UAE and UK relationship built on oil broadens

United Kingdom companies continue to compete over the right to develop hyrdocarbon assets in the UAE as they have done for decades.

Masdar, the Abu Dhabi clean energy company, owns a one-fifth stake in the London Array, the offshore wind farm in the Thames estuary. Chris Ratcliffe / Bloomberg News

In November David Cameron, the United Kingdom's prime minister, stopped at an exhibition in Dubai to chat with British construction suppliers. He contemplated brass door handles and parquet flooring with a serious expression.

But many understood the purpose of his visit to be aimed at a bigger business - the UAE's energy industry, where British companies have held stakes since 1939. Today, as the President, Sheikh Khalifa, arrives in the UK, that relationship built on oil looms again as those companies compete to maintain and even broaden their position in the former British protectorate.

"It's an enduring long-term relationship between the two countries," said Terry Willis, the managing director of the Energy Industries Council, a Dubai-based trade body for UK companies. "We're a known force. We've got 30-plus years' experience in the North Sea. The specifications, the engineering standards are all very similar."

Two prized hydrocarbon assets are on the table, one of which could be awarded within weeks. The first is Abu Dhabi's biggest onshore concession, a constellation of giant fields where BP and Royal Dutch Shell have held exploration rights since the Second World War. The concession is scheduled to expire in less than a year, with Shell and BP among the handful of companies eligible to bid.

The second is the development of the Bab gasfield, a challenging reservoir laced with deadly sulphur and corrosive carbon dioxide. Shell, headquartered in London and The Hague, has submitted the lowest bid, according to industry executives.

The Bab contract, which will be in the range of US$10 billion, would mark a substantial jump in UAE-UK cooperation. But in recent years the ties between the UAE and UK have diversified to smaller investments, particularly as Abu Dhabi invests its oil revenues into overseas assets and alternative energy.

"Because of the austerity that there is in the UK at the moment, I think that UK companies are always looking at ways to expand and fill up the gap," said Mr Willis. "This is the perfect area to do it."

Last year Abu Dhabi National Energy Company, the state utility also known as Taqa, bought a $1.1bn package of central North Sea assets from BP.

Masdar, the emirate's clean energy company, owns a one-fifth stake in the London Array. This month the offshore wind farm in the Thames estuary become the world's largest with the installation of its 175th turbine.

British nuclear providers, meanwhile, have been flying into Abu Dhabi to target service and equipment contracts with the Arab world's first nuclear plant, a $20bn project taking shape on the desert's coast.

"There is currently a growing interest around the world in nuclear energy, and the UAE is one of the countries at the forefront of that interest," said Adrian Bull, the director of external relations at the National Nuclear Laboratory, a researcher and service provider that falls under the British government. "That creates substantial potential for collaboration between the UAE and those long-established nuclear nations such as the UK [that] have already licensed, built and operated nuclear power stations and other nuclear facilities and are now well on the way to decommissioning many of those."

But the possible rewards for British companies in nuclear, where the primary contract has already gone to a Korean consortium, are small change compared with the Abu Dhabi oil and gas assets at stake.

In onshore oil, Shell and BP must compete with the other majors with a historic presence in the concession - France's Total and ExxonMobil of the United States - as well as newcomers, such as the upstream-focused Occidental, Norway's Statoil and state companies seeking to meet energy security needs such as the Korea National Oil Corporation and the China National Oil Corporation.

Abu Dhabi National Oil Company (Adnoc) has recommended to the Supreme Petroleum Council (SPC) that the concession be extended by another year to January 2015 to allow enough time for the bidding process.

Among the decisions the SPC must make are whether to split the fields to allow the majors to deploy the proprietary technologies they say are necessary for the older fields and whether to raise the current per-barrel payment to foreign partners from today's $1, among the industry's lowest.

For the Bab sour gasfield - called sour on account of its 15 per cent sulphur content - Shell is going against only Total after Abu Dhabi failed to summon interest from other technically skilled companies such as ExxonMobil. Although Adnoc has reportedly recommended Shell to the SPC because of its lower bid, the nomination is far from a rubber stamp. In the emirate's only two prior sour gas auctions, the SPC has gone against Adnoc's choice.

Bab is not only high in sulphur, a risky prospect in Habshan with much of the emirate's core hydrocarbons infrastructure, but also carbon dioxide, which can be corrosive when combined with water and can also pose a danger when released in large quantities.