An Overview of Oil Production in the United Arab Emirates - Case Study Example

Name: Student ID: Title: Date: “An overview of oil production in the UAE” The prosperity of the United Arab Emirates (UAE) and its transformation from a desert region to one with a booming economy has been made possible due to revenue from oil and gas exports. United Arab Emirates (UAE) possesses approximately 10 per cent of the world’s total oil reserves. There is no doubt that oil in UAE will continue to provide the revenue for both expansion for social services and economic growth for many years to come. In the coming years, it is believed revenue from natural gas will continue to play an increasingly important role in the United Arab Emirates (UAE’s) development (as a fuel source for power generation, manufacturing industry and petrochemicals). Historical Development Oil was first discovered in 1950 in Abu-Dhabi at a site in ‘Ras Sadr-1’. In 1958, ADMA became the first company in United Arab Emirates (UAE) to commercialized oil production at Umm Shaif (near Das Island). In 1962, the country started shipping crude oil from Das Island- this was the year when Abu Dhabi joined the family of oil exporters and this move rapidly transformed UAE economically. In 1960, the first onshore oil was discovered and this was at Bab, and export of oil was started in December, 1963 from the Jebel Dhanna terminal. Subsequently, oil was also discovered in Dubai and export began in 1969. The more discoveries of oil well in the 80s and 90s have greatly increased the country’s oil and gas reserves. By 1992, UAE is estimated to have crude oil reserves of 98 billion barrels while natural gas is estimated to be 5.2 trillion cubic meters. Majority of this reserve is found in Abu Dhabi. Current production levels and reserves In September, United Arab Emirates (UAE) produced 2.5 million barrels of crude oil per day, down from around 2.7 million barrels per day in August. As compared to Saudi Arabia which is a leading oil exporter which raised its oil output by around 918,000 barrel per day to 9.81 million barrels per day in the month of June. In the months that followed United Arab Emirates production was cut by 100,000 barrel per day month on month following the price of oil per barrel falling on growing European debt crisis fears and the prospect of some Libyan oil returning to market. Fig.3 Oil reserve in UAE The United Arab Emirates (UAE) crude oil reserves has been estimated to be around 98 billion barrels, this has been estimated to be 10 per cent of the world’s total oil reserves. This has placed United Arab Emirates (UAE) to be the fourth largest OPEC producer, after Saudi Arabia, Iran and Venezuela. The crude oil reserve in Abu Dhabi has double over the years and now account for 94 per cent of the United Arab Emirates (UAE) total oil reserves. This has been as results of discovery of new oil-rich structures in existing crude oil fields. According to industry estimates, the United Arab Emirates (UAE) crude oil has been estimated to last another 90 years at current production levels if no new oil wells are discovered. ADNOC’s crude oil production has made United Arab Emirates (UAE) to be ranked among the top ten oil producer in the world. This has been made possible through major investments which have been carried out in recent and ongoing development oil projects. These include 300 million dollar project that will enable ADNOC to increase its capacity of the onshore Bu Hasa oil field from 100,000 to 480, 000 barrel per day, and 480 million dollar project to increase capacity of the Ruwais refinery from 145,000 to 500,000 barrel per day. As a result of growing demand from the petrochemical industry and increased domestic consumption of electricity have made UAE to increase its use of natural gas. ADNOC has spearheaded the country’s oil and gas production efforts and exploration. Production and refining facilities Since 1999, refining of crude oil in Abu Dhabi have been carried out by a wholly-owned subsidiary of ADNOC, the TAKREER (Abu Dhabi Oil Refining Company). This subsidiary was set up as part of ADNOC restructuring. The first refinery in United Arab Emirates (UAE) was UMM al-Nar which was started in 1976 having a capacity of 15,000 barrels per day. In 1983 and 1988, it capacity was increased to 60,000 and 72,000 barrels per day respectively. In 1993 the refinery capacity was increased to 85,000 barrels per day and currently oil production stands at 90,000 barrel per day. The Ruwais refinery was established in 1981 with a capacity of 120,000 barrels per day. In 1985, hydro cracking facilities was added into the refinery which had a capacity of 27,000 barrel per day. Because of remoteness of Ruwais refinery a general utilities plant was also started which produced 90 Megawatt of electricity and 26,000 cu ms of clean drinking water. In 1995, an expansion plan worth 1.2 billion dollars was carried out which increased crude oil distillation by 135,000 barrels per day, also a new vacuum distillation facility. In June 2000, two 140,000 barrel per day trains were commissioned at the Ruwais refinery, thus tripling the refining capacity at Ruwais. TAKREER’s total production in the middle of 2000 was over 500,000 barrel per day. The emirates of Fujairah and Sharjah also have refineries, each have a capacity of producing 80,000 barrels per day. The two emirates are not producing crude oil due to technical and financial problems. Umm Al Nar is another refinery that is found on the outskirts of Abu Dhabi that operates at 85,000-90,000 bpd and does not engage in conversion. Crude Oil Transportation Crude oil must be from the production site to refineries and from refineries to consumers. These movements for crude oils are done using different types of transportation. Crude oil in land is transported using trucks, pipelines and trains. On water or sea crude oil is transported in tankers and barges. a. Waterborne Transportation In UAE oil tankers are employed to transport crude oil from the sea to refineries found on land. In addition product oil tankers carry refined products from refineries to terminals. Tankers