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Interview

Suhail Mohamed Faraj Al Mazrouei – Minister of Energy of the UAE

30.04.2013 / Energyboardroom

As the youngest and only Arab OPEC minister to have experience at a foreign company, could you please introduce yourself?

I earned my Bachelors of Science degree in Petroleum Engineering in 1996 from Tulsa University in the United States. I gained a diversified technical and management background in reservoir engineering, production operations and project management accumulated from managing the production and facilities engineering for five operating companies of the Abu Dhabi National Oil Company (ADNOC). Within that period, I was seconded to Shell EP in the Netherlands for a year and a half, where I focused on diversifying my portfolio from an international point of view working on a number of international projects in Nigeria, the North Sea, Brunei and the Netherlands. Although the time spent there was short, the benefits for me were tremendous.

Subsequently, I returned to the UAE and was given the responsibility of looking after the all of Abu Dhabi’s five offshore companies. In my capacity as a manager of production and facilities engineering, I managed and coordinated a collective daily production of more than one million barrels; almost half of the country’s total production at that time. Moreover, I was involved in major upgrades of Abu Dhabi’s Marine Operation Company (ADMA OPCO) and Zakum Development Company (ZADCO) that amounted to multi-billion dollar projects.

Moving away from these technical aspects, I joined Mubadala in 2007 where together with a small team I contributed to establishing what is now known as Mubadala Petroleum. More specifically, I was responsible for the growth and business development of the company that is now present in twelve countries. Through my six year practice at Mubadala, I was exposed to a commercial perspective of the industry until I was eventually appointed as Minister of Energy in March of 2013.

The modernization and economic development of the UAE has been a two-edged sword. The progress obviously good for the nation and its people. However, it also means that energy usage has soared, and greater energy consumption means less to sell overseas. How are you dealing with this issue?

This depends on the strategies we devise to balance and tackle the future of the country’s energy considerations. At this given moment, I believe we have made good progress towards diversifying our energy portfolio to ensure that we strike that balance. Take the example of the introduction of nuclear energy, a key milestone that will contribute up to 25% of Abu Dhabi’s electricity consumption. Without that, we would be more dependent on our natural resources and burning more of it. The gradual elimination of the consumption of liquid fuel for energy is also an initiative to maximize the UAE’s benefit and reduce our environmental footprint.

Almost all of our electricity today is generated by gas and we only tap into insignificant amounts of fuel oil or diesel sources when required. The challenge lies in linking this with what is facing us in the future. For that reason, one of my aims is to devise a new strategy that will tackle all of these challenges relating to the growth of local demand as well as our role as an OPEC member supplying the world with oil and gas. We intend to continue that critical role. That is why I recently highlighted the need to revamp and increase our export capacity to 3.5 million bpd. There are a number of on-going projects aimed at realizing this ambition and we are on track to realizing this capacity production by 2017, as noted by ADNOC’s managing director.

Despite the country’s vast proven gas reserves, rapid growth in domestic energy demand over the past few years has caused the UAE to become a net-importer of natural gas prompting the country to renew its focus on exploiting its gas reserves. What challenges are you facing in exploiting the country’s gas reserves and what role can foreign partners play in addressing these?

I believe we are well developed within that space. Even in the more challenging areas, you can see that we are welcoming the introduction of the latest technologies. Al Hosn, the relatively new joint venture in Abu Dhabi working on the Shah sour gas project, is a good illustration of that readiness to work with the providers of technology who can help us to enhance the development of our gas resources. The underlying issue here is not the abundance of the resource. Instead, the challenge is one of technology and of forward thinking and planning before demand spikes which lead to dramatic actions such as the importation of more expensive options such as LNG for instance.

In any case, if you must choose between burning fuel and the more expensive option, I believe the latter would more favourable. This is especially true if you are faced with a cyclical demand for energy as we do in the UAE between the summer and winter.

Abu Dhabi has embarked on an ambitious growth plan in terms of oil production capacity which is set to increase to 3.5 million bpd by 2017. Specifically what investments does this entail and what opportunities do they create for existing and prospective partners alike?

