Adnoc defies retreat from oil with push to pump up output

Some of the world’s biggest oil groups are increasingly on the defensive, as investor pressure over climate change forces them to retreat from dirtier businesses and funnel cash into greener energy. 

But Sultan Al Jaber, head of the Abu Dhabi National Oil Company, is unapologetic for accelerating crude output — and is primed to swoop in.

“We see the writing on the wall and see opportunity from decisions being taken from other companies,” he told the Financial Times.

Mr Jaber has a singular vision: to raise the output capacity of the United Arab Emirates — already Opec’s third-biggest producer — from around 3m barrels of oil a day in 2016 to 5m b/d by 2030.

“We will not leave any opportunity unturned,” he said. “We are continuing exploration programmes, identifying proven reserves, increasing production and, wherever we can, we will attract strategic partners.”

The stance is particularly stark, given Mr Jaber also counts the role of climate tsar among his various government positions. Abu Dhabi holds the vast majority of the UAE’s oil, which generates 42 per cent the capital’s income.

He insisted the UAE’s crude — among the cheapest to extract — would be needed even in a world that turns away from fossil fuels. And unlike some global oil executives who believe demand may have peaked, he expects global consumption to recover to 105m b/d by 2030 — more than its lofty pre-pandemic levels of about 100m b/d. 

“We are a long-term player,” Mr Jaber said. “The future will require more oil and more hydrocarbon resources . . . Being the lowest-cost producer will always give us a competitive edge.”

Adnoc’s partners back Mr Jaber’s strategy.

“This oversupply of oil right now is not going to last,” said Vicky Hollub, chief executive of Occidental Petroleum, which has an exploration deal with the Gulf group. Given rapid recoveries in China and India, the global rollout of coronavirus vaccines and recent lack of investment by many other companies, “this is going to cause an oil shortage and Sultan . . . understands this”.

In the short term, Mr Jaber’s production ambitions run counter to the supply restraint shown by Opec and its allies. The 23-member alliance — of which the UAE is part — agreed last year to curb output by a record 9.7m b/d as demand collapsed. 

The country faced claims late last year that it was failing to comply with its share of cuts, which Opec delegates attributed to a divergence between the goals of the state oil company and the obligations of the ministry of energy. 

People familiar with the discussions say top executives at Adnoc have been lobbying to leave Opec, arguing that the UAE’s production quota is unfairly low. They say the country needs to maximise output to generate greater profits to funnel into non-oil economic growth. 

Mr Jaber, however, said the UAE had done more than required and that it had “always been fully committed” to the supply cuts deal. But he emphasised that the “interim” curbs were not in conflict with Adnoc’s longer-term goals.

He realises the company will not be untouched by rising opposition to fossil fuels and that it must bolster its finances for a time when oil demand might peak. “We must be lower-cost and the lowest-carbon,” he said.

The company is seeking partners to build expertise in carbon capture technology and hydrogen energy. The green expansion follows the radical opening-up of the conservative institution to overseas capital as a means to generate cash and reduce costs since Mr Jaber took the helm in 2016 in the aftermath of the 2014 oil price shock.

From floating its retail arm to luring global capital into pipeline infrastructure, Adnoc has since attracted $65bn in foreign direct investment, including a wider pool of industry partners that are helping drive down costs. 

In its latest moves, it has hired banks including MUFG to sell a stake to overseas investors in a $2bn-$6bn project to link the oil company’s offshore production facilities to the onshore electricity grid using subsea cables, people briefed on the transaction said. Credit Suisse has been lined up to sell a stake in Adnoc’s power station at its Ruwais refinery complex in a deal valued at more than $1bn, they added. Adnoc, MUFG and Credit Suisse declined to comment.

“Before 2016, we used to be seen as a black box to most sophisticated financial institutions — this was a missed opportunity,” said Mr Jaber. 

Bruce Flatt, chief executive of Brookfield Asset Management — part of a consortium that invested in the country’s gas pipelines last year — said foreign partners had been reassured because Mr Jaber “has lived up to everything he has said”. 

The aim of the dealmaking, Mr Jaber said, is to “stretch the value” of every barrel of oil and contribute to diversification beyond oil to future-proof Abu Dhabi and the UAE. Sheikh Mohammed bin Zayed al-Nahyan, Abu Dhabi’s crown prince and de facto ruler of the UAE, said in 2015 that the right investments would allow the federation to celebrate its final crude export shipment. 

Bayo Ogunlesi, chairman of GIP, which also invested in the gas pipelines deal, said Mr Jaber was “a tough but fair” negotiator.

Educated at a regular government school, Mr Jaber started his career at Adnoc, which had awarded him a scholarship to study in the US. He later received a PhD.

“As a young boy growing up in the UAE, the dream job for my generation was to eventually work for Adnoc,” he said. 

Plucked from engineering obscurity into the limelight of Mubadala, the sovereign fund then tasked with diversifying the emirate’s economy, Mr Jaber went on to launch Masdar, Abu Dhabi’s renewable energy initiative.

Since then, he has become an indispensable technocrat at the highest levels of government, known to brush aside niceties in his determination to deliver change for Sheikh Mohammed.

The overhaul of Adnoc has cemented his reputation as a man who gets things done. 

The restructuring included aggressive cuts to a bloated workforce, a move that triggered criticism from those accustomed to a job for life.

Mr Jaber said he was determined to modernise a business where, like many state companies in the region, job opportunities and promotions have often been based as much on patronage as talent.

“We are instilling a culture based on high performance, making sure meritocracy takes shape in a critical company such as Adnoc,” he said — just one prong in a multi-faceted strategy to future-proof the business. It is already paying off.