Sweet & Sour: UAE - a gentle oil giant

It was pointed out to me the other day that I have neglected to write a piece about the UAE. It's a bit like being a long-term resident of a country and seeing the sights only when visitors come to town. I suppose I have ignored the UAE not because it is an insignificant oil power but because it is such a docile one.

Abu Dhabi, which as the biggest oil producing emirate represents the UAE on the world energy stage, tends to conduct its energy policy quietly and diplomatically, much as it does its domestic and foreign policy. Minimum fuss to maximum effect.

The seven emirates of the UAE contain just under 10 per cent of the world's crude oil reserves, estimated at 97.8 billion barrels of proven crude oil reserves. The UAE is also the fifth biggest gas power. Experts will tell you the reserve estimate is a conservative one but that is the way the authorities like to keep it.

Within Opec, the UAE with current oil output of just over 2.2 million barrels per day ranks below Saudi Arabia, Iran and Venezuela in terms of production. But its main power derives from the oil that it does not produce, its so-called spare capacity or the maximum crude oil that it could produce.

Capacity

In terms of spare capacity, the UAE is the only other Opec producer after Saudi Arabia to have any significant spare capacity. The others members of the 11-nation group are either producing as much oil as they can to maximise revenue at a time of high oil prices, or are hard pressed to meet their quotas as is the case of Indonesia, the only Asian producer in Opec.

The UAE is the only Opec producer with spare capacity — of some 400,000 to 500,000 barrels per day — to respect its quota with little to show for it except a reputation for discipline. And that does not translate into a budget surplus. The quota busters may be able to boast balanced budgets but in opening up their pumps, they have also squandered their chance of influencing Opec policy.

And they all have their agendas. Saudi Arabia, with production of some 8.5 million barrels per day, uses some two million barrels per day of spare capacity to play "swing producer" though it will never admit to that role. Iran is pumping as much oil as it can while it expands capacity while Kuwait's plans to boost its own production ability from northern fields is tied up in political red tape. Iraq is a problem apart and it will be a while before it reasserts itself as a power within Opec.

Nigeria continues to struggle with its unions and its disgruntled tribes while Venezuela is still counting the cost of a debilitating labour strike last year. Qatar, meanwhile, is steaming ahead with its mammoth gas projects while slowly expanding crude oil capacity and Algeria is producing much more than it should under the Opec ceiling in order to press for a higher quota.

Libya is the one to watch in coming months as the rehabilitation of Muammar Gaddafi's regime is likely to result in a resumption of oil investment there. But that is unlikely to reap fruit in the immediate future.

In the midst of it all, the UAE emerges as a dependable oil producer with more clout than it cares to display. Production capacity of three million barrels per day is set to rise to 3.5 million barrels per day next year and further investment in the huge Upper Zakum field, one of the biggest offshore fields in the world, is envisaged in the near future. That would boost production capacity further as new technology is utilized to squeeze out the maximum oil from a geologically difficult oilfield.

But Hush! The neighbours are watching. I mention this here only because the Abu Dhabi authorities make little noise about border disputes with Saudi Arabia and Iran. A 1974 agreement which came to light only recently gave Saudi Arabia all income from the huge Shaybah oilfield, which the UAE calls Zararah. There have been a few incidents here and there over the oilfield but when you consider how Saddam Hussain marched into Kuwait over claims they were stealing Iraqi oil from a border field, you begin to appreciate the UAE's self-control.

Ditto the dispute with Iran over the islands of Abu Musa, and Greater and Lesser Tunb. The Abu Dhabi government has insisted that the row be settled by the International Court of Justice.

It is a policy of waiting until the time is right to make a move, a strategy that has become a hallmark of President His Highness Sheikh Zayed bin Sultan Al Nahyan. That same policy helped bring about what is arguably the most ambitious regional energy project in the history of the GCC in the shape of the Dolphin project to pipe Qatari gas to Abu Dhabi and then to Dubai. It took years of negotiation and patience but it has now become reality and may yet serve as the beginnings of a regional gas grid. Good things do eventually come to those who wait.

Kate Dourian is Middle East editor of Platts, the energy information division of the McGraw-Hill Companies. The opinions expressed in this column are those of the author and do not reflect those of Platts