The United Arab Emirates (UAE) is important to world energy markets because it contains roughly 98 billion barrels of proven oil reserves, or nearly 10 percent of the world's supply. The UAE also holds the world's fourth largest natural gas reserves and produces significant amounts of liquefied natural gas.

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BACKGROUND
The United Arab Emirates (UAE) is a union of seven emirates - Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras al-Khaimah, and Umm al-Qaiwain. Political power is concentrated in Abu Dhabi, which controls the vast majority of the UAE's economic and resource wealth. In theory, government expenditures are financed through half of each emirate's revenue, but in actuality, Abu Dhabi and Dubai provide over 80 percent of the UAE's income. In June 1996, the UAE's Federal National Council approved a permanent constitution for the country. This replaced a provisional document which had been renewed every five years since the country's creation in 1971. The establishment of Abu Dhabi as the UAE's permanent capital was one of the new framework's main provisions.

On December 2, 1996, the UAE celebrated its 25th anniversary. The following day, UAE President Sheikh Zayed Bin Sultan Al Nahyan was re-elected as president for his sixth, five-year term by the Federal Supreme Council, the highest decision-making body in the country. In addition, a new central government was formed in March 1997. There were no changes to key cabinet posts, or sovereignty portfolios as they are called, such as defense, foreign affairs, and finance. However, the cabinet reshuffle consisted of eight new ministers including economy and trade, petroleum and mineral resources, and information and culture. The previous government had been in place since November 1990.

As Sheikh Zayed approaches 80 years of age and because of recent health problems, the issue of who will succeed him as Abu Dhabi ruler and UAE president remains an important question for the UAE. The heir-apparent is Sheikh Khalifa, the crown prince of Abu Dhabi and Sheikh Zayed's eldest of 19 sons by five wives. However, Sheikh Khalifa is being challenged by the "Fatemites" who are Sheikh Zayed's sons from his wife Sheikha Fatmeh. Gulf-analysts suggest that the new cabinet lineup has strengthen the Fatemites' position because they have retained a number of important posts and gained others.

UAE's economy continues at a sluggish pace. The real gross domestic product (GDP) growth rate for 1997 is projected at 1%, down from 2% in 1996. UAE has experienced slow growth in recent years, and inflation has been on the rise for the past two years. For 1997, inflation is projected at 5.5%, up slightly for 5.1% in 1996 and 4.2% in 1995.

Despite UAE's substantial oil and gas reserves, the country has embarked on several projects to diversify its economy and reduce its dependence on oil and gas revenues. The UAE government has begun investing heavily in sectors such as tourism, aviation, duty-free zones, re-export trade, ports, and telecommunications. As part of its strategy to further expand its tourism industry, UAE plans to build new hotels, restaurants, shopping malls and expand airports and duty-free zones. In early November 1996, Dubai unveiled its strategic development plan for the 21st century. The plan focuses on the private sector and emphasizes capital intensive industries. It calls for new infrastructure construction and the loosening of trade and banking rules. Dubai hopes to become the Middle East hub for trade and finance. As part of its attempt at diversification, Abu Dhabi announced in August 1997 plans to develop an offshore financial and commodity trade center on Saadiyat island. Abu Dhabi is seeking to raise up to $1 billion dollars from foreign investors to help finance the $3.3 billion project. Construction is expected to take three years and will include storage facilities, a port, a freight center, and a financial and insurance center to facilitate trading.

In 1997, the UAE and Iran continued their territorial dispute over the Abu Musa and Tunb Islands, which are strategically located in the Strait of Hormuz. The Greater and Lesser Tunbs were seized by Iran from Ras al-Khaimah in 1971. In 1992, Iran claimed sovereignty over Abu Musa despite a 1971 agreement between the two countries. Joint control of Abu Musa was maintained until 1994, at which time Iran forcibly took the island. In March 1996, Iran rejected a proposal by the Gulf Cooperation Council (GCC) which advocated that the International Court of Justice resolve the dispute, an option supported by the UAE. This rejection was preceded in December 1995 by an Iranian Foreign Ministry statement declaring that the islands are "an inseparable part of Iran." In early 1996, Iran took further moves to strengthen its hold on the disputed islands. These actions included starting up a power plant on Greater Tunb, opening an airport on Abu Musa, and announcing plans for construction of a new port on Abu Musa. In the dispute, the UAE has received strong support from the GCC, the United Nations, and the United States. Although Iran remains a continuing concern for officials in Abu Dhabi, they have chosen not to escalate the territorial dispute. Iran is one of Dubai's major trading partners, accounting for 20% to 30% of Dubai's business.

