How UAE’s ADNOC became an energy giant
Started in 1935 to OPEC’s third-largest oil producer, ADNOC charts its own course
Abu Dhabi National Oil Company (ADNOC) may not be the world’s largest oil company. It does not sit on the largest oil reserves. The company – responsible for turning UAE into OPEC’s (Organization of Petroleum Exporting Countries) third-largest producer – is charting its path, silently and without much fuss.
Even amid a pandemic – that has wiped out global fuel demand – ADNOC’s retail arm, ADNOC Distribution, announced a higher 2020 dividend, compared to 2019. “Despite current market conditions, ADNOC Distribution remains confident and steadfast in the delivery of its strategic commitments and sustainable returns for its shareholders,” said the company in a statement.
ADNOC is now working relentlessly to meet the objectives of its 2030 strategy, which calls for more partnerships, and an active approach to managing its businesses and portfolio of assets.
“Our new approach will enable ADNOC to unlock and maximize significant value from across the Group, drive business and revenue growth, optimize performance, and secure greater access for its products in key growth markets,” says ADNOC on its website.
How and when was ADNOC founded?
Like most major companies, ADNOC’s founding came through the grit and determination of a few.
ADNOC’s journey began in 1935 when the first geological survey took place. In 1937, the late Sheikh Zayed bin Sultan Al Nahyan, the founding father of the UAE, led an expedition of 16 tribesmen to the southwest of Abu Dhabi, where his vision for the development of the UAE’s oil and gas resources was born.
In 1939, the signing of the first concession took place. After an extensive search that took several decades, oil was discovered in the United Arab Emirates in 1958, at the Murban Bab oil field.
The first oil discovery was a defining moment that started the impressive transformation of Abu Dhabi’s economy.
In late 1963, the first tanker of Abu Dhabi crude departed from the Jebel Dhanna port. As more oil fields were discovered and revenues from oil production started to grow, ADNOC came into being in 1971 as the Abu Dhabi National Oil Company - ADNOC - under the mandate of Sheikh Zayed.
ADNOC Drilling was created by the Abu Dhabi Council of Ministers in 1972 and started as the National Drilling Company (NDC). The company acquired its first rig, AD-1, in 1973 and it can still be seen today, as it was erected as a monument on the site of the modern Headquarters of ADNOC Group on the Abu Dhabi Corniche.
ADNOC Distribution
In 1973, ADNOC Distribution was established by royal decree as the first UAE government-owned company specialised in the national and international marketing and distribution of petroleum products. In 1979, ADNOC Distribution opened a lubricants blending and packaging plant at Sas Al Nakhl in Abu Dhabi.
In 1982, the company began refuelling planes at Abu Dhabi International Airport and about a decade later it became an American Petroleum Institute (API) member and received its first API lubricants Certification.
In 2013, ADNOC Distribution acquired 75 service stations from Emarat in the five Northern Emirates: Sharjah, Ras Al Khaimah, Ajman, Umm Al Quwain and Fujairah. The year after, the company took over 25 service stations in Sharjah from Emirates National Oil Company (Enoc).
In 2017, ADNOC Distribution shares began trading on the Abu Dhabi Securities Exchange.
Production levels
ADNOC produces 3.5 million barrels per day of oil currently and was on track to raise it to 4 million bpd. The company produces about 10.5 cubic feet of natural gas per day.
“By upgrading existing facilities, smart engineering and technology application, developing new oil and gas resources and enhanced performance and efficiencies, we have set ourselves ambitious production capacity targets of four million bpd oil by end of 2020 and five million bpd by 2030,” says ADNOC on its website.
This might be lower than Saudi Aramco’s 2020 output of 9.2 million bpd of crude oil, but comparable to the output numbers reported by oil majors in the Western hemisphere.
Exxon Mobil reported crude oil and natural gas liquids production of 2.35 million barrels per day for 2020. Shell’s oil and gas production for the same period stood at 2.4 million barrels of oil equivalent per day.
Going to markets
While global peers have taken to highly-publicized mergers and initial public offerings (IPOs) ADNOC has adopted a different route. Over the last few years, the company has sought to unlock the value of its assets through divestitures.
