Global Oil Dialogue with HE Sultan Ahmed Al Jaber, Minister of State in the United Arab Emirates

In the Global Oil Dialogue on Wednesday, HE Sultan Ahmed Al Jaber, Minister of State in the United Arab Emirates, speaks with Dr. Daniel Yergin on the current oil environment and where ADNOC has been focused. Here is an excerpt of their conversation:

Dr. Daniel Yergin: I'm very pleased now to introduce Sultan Ahmed Al Jaber, who is the CEO of the Abu Dhabi National Oil Corporation, known as ADNOC. He was formerly the CEO of Mubadala of the renewable energy part of the Abu Dhabi government strategy. He was also chosen as Champion of the Earth by the United Nations for his leadership in the areas of policy, science and entrepreneurship. Doctor Sultan. Welcome. Thank you.

Ahmed Al Jaber: Thank you. Ladies and gentlemen, distinguished delegates, dear friends. It indeed gives me great pleasure to be back in Houston for CERA Week. And in fact, to see so many familiar faces from partners, colleagues, and friends. Oil demand is on course to break the historic threshold of 100 million barrels per day. Importantly, the OPEC or non-OPEC framework agreement has proved effective in rebalancing supply and demand by achieving over 100% compliance last year, and almost 150% just last month. At the same time, recent volatility in the stock market reminds us that we can take nothing for granted. So while long term indicators point to growing demand for our products, we must maintain an unwavering focus on our own unit costs while also ensuring that we continue to create value and accelerate smart growth.

At the Abu Dhabi National Oil Company at ADNOC and as part of our ongoing transformation that is exactly what we are doing and what we are very much focused on. 2017 was in fact a big year for ADNOC. It was a big year in many levels. We expanded our partnership model, opening up opportunities across our value chain to new categories of strategic partners, including for the first time public and private financial institutions. Crucially we made smarter use of our capital by tapping into for the first time ever the financial markets, instead of relying only on our own balance sheet.

For example, we issued a $3 billion bond against our crude oil pipeline, representing the biggest non-sovereign bond sale in the Middle-East. And in a major first, we successfully listed our retail and distribution company, which attracted overwhelming international and domestic interest. This was in fact the largest IPO in Abu Dhabi in a decade and a historic milestone for ADNOC and the UAE capital markets. Ladies and gentlemen, the steps we have taken so far have laid a very solid foundation for powering the next phase for our growth.

The biggest opportunity for our growth lies very much in the downstream sector. In fact, we will make significant investments both domestically and internationally over the next five years to expand and diversify our downstream footprint. Domestically, we will build on and further develop our refining and chemicals complex in Ruwais, which sits at the heart of our downstream ambition. Our goal by 2025 is to transform Ruwais into the largest integrated refining and chemical site in the world, by doubling our refining capacity, and triple our petrochemicals production.

We recently split the ADMA offshore concession into three separate areas. This has attracted overwhelming interest, and many more partners. New partners who will bring strategic value add in terms of market access, capital, technology, and expertise. In addition, we continue to realize the full potential of our resources. And for the first time in our history a series of new unexplored blocks for commercially competitive bidding. This is an unprecedented opportunity for both existing and new partners with best-in-class exploration technology to join us in unlocking untapped resources in one of the world's largest hydrocarbon super-basins.

At the same time, we will take full advantage of the substantial unexploited potential we have in gas by accessing undeveloped tide reservoirs, tapping into gas caps, and significantly expanding our sour gas production. Ladies and gentlemen, the global energy landscape is evolving faster than at any time in recent history. Shifting market dynamics are testing our industry, while at the same time offering attractive and in a way, unique opportunities. ADNOC is determined to seize those opportunities. And together with our partners generate enduring strategic value.

Dr. Daniel Yergin: Thank you Doctor Sultan. You talked about your downstream journey. Where's your downstream journey going? Are you going internationally?

