using the BMI Country Risk Rating Service, the long term political rating is 68.3, compared with a global average of 63.0. In the MEA region, UAE has the fourth highest score, above that of Oman. The regional average is 58.9. UAE therefore scores eight out of a possible 10 in our ranking. Oil & Gas Growth Countries are ranked by oil and gas output growth and/or consumption growth. UAE's oil production growth to 2010 is forecast at 6.0%, with gas output rising 26.4% over the same period. This growth rate is below the middle of the range for MEA states and UAE is allocated a score of three out of a possible 10. Oil/Gas Reserves Countries are ranked by their reserves to production ratio (RPR), which reflects the life of oil and gas reserves and provides an indicator of potential production upside potential. UAE's oil RPR of 100 is third highest in the region, while the gas RPR of 114 is the 7th highest. The overall score is therefore 6. Licensing/Regulation The score is based on the extent of state ownership and the degree of deregulation. The UAE participates in most upstream projects, gas export schemes and refineries, but in partnership with IOCs through clear production sharing terms etc. The score of 7 is therefore one of the highest in the region. Competitive Environment This assesses the extent of competition and the scale of investment opportunity for IOCs. There is extensive IOC involvement in the UAE's hydrocarbons sector, with foreign operators accounting for up to half of oil production and refining capacity. We have therefore assigned the country a score of 6. © Business Monitor International Ltd Page 18
  20. 20. UAE Oil & Gas Report Q1 2006 Business Environment Overview Political Risk Summary The UAE is comprised of seven emirates, of which Abu Dhabi is by far the most powerful, due to its oil wealth. The UAE is very conservative, and is one of the last Gulf states to broaden participation in the political process. It is unlikely that any elected institutions with more than advisory powers will be established over the medium term. Despite the lack of democracy, the UAE’s strong economic performance has largely fended off the social pressures affecting other Gulf states in recent years. Consequently, militant Islam has failed to attract any significant level of support. The state is a full member of the GCC, WTO and OPEC, where it is usually a ‘dove,’ supporting efforts by consumer countries – especially those by key ally the US – to stabilise, rather than maximise, prices. We anticipate continued political and social stability over the forecast period and beyond. Economic Risk Summary In common with most Gulf states, oil is the dominant economic sector, and directly accounts for over 20% of GDP. As elsewhere, this boon has resulted in structural economic problems, notably persistent fiscal deficits. However, the UAE government has pursued a more enlightened strategy than its regional peers, prioritising economic diversification – notably in the tourism, manufacturing (including high-tech) and financial sectors – as part of its outward-oriented development strategy. We anticipate that real growth will remain above 4% per year over the forecast period. Business Environment Risk Summary The UAE has one of the most open business environments in the region. It has actively welcomed foreign investment in both the hydrocarbons and non-hydrocarbons sectors. Furthermore, the open-border foreign labour policy has enabled the private sector to recruit expatriate workers at internationally competitive prices. There are a large number of free zones, primarily located in Dubai, which offer tax holidays and relaxed restrictions on foreign ownership. Furthermore, the current construction boom is improving infrastructure. Continued efforts to improve transparency and incentives for investors are anticipated over the forecast period, although privatisation will remain slow. Legal Code/Corruption The UAE's judicial system is based on British and Islamic law. The country has a comparatively good record on transparency. The state was ranked joint 29th (out of 1463) in Transparency International's Corruptions Perceptions Index in 2004, with its score of 6.1 markedly better than the Middle East average of 4.1. The Western Europe average was 7.9. © Business Monitor International Ltd Page 19
