Adnoc Gas targets Europe and Asia for spot LNG cargoes

Adnoc subsidiary has not experienced a 'material impact' from elevated shipping costs due to Red Sea shipping disruption, says chief financial officer

Adnoc Gas supplies to customers in the Emirates, mostly utilities and industrial companies, through an extensive network of pipelines. Photo: Adnoc

Adnoc Gas will ship liquefied natural gas cargoes to Europe or Asia depending on which market offers more profitability, a senior executive told The National.

The company, which is the integrated gas processing unit of Adnoc, produces 6 million tonnes per annum of LNG from its Das Island liquefaction plant off Abu Dhabi and most of the output is tied to long-term contracts, Peter van Driel, chief financial officer of Adnoc Gas, said in an interview on Thursday.

“We always keep a few cargoes available to play the market. If prices go up in Europe, we make sure those cargoes go to Europe,” Mr van Driel said.

“It then becomes a question of whether we see more profitability by going to the east or by going to Europe? And that is a function of price,” he added.

Persistent heatwaves in Asia are boosting gas demand in Japan and South Korea, while high inventory levels are driving down European gas prices. The EU's gas storage levels have reached about 90 per cent of capacity ahead of winter.

“Shipping plays a big role, because the sooner you're able to sail to a destination that's nearby, you have an advantage in terms of shipping cost compared to a competitor that comes from further away,” Mr van Driel said.

Peter Van Driel, chief financial officer of Adnoc Gas

Adnoc Gas has not experienced a “material impact” from elevated shipping costs caused by the Red Sea shipping turmoil, he added.

Attacks on vessels by Yemen’s Houthi rebel group have disrupted global trade and led to increased insurance premiums, fuel costs and security measures for ship operators. The Suez Canal, a critical waterway connecting the Mediterranean Sea to the Red Sea, handled about 12 per cent to 15 per cent of global trade in 2023.

Adnoc Gas has signed long-term charter deals with shipping companies, protecting it from cost volatility, Mr van Driel said.

For the Abu Dhabi-based company, which has access to 95 per cent of the UAE's natural gas reserves, boosting exports of products such as LNG, liquefied petroleum gas and naphtha is crucial to its growth strategy.

“About one-third of our volumes are exported, and two-thirds remain in the UAE. However, our exports are more profitable because they account for two-thirds of the revenue,” Mr Driel said.

In the Emirates, Adnoc Gas supplies to customers, mostly utilities and industrial companies, through an extensive network of pipelines.

The company is set to acquire Adnoc’s majority stake in the Ruwais LNG project, which will have a total capacity of 9.6 million tonnes per annum. It is scheduled to start in the second half of 2028.

Last month, international energy majors BP, Japan’s Mitsui, Shell and TotalEnergies were each awarded a 10 per cent equity stake in the project.

About 70 per cent of the Ruwais LNG production capacity has already been secured through sales commitments.

Mr Driel said that Adnoc Gas remains open to mergers and acquisitions to expand into new markets, but the threshold for such moves is “very high” since operating in the UAE has been highly profitable for the company.

Adnoc Gas plans to invest more than $13 billion until 2029 to pursue domestic and international growth opportunities, the company said in an April statement.

Supply glut concerns

Adnoc Gas is expanding its LNG operations amid expectations of a market glut in the next few years, as several large projects are set to come online.

A surge in LNG projects starting from 2025 is projected to add more than 250 billion cubic metres (bcm) of new capacity annually by 2030, according to the International Energy Agency.

This additional capacity represents roughly 45 per cent of the current global LNG supply, with the most significant expansions occurring between 2025 and 2027, primarily driven by projects in the US and Qatar, the agency said in a report last year.

LNG buyers are locking in long-term contracts for future supply even though the market glut is expected to lower prices in the coming years, Mr van Driel said.

“Security of supply is what really matters. Therefore, people conclude long-term contracts, even if they know that there's a temporary imbalance between supply and demand. It's not just about price,” he added.

“Some buyers even pay a small premium to lock that in.”

In January, Adnoc Gas signed a 10-year agreement to supply 500,000 metric tonnes per annum of LNG to Gail India, a state-run natural gas company.

Emerging economies in Asia are aiming to increase the share of natural gas to reduce dependency on highly polluting coal amid an expected surge in power demand.

China, the world's biggest coal consumer, is projected to increase the use of natural gas in its primary energy mix to 12 per cent by 2030 from 8.7 per cent in 2020.

India, the second-largest coal consumer, aims to raise the share of natural gas in its total energy mix to 15 per cent by 2030, from about 6 per cent.