Ahmed Al Jaber: In fact, it's going to be a parallel track approach. We are going to be very much focused first in establishing ourselves as a true, reliable downstream player in the global scene. And as such, we have identified many opportunities, locally and domestically in Abu Dhabi, which will allow for us to position Ruwais as the single largest integrated refining and chemicals complex in the world. And to achieve that, we have decided we are going to undertake a fast track approach in doubling our refining capacity, as well as tripling our petrochemical capacity.

In parallel, we are going to be for the first time ever identifying strategic investment opportunities in the downstream sector beyond our borders. Meaning, opportunities that will allow for us to capitalize and tap into our own resources. Meaning refined products, or petrochemical products for further downstream. Or even our crude for such strategic opportunities beyond our borders. Whereby we secure market, we expand market share. And of course yield financial returns from such stable markets.

Dr. Daniel Yergin: Which geographies are you focused on?

Ahmed Al Jaber: Our main focus is going to be initially in Asia, because that is in fact where we see the real growth is. We are of the opinion that there will be other opportunities emerging in Europe and elsewhere. But initially our main focus is going to be in Asia.

Dr. Daniel Yergin: Right. And in terms of the integrated petrochemical facility, what kind of investment are you looking at?

Ahmed Al Jaber: In fact, we have as part of 2030 strategy, around 40 to 50% of our capex program over the next five years is going to be mainly dedicated for our downstream investments. And only a couple months ago, the Supreme Petroleum Council in Abu Dhabi have announced that a 110 billion U.S. dollars have been dedicated, have been approved and dedicated to cater for ADNOC's 2030 strategy. So 40 to 50% of that is going to be around 45 to 50 billion U.S. dollars spent on the downstream strategy in Abu Dhabi over the next five years.

Dr. Daniel Yergin: So you thought a lot about partnership strategies. And I think the way you've gone about it is to look at different parts to the value chain, and buy system, and seeing different kinds of partners who might not have been part of the game before.

Ahmed Al Jaber: We are not a newcomer to the downstream business. We already have a well-established position. Having said that though, we are going to capitalize on our expertise, our existing network of strong partners. And the fact that we have access to feedstock and with our geographic location, and the opportunities we see in Asia in particular, we're going to define a roadmap. A very detailed roadmap, and this is exactly what's going to be clearly communicated in May at a downstream focused event in Abu Dhabi. We're going to be communicating a very clear roadmap and the different investment opportunities for our partners from over the world to come and invest alongside us.

Dr. Daniel Yergin: Right. And a different kind of part ... I mean, there'll be many different kinds of partners.

Ahmed Al Jaber: Partners that will bring strategic value, help us expand our market share and give us access to advanced technology. It will help us to do more for less. And at the same time those who have relevant expertise to allow us to adopt a fast track approach of implementing our very ambitious strategy.

Dr. Daniel Yergin: Right. How much of this is the result of the price collapse and the adjustment to a new reality?

Ahmed Al Jaber: In fact what the ... Like many other companies, we came to terms. We had to come to terms with the reality of the market situation. The market dynamics do not in any way allow for you to continue thinking that business is as usual. Where you can run your business thinking like business as usual. You have to think of creative unconventional ways of how you conduct your business, whereby your main focus should be on providing more for less.

So regardless of oil prices, our main focus has been and will continue to be on our own unit cost. And as such, new opportunities have emerged. And the fact that we are now going to be seriously expanding our downstream portfolio is very much an evidence of our ... Of how we view the market going forward. And the fact that we want to diversify our portfolio going away from being dependent on only crude prices.

Dr. Daniel Yergin: Right. And what about, what are you doing about unconventionals within the country?

Ahmed Al Jaber: What we are trying to do right now is, we are tapping into all resources, starting with tide resources. Our approach is going to be very holistic and very comprehensive. And the fact that we ... I just communicated the fact that we are going to be opening up a new competitive bidding for new unexplored blocks. This gives you an indication that we are not going to leave any stone unturned.