OIL
The UAE contains proven crude oil reserves of 97.8 billion barrels, or slightly less than 10 percent of the world total. Abu Dhabi holds 94 percent of this amount, or about 92 billion barrels. Dubai contains an estimated 4.0 billion barrels, followed by Sharjah and Ras al-Khaimah, with 1.5 billion and 100 million barrels of oil, respectively. Through the first half of 1997, UAE produced an estimated 2.48 million bbl/d of which 2.23 million bbl/d was crude oil. The majority of the UAE's crude oil is considered light, with gravities in the 32^o to 44^o API range. Abu Dhabi's Murban 39^o and Dubai's Fateh 32^o blends are the UAE's primary export crudes. Most of the UAE's oil fields have been producing since the 1960s or early 1970s.

For the past several years, the UAE has kept fairly close to its assigned OPEC crude production quota, which currently stands at 2.161 million bbl/d. Under the UAE's constitution, each emirate controls its own oil production and resource development. Although Abu Dhabi joined OPEC in 1967 (four years before the UAE was formed), Dubai does not consider itself part of the Organization or bound by its quotas. Consequently, if Dubai produces at full capacity, Abu Dhabi adjusts its output so that the UAE, as a whole, meets the OPEC quota. This situation often forces Abu Dhabi producers to operate below capacity.

Over the last year, UAE's relatively close adherence to OPEC production quotas has created tension among Abu Dhabi's main upstream operators, who would like to increase production. The operators received some relief in August 1996 when a long-promised increase in production allowables came through. However, the increase was limited to a combined 60,000 bbl/d, which left the operating companies with over 200,000 bbl/d of shut-in capacity and concerns about the impact on profitability. By October 1997, the level of shut-in capacity was up to more than 300,000 bbl/d. Onshore operator Abu Dhabi Co. for Onshore Operations (ADCO) and offshore consortium Abu Dhabi Marine Areas Operating Co. (ADMA-OPCO) were the beneficiaries of the 60,000 bbl/d increase. ADCO groups Abu Dhabi National Oil Co. (ADNOC) with Mobil, British Petroleum (BP), Royal Dutch/Shell Total, and Partex. In mid-1996, ADCO's allowable increased by 20,000 bbl/d to 890,000 bbl/d. This was followed by an additional 10,000 bbl/d increase in August 1997, bringing the total to 900,000 bbl/d. ADMA-OPCO received the same incremental increases, bringing its production total to 440,000 bbl/d. This level of production continued through the rest of 1996. However, ADCO's capacity is estimated at 1.1 million bbl/d and it is on target to add another 100,000 bbl/d by 2000. ADMA-OPCO is in a similar situation with capacity estimated at 520,000 bbl/d and plans to add another 80,000 bbl/d by 2000. One of the reasons for the slow growth in production for Abu Dhabi is that Dubai's production has declined at a slower pace than expected. In mid-1996, Dubai was still producing 270,000 bbl/d and its decline to 230,000 bbl/d is not expected until late 1997. As Dubai's production declines, Abu Dhabi should be able to use some of its spare capacity, but this movement is projected to continue at a slow pace.

