Has the UAE outgrown Norway in their bilateral petroleum relationship?

Photo copyright: Statoil ASA

The successful Norwegian model of petroleum-backed development has been a source of inspiration for the United Arab Emirates’ (UAE) vision for economic development and Norway has been instrumental in the provision of critical offshore expertise and specialized technology to Emirati companies. However, with the recent harrowing slump in oil prices and the declining economic viability of Norwegian Continental Shelf (NCS) production, Norwegian companies are now pinning their hopes on the UAE and the wider region for investment opportunities.

Often vaunted as the gold standard for resource development, the Norwegian model has been an undeniable success, having transformed Norway into the best country in the world to live in, according to the 2015 United Nations’ Human Development Report. Despite the stark differences between Norway and the UAE, parallels can be drawn between both of their economic development trajectories. As Norwegian Ambassador to the UAE, H.E. Jens Eikaas explains, the UAE has always taken inspiration from the Norwegian model, which emphasizes the importance of retaining control over national petroleum assets in order to leverage them for sustainable wealth creation for future generations. “The UAE authorities are now able to manage their resources in pretty much the same way as Norway”, he adds. The recent surge towards the development of renewables, with the highly successful World Future Energy Summit 2016 in January for instance, is only the latest in a long line of initiatives, stemming directly from the late founder of the UAE, His Highness Sheikh Zayed bin Sultan Al Nahyan himself, that are geared towards the long-term welfare and sustainable development of the country.

Mr. Neri Askland, Vice-President (Middle East) and Country Manager (UAE) of Statoil, the Norwegian multinational oil and gas company, highlights the important contributions Norwegian companies can bring to Abu Dhabi’s offshore aspirations. Abu Dhabi National Oil Company (ADNOC) is investing USD 25 billion into offshore production and infrastructure over the next five years, with the target of increasing offshore reserves to 50 percent of oil production by 2018. In addition, they are eyeing an unprecedented overall EOR rate of 70 percent. Given that Statoil in Norway has achieved some of the highest recovery rates in the world, with an average of 65 percent, despite the complex nature of offshore E&P, they are well-positioned to assist ADNOC in reaching their laudable goals.

Norwegian companies are also renowned for the premium quality of their expertise. One such value offering is in well intervention services, with the likes of Interwell and Nordic offering a selection of advanced and specialized technology. Interwell’s Managing Director, Charlie Sinclair, emphasized that their core mission is to be number one in well intervention through the provision of tailored solutions to their clients. Sherif Refaat, Regional Director (Middle East) with Oslo-listed Archer similarly eschewed what he called “the ‘me-too’ mentality” of providing a generalist portfolio of services, choosing to compete instead on niche and premium technology. In the same vein, Nordic’s CEO, Sonny Sola, a Norwegian who founded his well drilling and intervention company in the UAE, advises would-be entrepreneurs to differentiate themselves through single-source technology whenever possible, citing their own proprietary technology, a hydraulic rotating coil, as a prime example.

But plunging oil prices have wreaked turmoil on the entire industry and the power balance in the Norwegian-Emirati petroleum relationship is shifting. Norwegian companies, anticipating declining investments on the increasingly economically unviable Norwegian Continental Shelf, are making substantial investment moves in international markets, notably in the UAE. The 2015 Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC), the biggest oil and gas exhibition in the world, saw over 60 Norwegian companies attend. The Norwegian Embassy, Statoil, INTSOK and Innovation Norway also organized a business workshop on oil and gas in conjunction with the event.

With the UAE having one of the lowest breakeven prices per barrel at USD 60 and a long-established reputation for openness to foreign investment and political stability, it ranks as one of the most attractive nations for petroleum investment. Coupled with ADNOC’s intention of investing USD 100 billion over the next five years to increase oil production to 3.5 million barrels a day, it is little wonder that international companies like British Petroleum (BP), Shell and Total have been competing fiercely for the Abu Dhabi concessions. No Norwegian E&P company has obtained a concession thus far, and increasingly, Norwegian companies are finding themselves struggling to justify their premium pricing to a beleaguered industry desperate to pare down their budgets.

Whether it is the perpetual volatility in oil prices, the use of petroleum resources to generate sustainable wealth creation or the drive towards renewable sources of energy, it is clear that  choosing the right long-term partners is key to success. Their historical relationship notwithstanding, Norwegian companies will now need to jostle with other international players, particularly those from the Asian powerhouses of Japan, South Korea, China, and India, in order to prove themselves as partners of choice for the UAE.

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