  21. 21. UAE Oil & Gas Report Q1 2006 Red Tape Despite a reputation as a welcoming destination for investment, the UAE compares poorly with its regional peers, and also against developed states in terms of the regulations covering business practices. According to World Bank data, it takes 53 separate procedures to enforce a contract, which takes an average of 614 days. The MENA average is 31 and 299 respectively, while the process involves 18 procedures and 213 in high-income OECD states. Similarly, World Bank data states that it takes 12 procedures and 54 days to start a business in the UAE, compared to an average of 9 and 41 respectively in the MENA region, and 6 and 25 in high income OECD states. At the other end, it can take approximately five years to close a business, compared to an average of 3.7 years in the MENA region and 1.8 years in OECD states. Foreign Direct Investment Gradually, the UAE’s investment climate is becoming more clement for foreign direct investors: the federal government, led by Abu Dhabi, has made significant headway in the past five years in increasing the role of the private sector. Yet the overall legal framework continues to favour local over foreign investors – a fact that partly reflects the benign macro environment in light of the country’s substantial oil revenue windfall. This has endowed local and regional Gulf investors with substantial liquidity, disincentivising the search for new FDI sources from outside the region. Some procedures have been eased for investors: for example, they no longer need to obtain a labour ministry card in addition to an immigration visa. And the absence of income tax compensates for the restrictive investment environment. FDI figures remain difficult to verify: the finance & industry minister has spoken of US$9bn FDI inflows for 2004, but this would represent a 20-fold increase on the US$480mn recorded by UNCTAD in 2003; an unlikely increase in such a short space of time. Foreign investment in the UAE is governed by the Federal Commercial Companies Law 8, last amended in 1993, although there are three other key laws: the Commercial Agencies Law, the Federal Industry Law, and the Government Tenders Law. Firms establishing in the emirates must have a minimum of 51% UAE national-ownership (though full profit repatriation is permitted). Private or public shareholding companies have to be fully owned by UAE nationals and there is no national treatment for investors in the UAE. The branch offices of foreign companies are required to have a national agent. Outside the free zones, foreign companies have to work through a local sponsor. Foreign investors may not own land or real estate in the UAE – all property has to be either rented or leased. The picture is not uniform on account of the federal make-up of the seven-member UAE. Dubai, lacking Abu Dhabi’s oil revenues, has a more liberal approach to foreign ownership of land and has extended foreign ownership of land and properties to some real estate developments. In 2002, it permitted freehold real estate ownership for non-Gulf Co-operation Council (GCC) nationals – but even here there © Business Monitor International Ltd Page 20
  22. 22. UAE Oil & Gas Report Q1 2006 are caveats. Non-GCC owners are not given access to the full range of legal protections and transactions enjoyed by GCC investors. There are also potential concerns for investors should the UAE federal government invoke its right to issue a law barring foreign ownership of Dubai property. The authorities are making some headway at opening up the investment climate: Abu Dhabi has mooted a law that may allow 100% ownership rights for foreign investors, while the telecoms market was opened to foreign investment in January 2005 after the monopoly of the local telco, Etisalat, was revoked. There exist no restrictions on the conversion of the UAE dirham or foreign currency. No expropriations have affected foreign investors in the UAE for a number of years. The main destinations for FDI are ICT and software, tourism and textiles. The main sources of FDI are the UK, the US and India. Tax Regime The UAE’s substantial hydrocarbons resource revenues means government has no pressing need to raise income via direct taxes. Only banks and oil companies pay corporate tax, at a rate of 50% (55 % in Dubai) for oil companies. Oil companies also pay royalties on oil and gas they produce. Net taxable income of foreign banks is subject to tax at a flat rate of 20%, implemented in Abu Dhabi and Dubai. Alongside all the other benefits enjoyed