Complicating matters for UAE is the fact that many of its Persian Gulf neighbors and OPEC partners are routinely exceeding OPEC quotas while UAE tries to stay within 70,000 to 85,000 bbl/d of its 2.161-million bbl/d crude quota. Saudi Arabia is reportedly exceeding its 8-million bbl/d quota by more than 500,000 bbl/d and Qatar is nearly 300,000 bbl/d over its 378,000 bbl/d quota. UAE's concern is that current output levels by OPEC countries could be incorporated into a higher OPEC ceiling for 1998, leaving UAE behind because of its adherence to its OPEC quota. Oil minister Obaid bin Saif al-Nasseri stated in October 1997 that if OPEC increases its production ceiling for 1998, UAE would demand a higher quota. Moreover, some members of Abu Dhabi's Supreme Petroleum Council, which makes UAE's major oil decisions, have come out in favor of increasing output regardless of OPEC's actions.

UAE's largest market for its oil exports is Japan with a nearly 60% share. Recently, Saudi Arabia has been reportedly seeking an agreement that would boost its long-term oil sales to Japan. Saudi Arabia is trying to get Japanese refiners to buy more Saudi crude oil in exchange for a renewal of the upstream Neutral Zone concession with Japan-based Arabian Oil Co. If the agreement is reached, Saudi Arabia could cut deeply into UAE's share of the Japanese market. From January to August 1997, UAE's exports to Japan averaged 1.227-million bbl/d, 18,000 bbl/d below last year's levels. Over the same period, Saudi Arabia's exports to Japan were up 9% to 990,000 bbl/d. However, there are several powerful Japanese firms with interests in UAE that are lining up against any plan that Tokyo might have to force them to buy more Saudi oil. Lobbying efforts in favor of the UAE include the state-owned Japanese National Oil Corporation and trading houses Cosmo and Mitsui. Japanese Prime Minister Ryutaro Hashimoto is scheduled to visit Riyadh in November 1997, and Saudi Arabia is expected to push for an increase in Japanese purchases of Saudi oil to 1.8 million bbl/d. As a way to protect UAE's oil sales to Japan, ADNOC is considering spinning off the Satar al-Raz Boot discovery, a concession several Japanese companies, including Cosmo, has been pushing for years.

Currently, the only new exploration in the UAE is concentrated in two of the smaller emirates. In mid-1996, Crescent Petroleum Company signed an agreement with the UK's Enterprise Oil to explore Sharjah's Mubarak field. Enterprise agreed to spend around $25 million on seismic and drilling activities in exchange for a 40% share in any oil produced as a result of new finds. In September 1997, the emirate of Ras Al Khaimah, UAE's fourth-largest emirate, awarded a new offshore oil concession to Atlantis Technology Services Ltd. and Petroleum Geo Services ASA. The deal covers the area known as the Baih field. Over the next 18 months, Atlantis will conduct a 3-d seismic survey of the concession area to assess the field's potential. After examining the results, Atlantis will drill a 16,000 feet exploratory well in late 1998 or early 1999.

Refining
The UAE has two refineries located in Abu Dhabi. The first is an 81,000-bbl/d unit at Umm al-Nar. Since its 1976 construction, the Umm al-Nar plant has undergone debottlenecking as well as a recent expansion. Abu Dhabi's second refinery is a 132,000-bbl/d plant at Ruwais. In late 1995, this refinery underwent a $100-million upgrade and is now operating at 10-20 percent above nameplate capacity. In February 1995, a $1.2-billion second phase Ruwais expansion was approved by the UAE's Supreme Petroleum Council. Originally scrapped in 1991 due to lack of funds, the present expansion will include a new 135,000-bbl/d crude distillation unit, 130,000-bbl/d fractionation plant, and expansion of residual oil conversion facilities with a 40,000-bbl/d hydrocracker and a 36,000-bbl/d visbreaker. ADNOC plans to use the fractionation unit to process increased future condensate flows from the Bab and Asab fields. In June 1996, ADNOC awarded the Ruwais construction contract to Borealis, a fifty-fifty joint venture comprising Finland's Neste and Norway's Statoil. When completed in 2000, Ruwais' total capacity will be around 475,000 bbl/d. Also in June 1996, ADNOC (60%) and Borealis (40%) signed a joint venture agreement to build a $1 billion, 450,000 metric ton per year (mt/y) polyethylene plant as part of an expansion of the Ruwais industrial area. While the UAE's petrochemical industry is not as advanced as that in Saudi Arabia, Iran, or Kuwait, this new project, combined with other proposals to build 800,000-mt/y paraxylene and 100,000 mt/y benzene plants, may make the UAE a major petrochemical exporter. Current petrochemical facilities in the UAE include 640,000 mt/y urea and 440,000 mt/y ammonia plants at Ruwais.