A lion’s share of that of that capacity growth will stem from the major operating companies within Abu Dhabi. ADCO, along with its partners, is steadily progressing towards achieving its new capacity targets, as are the ADMA OPCO and ZADCO joint ventures. Needless to say, there is a difference between capacity and actual production which is interrelated with our role as an OPEC member in supplying the market with equilibrium amounts of oil. Of course, as a member of OPEC, we are committed to ensuring a good balance between price and supply.

Broadly speaking, the investments we are observing today demonstrate that there is a need for those countries endowed with the major resources to have that additional capacity and flexibility to respond to the changing environment whenever needed. No one for instance anticipated that the turbulence in the Middle East would evolve so rapidly. That of course had a significant impact on supply conditions. Moreover, despite the economic slowdown in Europe, the price of oil remained at record high levels. Under normal circumstances, we would have expected to see a different price reaction. This demonstrates that the key suppliers must have the capacity and flexibility to respond to such developments.

The UAE is one of the OPEC members that realized a record oil income in 2012. However, recently, some industry observers have said that OPEC is increasingly “irrelevant.” How would you respond to that statement?

I do not believe that is a fair statement and must disagree. OPEC has played, and will continue to play a key role in the balancing of the market. Just as with any other organization, yes there are challenges, but they will certainly not make OPEC an obsolete or inactive body.

What we need to focus on moving forward as an organization is maintaining our unity and strategizing around the original goal of OPEC. We need to develop a common strategy on how we tackle the evolving market dynamics and how we can continue to best balance the market to both protect the consumers and the interests of its member countries. History has taught us that every spike in the price of oil is subsequently followed by a decrease. That instability is not our ultimate interest regardless of whether member countries realize a short term benefit. We are more interested in stabilizing the market to enjoy a degree of predictability in growth so that we can respond to it more effectively. The afore mentioned flexibility in production capacity is one of the measures that will allow the OPEC members to manage on-going market dynamics.

American oil production has risen to its highest level in decades due to technological developments that have enabled economic production from shale and other tight oil formations. Canada is rapidly developing its oil sands, a long-term resource for that country. Both countries are developing LNG export facilities. How is the UAE responding to the shale gas and oil “revolution” in North America? Do you see any of this as a threat to your country?

On the contrary, I see an opportunity there. As a net importer of gas, I think the fair price of gas will be dictated by market forces. How much of the gas can or will be exported from the United States is a question for the industry to answer, rather than the regulators. Similarly, another question and challenge relates to the investments required in Canada to export their gas to the market and determining the price that will be deemed as reasonable by investors. As you can see, gas has three key prices depending on where that gas is discovered. I think it is a phenomenon in the gas and the realization of the gas value. To a certain extent if those gas discoveries or developments never took place in the US, I would assume an increase in gas prices encouraging other forms to compete resulting in a cycle of technology development.

In my view this is not entirely a negative considering the industry’s responsiveness to the pulls and push of technology. The evolution of technology and infrastructure in the US is something that would help securing the gas to accommodate the rapid growth of certain countries as in China, for instance. We know that the resources exist however at what cost will they be extracted and supplied to the consumers? Is that technology barrier or infrastructure barrier reasonable enough to encourage investment despite the knowledge of future gas prices? I believe these are the major challenges investors are facing today.

It is fair to say that today the UAE is an “oil and gas” nation. However, a few points lead us to believe the energy mix of your country is evolving. As you have just pointed out, nuclear energy is expected to account for up to 25% of power production by 2021. In addition to this, the UAE recently inaugurated the world’s largest solar plant, Shams 1, and you also recently publicly stated that “we want to seize the opportunities presented by clean energy technologies”. Could you please elaborate to the readers of the OGFJ, which energies will form the core of the UAE’s future mix? And which energies will play a more complementary role?

For the time being, gas will continue to be the core source of energy for the UAE. Looking ahead, we are working on a communicated percentage increase in terms of the contribution of alternative and more sustainable sources of energy. We are in the initial chapter of developing and implementing renewable sources but we do have the aspiration to attain reasonable percentages in the future.