that are used to transport crude oil or refined product range from the small vessels to huge oil carriers. The size of oil tankers are expressed in terms of cargo tons or deadweight (dwt). The smallest tankers used to transport crude oil or refined oil is General Purpose which range from 10 to 25,000 tons. The Large and Very Large crude Carriers (VLCC) are used in international crude oil trade. These large ships are commonly used in UAE because they reduce the cost to transport a barrel of crude oil. b. Oil Pipelines The use of pipeline to transport crude oil and refined petroleum products is the most efficient one. Oil pipeline in many occasions have been used to transport crude oil from the oil wells to gathering and refineries and from refineries to loading tankers. Product pipelines ship jet fuel, gasoline, and diesel fuel from refineries to local distributors. Crude oils from wellheads is collected from field gathering systems which are made up of pipelines that move crude oil from wellhead to tanks that are used for storage and treatment facilities where the crude oil is then measured and quality tested. From the gathering place the crude oil is then sent to pumping stations where the crude oil is delivered through pipeline (Northern Tier Pipeline Company 1979). Fig Oil pipeline The pipeline that is used to transport oil may have numerous collection and delivery points along the route where oil will pass. In most cases, boaster pumps are used along the pipeline to maintain the pressure that will keep the oil from flowing. The delivery points along the pipeline may be a refinery where the crude oil will be processed into finished products, or shipping terminals, where the crude oil is loaded onto wanting oil tankers for export to other countries. A oil pipeline may handle different types of crude oil. The pipeline will schedule its operation to ensure that the right liquid is sent to the right place. Crude oil may also move over more than one pipeline system as it journeys from the oil field to the refinery or shipping port. In most cases storage of crude oil is located along the oil pipeline to ensure there is smooth continuous pipeline operation (al-Otaiba and Utaybah 1990). After crude oil has been processed into different products such as petrol and gasoline, pipelines will be used to transport the refined products to terminals for movement to petroleum or gasoline stations. In addition to gasoline, product pipelines will be used to ship home heating fuel, diesel fuel, jet fuel and kerosene. Because the pipeline will be used to transport different products, the different product will be transported in batches. Batching is used to transport or move two or more different oil products in the same pipeline. In the pipeline, the different oil products will be transported in a series of batches. The adjoining batches mix where they come into contact (Blanchard 2005). The batch can be then be sent to the refinery for separation, or sold as a lower valued product such as a mixture of regular unleaded gasoline with premium unleaded gasoline, or sold as mixture. Many of these pipelines that are used in batching have standard product specifications. This allows oil refineries or companies to ship petrol over the pipeline and get not be concerned whether the other end receives petrol from that same batch sent over the pipeline. Storage Facilities Refined oil and crude oil are stored in tanks for processing into finished products or for shipment to other countries or locations. There are four different type of storage tanks used to store oil products: (1) fixed roof tank used for kerosene, diesel, catalytic cracker feedstock, and residual fuel oil; (2) floating roof tank used for gasoline, crude oil and naphytha; (3) spherical tank used for normal butane and isobutene; and (4) bullet tank used for propane, butane and propylene. Current and future trends Oil production has fueled development of the United Arab Emirates (UAE). The country has grown tremendously since the discovery of crude oil. But there is a subtle difference. Discovery of crude oil in United Arab Emirates (UAE) acted as a catalyst for the economy growth as by the oil prices soared to higher levels. Riding on this price rise United Arab Emirates (UAE) was transformed to a country of affluence. The platform for growth of United Arab Emirates (UAE) was thus laid. In fact an economic boom took place and that transformed United Arab Emirates (UAE) from a sleepy country to a mega tourist and financial center. Oil prices But over the years UAE’s oil and gas reserves have reduced. With the level of production of crude oil the country is not expected to be active beyond a maximum of 40 years. The ruler of United Arab Emirates (UAE) have made an attempt to take out of the system particular Dubai which has only two percent of about 98.2 billion barrels of UAE’s crude oil, and which contribute to only 6 per cent of the country’s economy. The UAE is trying to invest to other sectors such as real estate and financial market. The new policies which have attract capital and United Arab Emirates (UAE) was booming till an economic bust late in 2009 put the clock back. Real estate crashed and the fact is that without oil to shore up revenues. Analysis believe if the country don’t find any alternative source of income, the country may be in trouble in the long run for many years to come (Hirsch and Bezdek 2007). References al-Otaiba, M and Utaybah, S 1990, Petroleum and the economy of the United Arab Emirates, Croom Helm Publisher, New York. Blanchard, R 2005, The future of global oil production: facts, figures, trends and projections, by region, McFarland & Company Publisher, New York. Hirsch, R.L and Bezdek, H 2007, Peaking of world oil production: impacts, mitigation and risk management, Novinka Books, Indiana University. Northern Tier Pipeline Company 1979, Crude oil transportation systems: (proposed under Public law 95-617, The public utility regulatory policies act of 1978), The Bureau: GPO, New York. Paine, M and Strowd, B 2007, Oil production methods, Western Engineering Pub. Co., Univeristy of California. Read More