During the summer of 1996, Sharjah Oil Refining Company, whose parent company is Fal Oil, began the arduous task of dismantling old oil refinery equipment from three Canadian refineries and relocating the equipment to a new refinery complex at the Hamriyah free trade zone in Sharjah. The equipment was purchased from the Taylor refinery in British Columbia, the Shellburn terminal near Vancouver, and a Halifax plant in Nova Scotia. The project is projected to cost $250 million, but Sharjah Oil estimated that relocating used equipment saved about 60% of the cost of new equipment. Start-up was initially expected in October 1997, but has been delayed until early next year. However, initial testing could begin as early as November or December 1997. The complex will consist of three units and will be capable of processing 75,000 bbl/d of crude oil once the project is completed.

In November 1996, officials from Dubai announced plans to expand handling and processing facilities for oil at the Jebel Ali free trade zone located about 30 miles from Dubai city. Emirates National Oil Corporation (ENOC) will construct a $200 million 60,000 bbl/d condensate refinery to be completed by the end of 1998. At a latter date, ENOC will expand the refinery's capacity to 100,000 bbl/d and add facilities to convert naphtha to gasoline. This part of the project is estimated to cost $200 million as well; however, no timetable has been set for completion.

NATURAL GAS & CONDENSATE
The UAE's natural gas reserves of roughly 204.9 trillion cubic feet (Tcf) are the world's fourth largest after Russia, Iran, and Qatar. About 189 Tcf of these reserves are located in Abu Dhabi. Sharjah, Dubai, and Ras al-Khaimah contain smaller reserves of 10.7 Tcf, 4.1 Tcf, and 1.1 Tcf, respectively. In Abu Dhabi, the non-associated Khuff gas reservoirs beneath the Umm Shaif and Abu al-Bukhush oil fields rank among the world's largest. Current gas reserves are projected to last for about 150 to 170 years, barring any new discoveries. Restrictive OPEC oil production quotas and increased domestic consumption of electricity have provided incentives for UAE to develop its vast gas reserves. Over the last decade, gas consumption in Abu Dhabi has doubled, and is projected to reach 3 billion cubic feet per day by 2000 and 4 billion cubic feet per day by 2005. The development of gas fields also increases exports of condensates, which are not subject to OPEC quotas.

In December 1996, Abu Dhabi's Sheikh Zayed and Dubai's Sheikh Mohammed reached an agreement on the supply of Abu Dhabi gas to Dubai. Dubai's gas consumption is expected to rise sharply by the year 2000 due to expansions in its industrial sector, a switch to gas by its power stations, and the need for an enhanced oil recovery system based on gas injections for its depleting oil fields. The deal stipulates that Abu Dhabi will sell gas to Dubai for $0.80 per million BTU, a price that undercuts all other potential suppliers. In addition, Sheikh Zayed promised to pay for the construction of a pipeline from the Abu Al Bukhoosh offshore field to Dubai's free zone of Jebel Ali. The pipeline's capacity is expected to be around 800 million cubic feet per day (mmcf/d) with 400-600 mmcf/d to be supplied to Dubai and cost about $160 million. The agreement is not only designed to strengthen ties between UAE's two largest emirates, but also to insulate UAE from Iranian influence. A gas deal, proposed by the French company Total, between Iran and Dubai had been in the works since early 1996. Sheikh Zayed feared that the deal could have become a divisive issue within UAE in light of its ongoing territorial dispute with Iran over the Abu Musa and Tunb Islands.

