Mubadala expects the global economy to rebound next year with a U-shaped recovery as growth rises to 5 per cent following a recession triggered by the Covid-19 pandemic, and it remains bullish on US shale bouncing back.
"Like another institution, we came up with three basic recoveries - V-shaped, U-shaped and L-shaped. With time we rolled out the V-shaped recovery," Musabbeh Al Kaabi, chief executive of the petroleum and petrochemicals division within Mubadala, said.
"Now we’re more focused, we think 70 per cent, there’s a probability that we’re experiencing a U-shaped type of global economic recovery and we think the global GDP [gross domestic product] will drop significantly this year but next year we hope that the global economy will recover to a growth of 5 per cent GDP globally,” he told the Atlantic Council in an online interview on Wednesday.
A U-shaped recovery refers to the economy returning to growth in a gradual manner following successive quarters of decline and a longer period in a recession than a V-shaped rebound.
Mubadala is a globally diversified fund with more than $229 billion (Dh840bn) in assets under management across 15 different sectors.
The petroleum and petrochemicals sector, which has been a savvy investor in petrochemicals, the US shale revolution and upstream assets manages a portfolio of $40bn. Mubadala has interests in companies such as Spain's Cepsa, Austrian chemicals player Borealis, Canada's Nova Chemicals as well as Russia's Gazprom Neft.
The probability of an L shaped recovery, characterised by rising unemployment and deep recession, followed by an economic rebound is 30 per cent, Mr Al Kaabi said.
"Back in 2019, when investment organisations like Mubadala ran their business plans, we envisaged a correction, and that correction probably was the worst case scenario," he said. "We saw a recession in the equity market of around 30 per cent but we have not envisaged a pandemic of this scale that we see currently.”
Mubadala Petroleum and Petrochemicals, an investor in the US shale revolution said the industry, which advanced during the 2014-16 price slump, is far from dead.
The company last year reached an agreement with US firm NextDecade Corporation to invest $50 million in the US company's upcoming Rio Grande liquefied natural gas facility.
The US oil industry has been battered by the price slump this year, which saw prices decline 80 per cent in April from their recent peaks in January. US crude futures also tumbled into negative territory last month, falling as low as -$40 per barrel constrained by limited storage capacity.
Several independent producers have shut-in production, while others have filed for bankruptcy amid the decimation of the US energy industry. Crude output in the US, the world's largest producer of oil and gas, will average 11.7 million barrels per day in 2020, according to the US Energy Information Administration.
Output is estimated to further decline by 800,000 bpd in 2021, which would mark the first annual decline since 2016.
"You cannot ignore the Permian in the US, the Permian will be developed and will be produced, the technology will improve and will unlock additional resources,” Mr Al Kaabi said.
"The current oil prices may not be helping but what it will do is slow the growth of the shale production but not completely kill it," he added. "We believe that the world needs unconventional, needs conventional and we see a world where both of these resources will play a role going forward to meet the growing demand”.
The Permian will continue to produce if prices average $35, $40 or $45 per barrel "but not on the same scale and growth” seen over the last two to three years.
Mubadala anticipates peak oil around 2030 and is preparing for a future where its businesses are resilient to weather that environment.
The company is currently reviewing its portfolio of projects, prioritising "critical" schemes over "optional" ones. Its large gas development project in Malaysia remains on track, Mr Al Kaabi said.
There is no slowdown in the petrochemical schemes operated by Nova Chemicals. Renewable energy projects in Abu Dhabi are also gathering momentum, he added, citing a 2 gigawatt project that received the world’s lowest tariff last month.