Heading downstream abu dhabi’s big plans for business beyond oil – bloomberg gas vs electric dryer


“Abu Dhabi is reinvesting for development and to expand the economy,” says Hootan Yazhari, Bank of America Merrill Lynch’s chief Middle East markets analyst. “The question of whether there is urgency to do this depends on your view of oil. By 2030, oil is unlikely to be where it is today.”

In an effort to ensure Adnoc has long-term buyers for all its oil, Abu Dhabi over the past two years let Chinese and Indian companies participate in its main oilfield concessions for the first time, alongside historic allies such as Exxon Mobil, Total, and BP. On the downstream side of the energy business, it wants to eke out more dollars per barrel of crude by turning its oil into refined fuels and products such as plastics and chemicals.

The company is also looking to make its first foreign investments in similar plants abroad where local demand is growing fastest. To finance that expansion and entice lenders and investors to the emirate, Adnoc in 2017 sold bonds for the first time as well as a sliver of equity—a 10 percent stake— in its gas station unit.

All of this invites the inevitable comparison with Aramco. Saudi Arabia’s Crown Prince Mohammed bin Salman is determined, like Abu Dhabi’s Sheikh Mohammed bin Zayed, to maximize his country’s oil-related income and use proceeds from asset sales to build new industries and help workers develop more sophisticated skills. But while the strategy is the same, the tactics and timelines differ.

Adnoc’s “not going in the same direction as Saudi Aramco,” Bank of America’s Yazhari says. “Abu Dhabi doesn’t have an immediate need to list Adnoc given its healthy economic balances. What they need to focus on is increasing access to investors. By listing smaller units, they can boost liquidity and trading on the domestic stock market, and that can help the country as a whole.”

Instead of selling equity at the holding company level as Aramco plans to, Adnoc raised $851 million from the sale of the minority stake in the service station business. Adnoc’s code name for the IPO was “Project First,” because, as Al Jaber says, it will be “the first of many.” While selling shares in Adnoc itself isn’t planned, almost every other financial move is being entertained.

“Whether it is a financial restructuring, whether it’s a bond issue, whether it’s a private placement, whether it is attracting strategic investors, whether it is us going through an IPO, we are looking at everything,” Al Jaber says. “We have some real substantial deals that are taking place this year.”

Adnoc’s outreach program shifts into high gear on May 13, when it will host international oil majors, bankers, and investors to its Downstream Investment Forum to sample opportunities available in the emirate. Also on the schedule is a trip to Ruwais, where Adnoc’s 817,000-barrel-a-day oil-processing complex pumps out gasoline for local drivers, as well as diesel and jet fuel destined for Europe and other markets.

Ruwais, where the vast desert of the Empty Quarter meets the waters of the Gulf, will soon become an oil-processing and petrochemicals hub. Adnoc aims to build a 600,000-barrel-a-day refinery, plus petrochemical plants that would let it triple production capacity. It plans to finance the construction and operation of all those by wooing investors and, potentially, selling a stake in its refining business to a partner.

Whether investors will bite is another question. U.S. shale oil and gas and other new supplies are intensifying competition for Middle Eastern producers, which are shackled by OPEC’s production limits. And entering competitive downstream businesses could mean large expenses and small profits if the oil majors also add capacity.

“It’s not really going to revolutionize their export revenue, but it provides some hedging against the oil price risk,” says Hamed Ghoddusi, of the School of Business at the Stevens Institute of Technology and the author of a recent paper on OPEC members pushing into downstream.

Back at Adnoc’s gleaming headquarters, the company has installed a wall of LED panels, which provide a supercomputer-powered overview of its many operations. Alongside the bar charts showing oil output and revenue is a gauge that stands out: “Emiratization of the workforce”—a nod to Abu Dhabi’s long-term ambition to make Adnoc a spearhead of both economic and societal reform for the entire U.A.E. Key to that will be weaning itself off of expatriate labor and having Emiratis account for a greater share—Adnoc won’t say how large—of the company’s workforce.

Creating a commercially minded and internationally competitive local workforce is difficult in a country where the citizens are accustomed to generous government handouts. One of the biggest challenges Al Jaber has faced so far has been shaking up a bureaucratic corporate culture—streamlining it into a more entrepreneurial organization, according to Haif Zamzam, a former Boston Consulting Group adviser, who joined Adnoc’s strategy department. “In the past we would take on nearly zero risk. There was absolutely no room for error,” Zamzam says. “Now we’re introducing the idea of taking calculated risks.”

While young Emiratis have voiced strong support for Al Jaber’s changes, the process hasn’t been without its critics. Two points of contention: Al Jaber’s unprecedented job cuts and other cost-saving measures and the introduction of performance reviews.

Abu Dhabi’s Crown Prince Mohammed has deployed himself more than once to show support for Adnoc’s changes, posting photos of himself and Al Jaber on Twitter and state media. In February the crown prince and Al Jaber had lunch together at the Abu Dhabi branch of London restaurant Zuma with about a dozen members of Adnoc’s Future Leaders Program, underscoring the kind of technologically savvy workforce the emirate wants to develop.