Dr. Daniel Yergin: Right. Including very dense stones.

Ahmed Al Jaber: Absolutely.

Dr. Daniel Yergin: I think you have a unique view, because you ran Mubadala, the renewable endeavour of Abu Dhabi, and now you're running ADNOC. How do you see all these pieces fitting together?

Ahmed Al Jaber: Actually they're the right match. In our region, we view renewable energy in a different way. Solar radiation is high. We have been very much dependent on gas for our power production. And coming from an economic standpoint, it just makes perfect sense for us to introduce solar power for peak shaving. In fact, it is a more sustainable economic way of integrating solar power with gas. So to us, this is ... It in fact is an economic proposition while it continues to be of course an environmental proposition.

Sustainability has always been an integral part of our economy. It has been well established and well founded by the founding father Sheikh Zayed. The UAE is known to be the first OPEC nation to institute a zero gas flaming policy. So, environmental stewardship has always been in the DNA of how we conduct our business. But for us to pursue renewable energy by capitalizing and tapping into our revenue streams from oil and gas is nothing short by being a very decision. At the time it was a very bold decision. In fact, it was a historic decision for a major oil producing nation to pursue renewable energy. But today-

Dr. Daniel Yergin: Can you give us some sense of what you're doing on solar in Abu Dhabi?

Ahmed Al Jaber: In fact, through a very ambitious energy vision introduced by the Ministry of Energy and Industry in the UAE, solar power is going to play a prominent role in helping meet our own domestic energy requirements. And what the UAE have done in only the past few years whereby we've clearly demonstrated a unique ability in engaging and advancing solar power. Today we produce solar power at less than 3 cents per kilowatt hour. You cannot ignore that. You have to come to terms with the reality, and you have to find a way to incorporate and integrate solar power for peak shaving to help reduce the overall cost of your power production. And that is exactly what we're doing in the UAE.

Dr. Daniel Yergin: And integrating it with gas?

Ahmed Al Jaber: Absolutely, yes.

Dr. Daniel Yergin: You have a very large budget capex that you're deploying a lot of. But you also have this other view. When you think about energy transition, how do you envision it?

Ahmed Al Jaber: Again like my colleague, Ahmin also said earlier, we are not actually losing sleep over this whole discussion of oil peak demand. We are believers that oil and gas will continue to play a very important role. In fact, a major role in helping meet the global energy requirements. Having said that, we have to come to terms with the reality and to be realistic about the fact that there are new emerging technologies that will play a role in helping meet the overall energy requirements. Having said that, those are going to be small shares increasing over time, but will not have a direct or serious impact on how oil and gas is perceived in the future.

Dr. Daniel Yergin: When you look at growth markets in Asia, are there particular parts of Asia that you're particularly focused on?

Ahmed Al Jaber: Well, we're very much focused on where our existing partners are. And of course we're open to engage with new partners. But so far we've been seriously advancing discussions in China and South Korea, and India, and Pakistan, and Vietnam, and Indonesia. Those are the main markets that we have been recently pursuing.

Dr. Daniel Yergin: Right. And in terms of downstream, would you see yourself actually owning facilities outside?

Ahmed Al Jaber: Absolutely. This is in fact, this sits in the heart of our international downstream strategy. We will go after of course opportunities to be developed together with our partners. But we don't mind tapping into existing operational assets to help build our knowledge and market expertise in those very specific markets.

Dr. Daniel Yergin: Right. Well, Doctor Sultan, thank you for coming to join us. And thank you for being here at CERAWeek.

Ahmed Al Jaber: My pleasure. Thank you.

Dr. Yergin & HE Sultan Ahmed Al Jaber continue to discuss the current oil environment and where ADNOC has been focused.

This is an excerpted from CERAWeek 2018 and has been professionally transcribed as accurately as possible. Please note, some words and phrases may have been unintentionally excluded.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.