PROJECTS & ENERGY: An Introduction to Middle East-wide

Spotlight on Middle East Energy Sector 

The Middle East energy sector is in the spotlight again. Escalating tensions in the region have affected oil and gas producers and vital shipping lanes, increasing challenges to global energy security. On a more optimistic note, the region has emerged an energy transition leader: Egypt held the presidency for COP27 in 2022 and the UAE for COP28 in 2023. The COP28 president H.E. Dr Sultan Al Jaber (also the CEO of ADNOC) delivered the UAE Consensus, securing a historic commitment to transition away from fossil fuels to achieve net zero by 2050. 

The dual challenges of energy transition and security of supply have clearly influenced the market. Whilst some see these aims as conflicting, the market has responded pragmatically. There are new renewables and carbon abatement projects, as well as plans to increase oil production.

The Gulf was an early adopter of utility scale solar and certain projects now operate with some of the world’s lowest average levelised costs of electricity. This know-how and price advantage provides scope for more solar, particularly as the appetite for green hydrogen grows. The world’s first gigawatt scale green hydrogen project reached financial close in Saudi Arabia in 2023 and many countries in the region have announced plans to invest in hydrogen.

Carbon Capture, Utilization and Storage (CCUS) projects are also trending. Three projects in Saudi Arabia, Qatar and the UAE account for about ten per cent of the forty MTPA of carbon dioxide captured globally. Abu Dhabi announced FID for the Habshan CCUS project in 2023, and Saudi Arabia plans to capture up to 9 MTPA per year from its Jubail CCUS hub by 2027. At the same time, the Middle East is one of the few regions increasing annual spend on oil and gas. 

Natural gas, viewed as the ideal bridge fuel for the energy transition, has been subject to severe supply shocks as a result of the Russia/Ukraine war. The Middle East is responding with more production and LNG export projects. 

Qatar has announced plans to increase production from its North gas field and to export 142 MTPA of LNG by 2030. In 2024, Total Energies and OQ (the Oman National Oil Company) reached FID on Marsa LNG. The project will market LNG as a marine fuel with the goal of reducing the shipping industry's emissions. In the UAE, ADNOC is proceeding with the 9.6 MTPA Ruwais LNG project, which will have one of the smallest carbon footprints of any LNG export project in the world. 

The UAE energy sector is actively seeking foreign investment and is a very attractive proposition because it offers:

• access to oil with a low cost of production;

• appetite for cutting edge clean energy projects;

• a very business-friendly environment;

• a long track record of fiscal stability; and

• the option to resolve disputes in common law courts in the country’s financial free zones.  

In recent years, the UAE has promulgated a suite of new business-friendly legislation, including a new companies law, a new employment law, new visa laws, and a data protection law.

The UAE Energy Strategy 

The UAE 2050 energy strategy will require massive investment to deliver. It is an ambitious plan to diversify the country’s energy mix. By 2050, the UAE wants clean energy (solar power, wind power and biofuels) to meet 44% of its needs. The UAE is also making massive investments into nuclear, which will eventually provide 25% of the country’s electricity. In its Hydrogen Leadership Roadmap, the UAE set a target to conquer 25% of the global low-carbon hydrogen market by 2030. ADNOC also has significant goals: decreasing GHG intensity by 25% by 2030 and expanding CCUS capacity by 500%.

In addition, the UAE wants more oil and gas. Abu Dhabi, Sharjah, and Ras Al Khaimah have all held licensing rounds for exploration blocks in recent years. The UAE wants to achieve gas self-sufficiency and ADNOC is seeking to increase its crude oil production capacity to five million barrels per day by 2027. Consequently, huge investments are being made into drilling and infrastructure. This should create many opportunities for oil sector investors, and we provide a high-level overview of relevant regulation in below (for more detail, please see our Guide to Oil and Gas in the UAE).

Regulation of the Hydrocarbon Sector in Abu Dhabi 

The hydrocarbon sector is regulated at the emirate rather than Federal level. The regulator in Abu Dhabi is the Supreme Council for Financial and Economic Affairs (SCFEA). ADNOC is responsible for the day-to-day management of oil and gas operations and reports to the SCFEA.

Foreign participation in the upstream is granted by a variety of instruments, including concessions and production sharing contracts. Contract awards are through open bid rounds or bilateral negotiations.

Privatisation 

The UAE has pursued privatisation of certain energy assets in recent years, including IPOs of minority stakes in ADNOC Gas, ADNOC Logistics & Services, ADNOC Drilling and ADNOC Distribution, and the sale of rights in its pipeline network in Abu Dhabi.

Gas 

There is an important restriction in Abu Dhabi on the exploitation and use of natural gas. Such rights are reserved exclusively for ADNOC, although ADNOC may invite investors to participate through joint agreements with ADNOC’s minimum 51% participation.

Key Terms of Hydrocarbon Concessions 

There is no standard duration for concessions, but recent Abu Dhabi oil concessions typically provide for a production period of 35 years. Changes to the term would be a matter for negotiation.

Abu Dhabi uses a tax and royalty scheme, but details of the government’s take are confidential.

Decommissioning 

Newer concessions include specific decommissioning obligations, such as financing a decommissioning fund during the production period.

Midstream and Downstream Projects 

ADNOC’s new downstream strategy provides opportunities for investment by international companies. Such investments are usually into joint ventures with ADNOC.

Investment Protections 

The UAE is a contracting state to the New York Convention and a party to the ICSID convention. The UAE has also signed bilateral investment treaties with more than fifty countries.

The UAE is a member of the UN Convention Against Corruption and has domestic laws concerning domestic anti bribery and corruption.

Tax stabilisation measures depend on the individual contract. Even if no specific measures are contractually agreed, the UAE has an excellent record of fiscal stability.

Conclusion 

Whilst the Middle East projects market often faces geopolitical tensions, the energy transition is a new challenge. The region’s willingness to engage and lead on climate issues, however, seems to have turned a potential risk into an opportunity as the region seeks to build greener energy supplies. Sustained high oil prices have created government budget surpluses in many Gulf countries. That, combined with investor-friendly measures such as UAE’s recent suite of new laws, has kept the Middle East energy projects markets front of mind for investors.