UAE Plans to Rev Production // An American Gas Crunch?

UAE Plans to Rev Production

The United Arab Emirates plans to increase its oil production capacity. The country wants to make what it can on crude before the world moves away from fossil fuels.

"Abu Dhabi National Oil Co., which pumps almost all the UAE’s oil, wants to be able to produce 5 million barrels a day by 2025, according to the people. That’s sooner than a previously disclosed aim of 2030," reports Bloomberg. "The new target will be difficult to achieve and may increase the expense of a project that was already set to cost billions of dollars," experts familiar with the matter added.

The UAE wants to take advantage of the high price of oil while it can. Though the price per barrel has slid from $120 to $90 since June, that still outpaces the UAE's production costs. 

“As we embrace the energy transition and future-proof our business, we will continue to explore potential opportunities that can further unlock value, free up capital and enhance returns,” Adnoc told Bloomberg.

Yet OPEC+, of which the UAE is a member, plans to maintain production limits until the end of the year. The UAE's output last month was about 3.4 million barrels--the country's output is second only to Saudi Arabia. The UAE and Saudi Arabia both expect the demand for oil to remain high in the coming years. 

“As long as the world requires oil and gas to maintain energy security, it is critical that the least carbon-intensive barrels are made available,” Adnoc said.

An American Gas Crunch?

America has been seen as mostly refuged from the energy crisis--especially in comparison to Europe and particularly Germany and the UK. But could a gas crunch happen here? 

"[I]nventories remain below the seasonal average, exports are running at record rates, and producers are beginning to struggle to meet demand, both at home and abroad," writes Irina Slav. Meanwhile, demand has remained high and shale producers have struggled to increase production. 

Moreover, electricity demand is up and a cold winter could drive gas prices higher yet, especially since natural gas makes up a huge portion of electricity production in America. 

Some expect European and American natural gas prices to converge in the spring. But, Slav points out, there's another factor at play as well: "the concentration of much of U.S. gas production in a handful of fields, with just two—Marcellus and Haynesville—accounting for as much as 40 percent of the total."

"The Permian contributes another 12 percent of the U.S. total gas output, and the rig count in the Permian has been down for two weeks in a row, according to the latest data. Less drilling means less associated gas to add to the national total," Slav writes. 

This will weigh heavily on New England, which is exposed to the high gas prices on the global market due to a lack of pipeline infrastructure, and where natural gas makes up for a third of its electricity generation. “If we want a cargo full of LNG to come to Boston, we have to outcompete Europe,” said energy analyst and author of Shorting the Grid Meredith Angwin.

“Even with the successful development of extensive offshore and onshore wind as well as solar generation in New England, the region will continue to be dependent on resources with the operating flexibility to balance and backstop this variable renewable generation to sustain reliability. Today, natural gas generation provides this flexibility, and in the future, this could include non-carbon-emitting energy storage technologies,” ISO-New England wrote in a letter to Energy Secretary Jennifer Granholm.

Slav writes that it's unlikely America will see European prices, but prices are still 300% higher than they were just a few years ago. As the Western world pays through the nose for natural gas to heat its homes this winter, developing countries like Pakistan (which heavily relies on natural gas for electricity) will be left out in the cold.

"It does look good from a gas exporter’s perspective, however," Slav concludes.

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Conversation Starters

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