The challenge in the use of renewables relates to regulations. That is, sustainable energy sources are rather well developed in Europe and a number of other countries due to the lack of oil subsidies. The issue we are facing locally is the heavy subsidy of some forms of energy as opposed to renewables which maybe unfair.

You need to look at this issue from the future perspective. If you are a net importer of energy, would you choose to import gas? Or do you develop a renewable source? Which one is more cost effective given the given gas price? This is what we are working towards here at the Ministry to devise a strategy and guide line around that. In addition to this, we are aiming to develop principle regulations that will take into consideration all forms of energy in an unbiased manner. From a regulatory point of view, these topics are well developed in Europe and we are using them as a benchmark to be ready to adapt to the future.

We do not yet have a clear answer on the UAE’s future energy mix beyond what has already been announced by Abu Dhabi and Dubai but that is precisely what we are working towards. For the time being, Dubai for instance has committed to having a 5% contribution of renewables by 2030, or 1,000MW, while Abu Dhabi is working towards a 7% contribution by 2020. Ultimately, what we lack is a holistic strategy on a federal level to tackle those issues that could lead to stronger commitments.

On the other hand, looking at the technological aspect, I recently visited the Masdar Institute of Technology and was proud of the renewable R&D technologies being developed there. These efforts are aimed at making all forms of such energies a reality, from the lab all the way up to the implementation stage through collaboration with commercial organizations. I believe this initiative that the Abu Dhabi government sanctioned is undoubtedly step in the right direction and if we continue gaining the local governments’ support then we can achieve significant milestones in developing these technologies. Although realistically gas will continue to be the central energy source for the time being, I am very optimistic about the future of the advancements being made in the renewable sphere. As we move to the future, renewables will play a more complementary role while increasingly gaining a share of the UAE’s energy mix.

On that note, how do you foresee the Emirates in 10 years and where will the country fit in this rapidly evolving world energy map given North America’s shale gas boom, Brazil’s deep water and East Africa’s potential to become one of the world’s new oil giants?

This goes back to the UAE’s founder, the late Sheikh Zayed bin Sultan Al Nahayan, who during the country’s early history cared tremendously about its environment. Through the Supreme Petroleum Council, the highest authority responsible for the petroleum affairs in the Emirate of Abu Dhabi, was encouraging ADNOC and its partners to adopt a zero flaring policy and the reduction of emissions. From an environment perspective, I think the UAE is demonstrating an international level of awareness and care that lead to our leading role in hosting the headquarters of the International Renewable Energy Agency (IRENA) in Abu Dhabi. The formation of IRENA heralds a new era of international cooperation to address the pressing issues of climate change, global warming and energy security. In addition to this, the agency is tasked with facilitating access to all relevant information on the potentials for renewable energy, best practices, effective financial mechanism and state-of-the-art technological expertise. In this context, we are trying to support most of the initiatives that make sense in that space.

Simultaneously, we are balancing this goal with our role as a major supplier of hydrocarbons. Both are of the utmost importance to us and I think it is difficult to find may examples of countries that are trying to achieve both at the same time. Some are more focused on the production of hydrocarbons, while other are more focused on developing alternative sources of energy. We are trying to strike that balance in between these two poles which is no easy feat. These characteristics of the UAE serve as a differentiator for our country. Norway is an excellent example of both a significant hydrocarbons producer and a front runner in sustainable energies.

The major challenges we are therefore facing is the lack of awareness on the importance of energy conservation and its proper use as well as the related high level of subsidies the government is providing. This is a common challenge for the GCC countries where the energy is heavily subsidized resulting in a very high per capita usage. If we succeed in reducing that, I believe we will be conserving our environment while helping the government to better serve its people by channelling the subsidies to more beneficial initiatives and projects.

What would your final message?

The UAE is opening up. We are an open economy and continue to encourage the sort of partnerships that make sense. From this prospective, we need all the help we can get to tackle the challenges related to the development of our gas resources. I believe that the SPC and ADNOC in Abu Dhabi are approaching this with an open mind. In addition to this, the UAE government is also highly supportive of those initiatives designed to improve the technologies to advance other energies as well. In order to support these ambitions, it is important that we tackle these issues from a number of fronts including the regulatory, R&D and investment perspective.

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