Adnoc $20bn deal paves the way to a bright future

Pipelines in the desert.

Much has been said about the impact of the coronavirus on the global economy, and especially on an oil and gas sector already squeezed by lower prices and falling demand. Amidst a months-long global news cycle of budget cuts, furloughs and foreclosures, it turns out that there is still more to say. And it is being said loudly here in Abu Dhabi.

The Abu Dhabi National Oil Company (Adnoc) announced that a consortium of international instutions and funds has signed an agreement worth $20.7 billion (Dh76bn) to invest in the emirate’s domestic gas pipelines. The deal will also unlock $10.1bn (Dh37bn) in foreign direct investment to the UAE.

The consortium, comprised of finance and infrastructure investors, will acquire 49 per cent of an Adnoc subsidiary that holds a 20-year lease of the pipeline assets. The remaining 51 per cent will be retained by Adnoc.

This is the single largest global energy deal of the year and is a significant investment in the UAE. Finalising it during an ongoing pandemic, when market sentiment is bearish and face-to-face meetings are off the table, makes the achievement all the more remarkable. As the UAE seeks to diversify and boost its economy, the deal is an international vote of confidence in both Adnoc and the energy sector. It also marks a doubling in the total value that Adnoc has achieved for its assets compared to a similar venture undertaken only a year ago. This is also a vote of confidence in Abu Dhabi and UAE, with the foreign direct investment being paid upfront.

The broad nature of Adnoc’s partners in this latest agreement is also noteworthy. The consortium is comprised of specialist infrastructure funds and also generalists, like the Ontario Teachers’ Pension Plan, which models its strategies to target secure, long-term returns.

That sense of security stems from the decades of expertise in the development of hydrocarbon projects that the UAE brings to the table. Adnoc has always been the central node of that expertise. As the company looks to optimise its portfolio and operations for the future, it will be of critical importance to build a domestic gas infrastructure that can one day fully cater to the country’s needs.

This is the single largest global energy deal of the year and is a significant investment in the UAE

The global and diversified character of Adnoc's latest deal sends a strong signal that energy self-sufficiency is not the same as insularity. At a time when the global market has been limited by tightening borders and the global energy sector is in need of a boost, this latest deal demonstrates that Abu Dhabi offers hope and confidence. The UAE's energy sector is a national success story, but the returns will always be global.