by companies operating in the free trade zones, there is no corporate tax for 15 years, renewable for an additional 15 years. There is no income tax on individuals resident in the UAE. There is no VAT in the UAE, but the federal government, under the advice of the IMF, is discussing the introduction of a VAT system. This is unlikely to be introduced in the near term, however. There are no withholding or capital taxes. Business properties pay a municipal tax set at 10% of annual rental value. Double taxation agreements exist with France, Pakistan, Poland, Turkey, China, Romania, Italy, Egypt, Germany, Singapore, Malaysia, Indonesia and India. © Business Monitor International Ltd Page 21
  23. 23. UAE Oil & Gas Report Q1 2006 Oil Market Outlook After the high drama of the third quarter, with hurricane devastation leading to a volatile oil market, the closing quarter of 2005 was a much more subdued affair. There were only two major factors at play, namely the recovery of US production and demand, plus the arrival of winter weather. There were several important third-party downgrades in consumption forecasts for 2005, but estimates for 2006 demand remained relatively robust. Fears that US fuel consumption would emerge dramatically lower in the wake of the hurricanes proved unfounded. However, US crude oil inventories rose quickly during the final quarter and oil prices were generally on a weakening trend. Only persistently low levels of refined products stocks in the US and some unusually low temperatures in Europe and North America kept oil prices above US$50 per barrel. OPEC's December meeting left the production ceiling unchanged, but the organisation promised an end-January meeting to review the situation. There are now concerns that the cartel will recommend a supply cut in order to ease over-supply – although a revival in oil prices in the opening days of the new year may rule out this course of action until the second quarter. Our fourth quarter and full year price forecasts for 2005 proved accurate, but is has become clear that an upwards revision is necessary for 2006, with average prices likely to remain close to the 2005 levels. Table: Crude Price Forecasts 2006 Q405e Q106f Q206f Q306f Q406f Brent (US$/bbl) 58.9 55.0 52.0 55.0 57.0 Urals (US$/bbl) 53.2 51.0 48.0 51.0 53.0 WTI (US$/bbl) 60.0 57.0 54.0 57.0 59.0 OPEC Basket (US$/bbl) 54.8 51.5 48.5 51.5 53.5 Arab Light (US$/bbl) 53.5 53.2 50.1 53.2 55.3 Source: BMI research Revised Forecasts In Q405, we estimate that the OPEC basket price will have averaged US$54.00/bbl, up approximately 30% from the Q404 level, but down from some US$57.50 in Q305. The average price for the whole of 2005 appears to have been US$51.10/bbl, with the US crude price reaching an impressive US$56.70, Brent averaging around US$54.70 and Russian Urals at US$50.40/bbl. For the opening quarter of 2006, our forecasts are for an OPEC basket price of US$51.50. The main marker blends are expected to average US$57/bbl for the US, US$55/bbl for Brent and US$51/bbl for Urals. © Business Monitor International Ltd Page 22
  24. 24. UAE Oil & Gas Report Q1 2006 Assuming some seasonal weakness in the second quarter (which will be determined largely by US gasoline inventory positions), followed by a hurricane-free Q3, we are predicting an OPEC basket price for 2006 averaging US$51.30/bbl – broadly unchanged from the previous year. Our forecasts for the US, Brent and Urals are US$56.80, US$54.80 and US$50.80/bbl respectively. It seems clear from our supply and demand projections that, beyond 2007, demand growth could exceed supply expansion. However, surplus capacity is also set to develop among the OPEC nations, providing a psychological 'safety net' for the oil market that will inevitably relieve some of the upwards pressure on prices. If OPEC exercises production constraint, it can no doubt hold oil prices near recent levels. Equally, if it expands capacity and shows a willingness to continue over-supplying the crude market, it should be able to deliver somewhat lower prices. We feel relatively confident that, by the end of the forecast period (now extended to 2010), oil prices will have fallen back to the US$40 level. This view is shared by senior industry figures and reflects the fact that increased investment in supply is likely to generate a surplus of capacity by the end of the decade. In the meantime, however, we see scope for prices to remain relatively firm. For 