Over the last year, UAE has embarked on approximately $10 billion worth of work to expand and modernize onshore and offshore gas extraction and distribution systems, to continue the development of Ruwais into a major petrochemical export base, and to transform Taweelah into a gas-based industrial zone. One project is the second phase of a $1 billion onshore gas development program (OGD-2) at the Habshan natural gas complex located directly over the huge Bab oil and gas field. This second phase calls for the construction of three or four gas processing trains to process 1.15 bcf/d of wet gas, 1,800 tons per day of natural gas liquids, 30,000 bbl/d of condensate and over 800 tons per day of sulphur. To date, the award has not been granted, but France's Technip, Italy's Snamprogetti and Japan's Chiyoda with Mitsubishi are considered to be the leading candidates.

Another project closely linked with OGD-2 is the Asab gas development project. The Asab development will process around 825 mmcf/d of associated wet gas from the Thamama F and G reservoirs and produce up to 100,000 bbl/d of condensate for processing at the Ruwais refinery. The gas will also support other industries in Ruwais and be re-injected into Asab reservoirs to maintain field pressure. The $700-million project was awarded to Snamprogetti in June 1997 by UAE's Supreme Petroleum Council and should be completed in the second half of 1999.

A third project is the development of the Khuff gas zones in the Umm Shaif and Abu Al Bukhoosh regions. The project will exploit the offshore Khuff gas reservoir and transport the gas to Taweelah for processing. In addition, the project includes the construction of a pipeline to Dubai's Jebel Ali. The project is expected to produce around 650 mmcf/d of dry gas, the vast majority of which will be supplied to Dubai. The leading contenders for the $800 million to $1 billion project are the UK's Kvaerner John Brown, the UK office of Bechtel, and US-based Brown & Root.

UAE has long-term plans for two additional gas projects for its downstream industries. The first is a $1.5 billion joint venture between ADNOC and Copenhagen-based Borealis. Borealis is a joint venture between Norway's Statoil and Finland's Neste Oy, and Abu Dhabi is attempting to solidify its relationship with Borealis by buying out Neste's shares. The companies will build an ethane cracker at Ruwais that will produce 600,000 tons of polyethylene per year. The project is expected to be completed in three to five years. The second project is a $2.5 billion expansion and modernization of the Ruwais refinery. The overhaul of the refinery will be done in three phases over five years. It will double the refinery's crude processing capacity to 264,000 bbl/d and increase production of middle distillates.

COUNTRY OVERVIEW
President: Sheikh Zayed bin Sultan al-Nahayan
Prime Minister: Sheikh Maktoum bin Rashid al-Maktoum
Independence: December 2, 1971 (from United Kingdom)
Population (1997E): 1.93 million
Location/Size: Persian Gulf between Oman and Saudi Arabia/30,000 square miles
Major Cities: Abu Dhabi (capital), Dubai, Sharjah, al-Ain
Languages: Arabic (official), Persian, English, Hindi, Urdu
Ethnic Groups: Arab (42%), South Asian (50%), other expatriate (Western and East Asian) 8%. Less than 20% of the population is a UAE citizen
Religion: Muslim 96% (Shi=a 16%), Christian, Hindu, Other 4%
Defense: Army, Navy, Air Force, paramilitary (includes Federal Police Force)

ECONOMIC OVERVIEW
Currency: Dirham
Market Exchange Rate (10/97): US$1 = 3.67 dirhams
Gross Domestic Product (GDP-1990 dollars) (1997E): $35.93 billion
Real GDP Growth Rate (1997E): 1.0%
Inflation Rate (consumer prices)(1997E): 5.5%
Current Account Balance (1997E): $2.61 billion
Major Trading Partners: Japan, United Kingdom, United States, Singapore, Germany, South Korea, Iran, India
Merchandise Exports (1997E): $32.4 billion
Merchandise Imports (1997E): $24.6 billion
Major Export Products: Crude oil, natural gas, re-exports, dried fish, dates
Major Import Products: Manufactured goods, machinery and transportation equipment, food
Oil Export Revenues (1997E): $25.3 billion
Oil Export Revenues/Total Export Revenues (1997E): 78%
International Reserves (1997E): $6.93 billion
Total External Debt (1994): $11.6 billion

