Boston, MA -- (SBWIRE) -- 10/28/2013 -- BMI Industry View Major investment in offshore and onshore oil projects, as well as the development of new gas fields and downstream expansion, makes the UAE a focal point of activity in the region, with billions of dollars worth of projects underway. We largely expect the UAE to meet its stated goal of expanding capacity to 3.5mn barrels per day by 2018 but note delays or reduced demand for OPEC supplies could threaten production gains. The gas supply-demand picture will remain tight despite new fields coming online, and the increasing recovery will further strain available supplies until new sources of power generation reduce the burden on gas from the end of the decade.

We highlight the following trends and developments in the UAE's oil & gas sector:

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- An ambitious upstream investment plan will raise production capacity in the UAE with increased recovery from onshore and offshore fields set to see billions in contracts awarded as part of a plan to raise production capacity. Abu Dhabi is planning to spend US$60bn over the next five years to raise production capacity above 3.5mn barrels per day (b/d) by 2018, a target we believe the UAE is largely on track to meet.
- In recent months, Hyundai was awarded a US$1.88bn award for the Satah al-Razboot (SARB), Petrofac Emirate and Daewoo Shipbuilding & Marine Engineering (DSME) were awarded a US$3.7bn contract for the Upper Zakum offshore project, National Petroleum Construction Company (NPCC) of the UAE and France's Technip won a second service contract for a the Umm al-Lulu field in August - the first was awarded in June with the combined total of US$2.4bn. These deals, and others, have put the UAE far ahead in the pace and scale of contracts awarded in the region.
- However, there is downside risk to the increased production. We highlight the ever-present potential of project delays as large investment plans materialise, but more so that a combination of rising supplies globally and emerging markets where consumption will limit the room for additional supply from the UAE without placing downward pressure on prices.
- There has also been progress on gas, with Shell awarded a US$10bn contract to develop the Bab gas field. Although a lower royalty will support the projects economics, high sulphur content will still make it technically challenging one to develop. The field, due to come online around 2020, should add some 5bn cubic metres (bcm) in additional gas supplies.
- However with the UAE overwhelmingly reliant on gas fired power generation, and artificially low state set prices - reportedly around US$1 per mn British thermal units (/mnBTU) - remain a number of disincentives to upstream development. Consumption to continue strong gains, far outstripping new supplies, leaving the UAE to further increase its reliance on imports.

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