2007, we are now assuming an OPEC basket price of US$50/bbl, which implies US$55.40 for the US, US$53.40 for Brent and US$49.50 for Urals. Prices are then forecast to fall by around US$5/bbl in 2008, with the OPEC price averaging US$45/bbl. For 2009/10, we are predicting as further decline to an average US$40/bbl, providing a US price of just over US$44/bbl. Should OPEC re-introduce a price targeting system, it may be able to sustain US$50/bbl crude for the foreseeable future. Table: Oil Price Forecasts 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f OPEC Basket (US$/bbl) 28.1 35.7 51.0 51.3 50.0 45.0 40.0 40.0 WTI (US$/bbl) 31.1 41.5 56.2 56.8 55.4 49.8 44.3 44.3 Brent (US$/bbl) 28.8 38.2 54.6 54.8 53.4 48.1 42.7 42.7 Urals (US$/bbl) 27.0 33.3 50.2 50.8 49.5 44.6 39.6 39.6 e/f=BMI estimate/forecast. © Business Monitor International Ltd Page 23
  25. 25. UAE Oil & Gas Report Q1 2006 Regional Supply and Demand Middle East/Africa Both the Middle East and Africa are set to play an increasingly important role in world oil supply, even if the demand story for the region is relatively unexciting. Gulf states will remain the dominant producers, but Africa has plenty of upside potential. Overall MEA production averaged an estimated 33.72mn b/d in 2005, thanks largely to OPEC's higher production levels Gains were seen last year from most OPEC members, as well as from Angola. Given capacity constraints, significant expansion from here onwards lies outside of the OPEC 10 group. Iraq remains the region's 'wild card', having near-term production potential of 2.5mn b/d and longer-term scope for 3-4mn b/d. For the region as a whole, we expect to see output reach 38.01mn b/d by 2010, representing a gain of 12.7% over 2005. Apart from the 60% rise in Angola's output and likely dramatic growth in Iraq, the supply winners will be Libya and Nigeria, with Egypt the most significant loser. With consumption set to reach 11.90mn b/d in 2010, up from a provisional 10.23mn b/d in 2005, the growing export capability is clearly vast. Some 26.11mn b/d is likely to be exported in 2010, up from last year's estimated 23.49mn b/d. © Business Monitor International Ltd Page 24
  26. 26. UAE Oil & Gas Report Q1 2006 Table: Oil Production (000b/d) – Middle East/Africa 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 1857 1933 1965 1980 1985 1995 2000 2025 Angola 885 991 1230 1450 1650 1800 1950 2000 Bahrain 42 41 38 37 36 36 35 35 Egypt 749 708 696 680 660 650 630 610 Iran 3999 4081 4050 4050 4050 4100 4200 4250 Israel 0 0 0 0 0 0 0 0 Kuwait 2238 2424 2450 2460 2500 2500 2550 2600 Libya 1488 1607 1640 1645 1650 1680 1710 1750 Nigeria 2263 2508 2550 2560 2585 2600 2650 2700 Oman 823 785 780 770 800 800 790 775 Qatar 917 990 995 1000 1000 1050 1100 1150 Saudi Arabia 10222 10584 10700 10750 11000 11100 11500 11750 South Africa 30 26 24 24 22 20 20 20 Turkey 45 42 36 33 30 27 27 25 UAE 2547 2667 2675 2700 2730 2760 2800 2835 BMI universe 28105 29387 29829 30139 30698 31118 31962 32525 Iraq 1350 2027 1900 2200 2500 3000 3200 3500 Syria 590 590 580 580 570 570 570 570 Yemen 475 480 485 490 510 510 510 510 other MEA 820 930 930 920 910 900 900 900 Regional total 31340 33414 33724 34329 35188 36098 37142 38005 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. © Business Monitor International Ltd Page 25
  27. 27. UAE Oil & Gas Report Q1 2006 Table: Oil Consumption (000b/d) – Middle East/Africa 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f Algeria 229 242 257 272 288 306 324 343 Angola 33 37 43 50 57 65 75 87 Bahrain 35 37 38 39 40 41 42 44 Egypt 550 566 583 600 618 637 656 676 Iran 1472 1551 1598 1645 1695 1746 1798 1852 Iraq 350 450 550 600 650 700 760 800 Israel 182 185 187 190 193 196 199 202 Kuwait 238 266 271 277 282 288 294 299 Libya 227 234 241 248 255 263 271 279 Nigeria 315 321 337 354 372 390 410 430 Oman 51 53 56 59 62 65 68 71 Qatar 37 41 43 44 46 48 50 52 Saudi Arabia 1629 1728 1763 1815 1870 1926 1984 2043 South Africa 513 525 546 562 585 608 633 658 Turkey 668 688 715 744 774 805 837 870 UAE 296 306 315 325 334 344 355 365 BMI universe 6825 7229 7542 7824 8121 8428 8755 9072 other MEA 2638 2664 2691 2718 2745 2772 2800 2828 Regional total 9462 9894 10233 10542 10866 11200 11555 11900 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. © Business Monitor International Ltd Page 26
