The Abu Dhabi National Energy Company, also known as Taqa, plans to use high oil prices to ensure funds for a coming US$1.8 billion (Dh6.61bn) capital investment programme.
The government-controlled company, listed on the Abu Dhabi Securities Exchange General Index, has budgeted this year for projects that include power plant expansions and the construction of a large gas storage and distribution centre. This year's investment programme is $400 million more than last year's capital expenditures.
To ensure cash flow to fund this year's capital programme, Taqa is seeking to sell forward 50 per cent of its projected future oil and gas production from North America and the North Sea for the next 18 months, locking in recent crude prices above $100 a barrel.
The practice, known as hedging, is also used by commodities traders to speculate on the future direction of price changes. But in Taqa's case it is a form of risk mitigation to ensure important projects can progress even if oil prices fall.
"We're hedging because we are committed to a capital-spending programme," Craig Sheldon, the general manager of Taqa, said on Tuesday as the company held its annual meeting.
Mr Sheldon told the meeting Taqa had almost achieved its hedging target for North America, and would shortly launch a similar programme in Europe.
Among the biggest capital projects on the company's agenda is the Bergermeer gas storage facility in the Netherlands, which is expected to establish basic infrastructure for the development of a major gas trading and distribution centre for western Europe.
Last year, Taqa increased its stake in the project to 60 from 36 per cent. Construction of the underground facility is expected to start this year, with operations to begin in 2013.
In its power business, Taqa is planning 1,000 megawatts of expansion projects. One of the largest is a 700mw expansion of Morocco's largest power plant by adding two new coal-fired generating units.
The development is on track for commissioning in 2013 or 2014, the company said in its recently published annual report for last year.
Taqa has also signed a memorandum of understanding with the Ghanaian government and the Volta River Authority to add steam turbines to a power plant in Ghana to make it more efficient and increase generating capacity by 110mw.
"This expansion would [increase] power output by 50 per cent with no increase in fuel consumption," said Taqa. The company also planned to convert the plant to burn gas instead of heavy fuel oil.
In India, Taqa is seeking to double the generating capacity of its Neyveli power plant to 500mw. Work has begun on engineering and obtaining environmental permits for the project, and commissioning is expected in or after 2015.
In its report, Taqa said it faced an "uncertain" economic outlook this year but expected higher global energy demand due to the growth of developing economies.
"Taqa believes a diverse energy mix is needed; efficient fossil fuels operating alongside renewables such as wind and solar," it said.