Last year, ADNOC struck a $20.7 billion pipeline deal – one of the largest in the energy infrastructure space - with six global investors. The transaction is expected to result in upfront proceeds of over $10 billion to ADNOC.
The “investment signals continued strong interest in ADNOC’s low-risk, income-generating assets, and sets another benchmark for large-scale energy infrastructure investments in the UAE and the wider region,” said Sultan Al Jaber, UAE Minister of State and ADNOC Group CEO, in a statement.
Entering private agreements is one thing, but tapping into public markets is a different matter altogether and that’s exactly what ADNOC began doing this year. In March, the company officially started trading its flagship crude oil, Murban, as a futures contract on the new ICE Futures Abu Dhabi (IFAD) commodities exchange.
By making Murban a freely traded crude, similar to Brent or WTI (West Texas Intermediate), customers have better price transparency, flexibility to hedge and manage risks and increased access to Murban crude. For ADNOC, its flagship crude grade has now become more available to a broader set of market participants around the world.
Most valuable brand in UAE
Earlier in March, ADNOC claimed the title of UAE’s most valuable brand, according to a report by Brand Finance.
“ADNOC has managed to successfully shelter its brand value during an incredibly challenging year for its industry, with only a 6 per cent brand value loss to $10.8 billion, making it the most resilient of all National Oil Companies (NOC) globally,” said the report.
ADNOC and ADQ form a new joint venture
While making the most of its oil production business, ADNOC has set its sights on new potential revenue streams. One of them is the manufacture of petrochemicals – chemical products used in everything from clothes to cars.
In November last year, ADNOC and ADQ formed a new joint venture called Ta’ziz to develop a Dh18 billion industrial chemicals hub in Abu Dhabi. It will include a new port, utility plants, infrastructure, feedstock supply and shared services for $2 billion (Dh7 billion).
Ta'ziz will explore projects that can manufacture speciality chemicals on a global scale, with "opportunities for additional investors and partners to participate", the company’s statement said. Total investment in these projects could be more than $3 billion (Dh11 billion), with most of the chemicals to be produced in the UAE for the first time.
More recently, ADNOC announced its interest in exploring the potential of hydrogen, a zero-carbon fuel that has spiked in popularity in recent years. ADNOC, along with Mubadala and ADQ, formed the Abu Dhabi Hydrogen Alliance, which seeks to establish Abu Dhabi as a trusted leader of low-carbon green and blue hydrogen in emerging international markets.
ADNOC, which currently produces about 300,000 tonnes of hydrogen a year as part of its industrial processes, also said it was keen to explore the hydrogen market with India’s public and private sectors.
“Granted Hydrogen is still in its infancy, it could be a game-changer and a real opportunity to accelerate the broader energy transition, an opportunity that ADNOC and the UAE are well placed to capitalize on,” said Al Jaber, in a statement.
Deal with Japan
ADNOC, in partnership with Fertiglobe, recently sold its first cargo of ‘blue ammonia’ to Japanese trading firm Itochu for use in fertilizer production.
Blue ammonia is made from nitrogen and hydrogen derived from natural gas feedstocks, with the carbon dioxide by-product from hydrogen production captured and stored. Ammonia can be used as a low-carbon fuel across a wide range of industrial applications, including transportation, power generation and industries including steel, cement and fertilizer production.
Before that, ADNOC entered a joint study agreement (JSA) with Japan's Inpex Corp., JERA Co. and the Japan Oil, Gas and Metals National Corp. (JOGMEC) to explore the commercial potential of blue ammonia production in the UAE.
Hydrogen potential
ADNOC’s foray into hydrogen is coming at the right time for the oil giant. It is being used a transitional fuel and even as an alternative to renewable energy sources.
What is blue hydrogen?
Blue hydrogen is when natural gas is split into hydrogen and carbon dioxide (CO2) - the CO2 is captured and then stored. As the greenhouse gasses are captured, this mitigates the environmental impact.
The ‘capturing’ is done through a process called Carbon Capture Usage and Storage (CCUS).
What is green hydrogen?
Green hydrogen is hydrogen produced by splitting water by electrolysis. This produces only hydrogen and oxygen.
This process to make green hydrogen is powered by renewable energy sources, such as wind or solar. That makes green hydrogen the cleanest option – hydrogen from renewable energy sources without CO2 as a by-product.