  28. 28. UAE Oil & Gas Report Q1 2006 Global Market Outlook 2006: A Year Of Recovery Demand growth is set to move back above 2.0% this year, thanks in part to a recovery from the hurricane- induced setbacks of 2005. Supply growth should also be robust, albeit potentially lower than the rate of demand expansion. All-in-all, we should expect a year of recovery and a continuation of high oil prices. However, the scope for price surprises on the upside is limited unless other exceptional events occur. Our data suggest demand of 83.88mn b/d in 2005 climbing steadily to 94.09mn b/d in 2010. This 12.2% expansion will be the best seen for decades and assumes growth averaging more than 2% per annum throughout the period. There is a distinct divergence of OECD and non-OECD trends. The former is typically expanding by 1.0-1.2% per annum, with consumption forecast to rise from 43.36mn b/d in 2005 to 45.82mn b/d in 2010. For the latter segment, annual growth is likely to be nearer 3.6% as demand climbs from 40.52mn b/d to 48.27mn b/d. By around 2008, non-OECD countries will be devouring as much oil as the OECD states. In terms of oil supply, there needs to be corresponding expansion in order to retain some form of 'control' over prices. A prolonged period of under-investment, starting in 1998, may now have come to an end. High prices are encouraging oil companies to change their investment criteria. It is, however, apparent that major oil companies are finding it tough to deliver volume growth. The impact of higher spending will take a while to come through, so the market is dependent increasingly on OPEC and a handful of other growing producers such as Angola, Brazil, Azerbaijan, Kazakhstan and Russia. Higher levels of non-OPEC production growth may not be experienced until the end of the decade, although OPEC capacity expansion could be significant over the medium term. © Business Monitor International Ltd Page 27
  29. 29. UAE Oil & Gas Report Q1 2006 Table: Global Oil Consumption (000b/d) 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f MEA 9462 9894 10233 10542 10866 11200 11555 11900 NW Europe 14118 14162 14292 14416 14584 14700 14817 14931 N America 22202 22723 23039 23385 23663 23945 24230 24518 Asia/Pacific 22676 23772 24496 25253 26116 27021 27970 28966 Central/Eastern Europe 4640 4841 5049 5263 5488 5722 5968 6226 Latin America 6478 6642 6780 6926 7076 7230 7387 7547 Total 79575 82033 83887 85784 87793 89817 91926 94088 OECD 42520 42862 43365 43899 44411 44875 45345 45815 non-OECD 37056 39171 40523 41885 43382 44943 46582 48273 Demand growth % 1.7 3.1 2.3 2.3 2.3 2.3 2.3 2.4 OECD % 1.3 0.8 1.2 1.2 1.2 1.0 1.0 1.0 Non-OECD % 2.3 5.7 3.5 3.4 3.6 3.6 3.6 3.6 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. We are forecasting global oil supply rising from 86.21mn b/d in 2005 to 94.01mn b/d in 2010. This implies growth of 9.0%, or an average of less than 2% per annum. On the face of it, supply will struggle to keep ahead of demand, but the scale of surplus capacity should expand if OPEC members deliver their promised expansion. Production growth outside of OPEC is put at just 9.2% over the period (to 56.09mn b/d). OPEC supply expansion is probably going to emerge slightly higher (+11.7%), if Iraq is included. Expansion of OPEC productive capacity could be nearer 15% during the period, thus cooling the market to a certain extent. Worryingly, perhaps, for the global economy is a clear increase in the world's dependence on OPEC oil. © Business Monitor International Ltd Page 28
  30. 30. UAE Oil & Gas Report Q1 2006 Table: Global Oil Production (000b/d) 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f MEA 31340 33414 33724 34329 35188 36098 37142 38005 NW Europe 6534 6284 5913 5827 5740 5620 5504 5398 N America 10404 10326 10225 10625 10539 10330 10172 10016 Asia/Pacific 7972 8059 8015 7938 7872 7747 7591 7498 Central/Eastern Europe 10645 11575 12024 12580 13227 13865 14413 14862 Latin America 10184 10618 10710 10898 11068 11339 11572 11826 OPEC NGLs 3400 3700 3800 4100 4300 4600 4600 4600 Processing gains 1800 1800 1800 1800 1800 1800 1800 1800 Total 82279 85776 86210 88097 89734 91398 92794 94005 OPEC 10 crude 29332 30900 31050 31195 31595 31870 32680 33315 OPEC, inc Iraq 30682 32927 32950 33395 34095 34870 35880 36815 OPEC 10 inc NGLs 32732 34600 34850 35295 35895 36470 37280 37915 Non-OPEC 49547 51176 51360 52802 53839 54928 55514 56090 supply growth (%) 3.7 4.2 0.5 2.2 1.9 1.9 1.5 1.3 OPEC 10 (%) 9.6 5.7 0.7 1.3 1.7 1.6 2.2 1.7 Non-OPEC (%) 0.2 3.3 0.4 2.8 2.0 2.0 1.1 1.0 e/f=BMI estimate/forecast. Historic data: BP Statistical Review of World Energy, June 2005/BMI Research. All forecasts: BMI Research. © Business Monitor International Ltd Page 29