ENERGY OVERVIEW
Minister of Petroleum and Mineral Resources: Ubayd Saif al-Nasiri
Proven Oil Reserves (1/1/97): 97.8 billion barrels
Oil Production (1st half 1997 E): 2.48 million barrels per day (bbl/d), of which 2.23 million bbl/d is crude oil
OPEC Crude Oil Production Quota (1997): 2.161 million bbl/d (for whole UAE)
Oil Consumption (1996E): 322,000 bbl/d
Net Oil Exports (1995E): 2.0 million bbl/d
Major Crude Oil Customers (1997E): Japan (60%), other Far East (20%)
Crude Oil Refining Capacity (1/1/97): 212,800 bbl/d
Natural Gas Reserves (1/1/97): 204.9 trillion cubic feet (Tcf)
Natural Gas Production (1996E): 1.28 Tcf
Natural Gas Consumption (1996E): 1.04 Tcf
Electric Generation Capacity (1/1/96): 5.4 gigawatts
Electricity Production (1996E): 18.0 billion kilowatthours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995E): 1.58 quadrillion Btu
Energy Consumption per Capita (1995E): 87 million Btu (vs. 346 million Btu in U.S.)
Energy-related Carbon Emissions (1995E): 27 million metric tons (0.4% of world carbon emissions)
Carbon Emissions per Capita (1995E): 13.9 metric tons (vs. 5.4 metric tons in U.S.)
Major Environmental Issues: Coastal pollution, water depletion, and desertification

OIL AND GAS INDUSTRIES
Organizations: Abu Dhabi National Oil Company (ADNOC) has controlling interest in 21 domestic oil and natural gas companies. Abu Dhabi Co. for Onshore Oil Operations (ADCO) is held by ADNOC (60%) and a consortium comprising British Petroleum (BP) (9.5%), Shell (9.5%), Total (9.5%), Exxon (4.75%), Mobil (4.75%), and Partex (2%). Abu Dhabi Marine Operating Company (ADMA­OPCO) is held by ADNOC (60%) and a consortium comprising BP (14.7%), Total (13.3%), and Japan's Jodco (12%). Zakum Development Company (ZADCO) is operated by ADNOC (88%) and a consortium (12%) comprising BP, Jodco, and Total.
Major Refineries: Ruwais (132,000 bbl/d), Umm al-Nar II (80,750 bbl/d)
Major Gas Processing Plants: Bab, Bu Hasa, Das Island, Habshan (2), Jebel Ali, Ruwais
Major Oil Fields: Abu Dhabi: Asab, Bab, Bu Hasa, Zakum
Dubai: Falah, Fateh, Southwest Fateh, Margham, Rashid
Sharjah: Mubarak (near Abu Musa Island), Saja'a, Moveyeid
Major Associated Gas Fields: Abu Dhabi: Abu al-Bu Khoosh, Bab, Bu Hasa, Umm Shaif, Zakum
Major Ports: Abu Dhabi: Das Island, Delma Island, Jebel as Dhanna, Ruwais, Abu al Bukhush, Al Mubarraz, Zirku Island, Port Zayed, Umm al Nar Dubai: Jebel Ali, Fateh, Port Rashid Sharjah: Mubarak

Links to other sites:
1997 CIA World Factbook - United Arab Emirates
U.S. International Trade Administration, Country Commercial Guide - United Arab Emirates
U.S. International Trade Administration, Department of Commerce - United Arab Emirates
U.S. Department of Energy's Office of Fossil Energy's International section - United Arab Emirates
Country Report on Economic Policy and Trade Practices - United Arab Emirates (1996) - U.S. Department of State

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

ArabNet: United Arab Emirates
The Center for Middle Eastern Studies - United Arab Emirates
United Arab Emirates: a country study by the Library of Congress
CIA Atlas of the Middle East
Country Commercial Guide for United Arab Emirates from Tradecompass

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File last modified: November 7, 1997

Contact:

Lowell Feld
lfeld@eia.doe.gov
Phone: (202)586-9502
Fax: (202)586-9753