  31. 31. UAE Oil & Gas Report Q1 2006 Industry Forecast Scenario Oil and Gas Reserves Our view is that the UAE's proven oil reserves will slip gradually over the period to 2010, dropping to 94bn barrels. However, we see scope for some expansion of gas reserves, perhaps to 6,300bcm over the next five years. Oil Supply and Demand Production from the UAE in UAE Oil Production, Consumption & January 2006 averaged 2.48mn b/d, Exports (2003-2010) down from 2.56mn b/d in December 3000 2500 last year. Sustainable capacity is 2450 2500 estimated at 2.65mn b/d, so there is 2400 2000 2350 little surplus. State-owned ADNOC 1500 2300 has said that capacity at the Murban 2250 1000 field will be raised from 1.3mn b/d 2200 500 to 1.5mn b/d by March 2006. 2150 Several projects to upgrade 0 2100 2003 2004f 2005f 2006f 2007f 2008f 2009f 2010f infrastructure at existing oil fields oil production, 000 b/d oil consumption, 000 b/d are on the cards or under way. oil exports, 000 b/d (RHS) There is a US$300mn project to Source: Historic data - BP Review of World Energy; Value data - BMI Research; Forecasts - BMI Research increase the capacity of the onshore Bu Hasa field. The goal is to increase capacity to 480,000b/d. A gas re-injection project also is planned for the onshore Bab field, which is expected to increase capacity to 350,000b/d. Upgrades planned for the onshore Asab field should boost capacity from 280,000b/d to 310,000b/d by 2006. These projects are part of an overall goal of raising the UAE's production capacity to 3.0mn b/d by the end of 2006 – at an estimated cost of US$1.5bn. Earlier plans to boost capacity to 3.6mn b/d by 2005 and 4mn b/d by 2010 now look extremely optimistic. ADNOC brought in ExxonMobil in June 2004 as a strategic partner in the development of the Upper Zakhum field, with a 28% ownership stake. ExxonMobil is set to undertake a programme of upgrades to the Upper Zakum field to raise its capacity from the current 550,000b/d to 750,000b/d by 2008, and to 1.2mn b/d by 2010. BMI expects productive capacity to have reached 3.0mn b/d by 2007, falling short of government targets. Actual production is unlikely to be above 2.84mn b/d by 2010. We are assuming 2006 production averaging 2.7mn b/d (including gas liquids), providing exports of just under 2.4mn b/d. © Business Monitor International Ltd Page 30
  32. 32. UAE Oil & Gas Report Q1 2006 Gas Supply and Demand Over the last decade, gas consumption in Abu Dhabi has doubled, and was projected by local government sources to reach 41bcm by 2005 (our estimate is for consumption of 42bcm last year). The development of natural gas fields also results in increased production and exports of condensates, which are not subject to OPEC production quotas. Dubai’s gas consumption has been growing by nearly 10% annually due to expansion of the emirate's industrial sector, a switch to gas by its power stations, and the need for an enhanced oil recovery (EOR) system based on gas injection for its mature oilfields. Overall UAE gas consumption is forecast to reach at least 57bcm by 2010. Production of gas is on the rise, with 70bcm achievable by 2010 – providing exports of 13bcm. In February, the UAE's Dolphin Energy said that it plans to buy additional gas from Qatar to fill the Gulf’s first cross-border gas pipeline project. Dolphin will apparently in 2007 seek to purchase an additional 12.4bcm per annum of Qatari gas to feed a new gas pipeline grid connecting the Gulf states. The gas would then be exported by pipeline to neighbouring countries and should eventually be linked with a future GCC wide gas network. The GCC states are already in the process of linking their power generation networks to help cope with rising demand for electricity throughout the region. Dolphin’s desire to boost by 60% the volume of gas that will flow through its US$3.5bn underwater pipeline from Qatar starting next year may hinge on Qatar giving it preferential treatment over other waiting customers. Qatar had last November said that it couldn't take on any new customers before 2007 because of capacity constraints. There are suggestions that spare volumes of gas will not be available until beyond 2012. © Business Monitor International Ltd Page 31

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