5-bmi united arab emirates

7/28/2019 5-BMI United Arab Emirates

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Q3 2011www.bunmnr.cm

oil & Gas RepoRt

issN 1748-4332

pubhd by Bun Mnr inrnn ld.

UNiteD aRaB eMiRates

INCLUDES BMI'S FORECASTS


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UNITED ARAB EMIRATESOIL & GAS REPORT

Q3 2011INCLUDES 10-YEAR FORECASTS TO 2020

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2011


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United Arab Emirates Oil & Gas Report Q3 2011

Business Monitor International Ltd Page 2


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CONTENTS

Executive Summary ......................................................................................................................................... 7SWOT Analysis ................................................................................................................................................. 9

United Arab Emirates Political SWOT .................................................................................................................................................................. 9United Arab Emirates Economic SWOT .............................................................................................................................................................. 10United Arab Emirates Business Environment SWOT ........................................................................................................................................... 11

UAE Energy Market Overview ....................................................................................................................... 12Regional Energy Market Overview ............................................................................................................... 14

Oil Supply And Demand ............ ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............ .......... 14Table: Middle East Oil Consumption (000b/d) .................................................................................................................................................... 15Table: Middle East Oil Production (000b/d) ....................................................................................................................................................... 16

Oil: Downstream ...................................................................................................................................................................................................... 17Table: Middle East Oil Refining Capacity (000b/d) ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ........... 17

Gas Supply And Demand .......................................................................................................................................................................................... 18Table: Middle East Gas Consumption (bcm) ....................................................................................................................................................... 18Table: Middle East Gas Production (bcm) .......................................................................................................................................................... 19Liquefied Natural Gas ................. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............ ............. ............. ............. . 20Table: Middle East LNG Exports/(Imports) (bcm) ............ ............. ............ ............. ............. ............. ............. ............ ............. ............. ............. ... 20

Business Environment Ratings .................................................................................................................... 21Middle East Region ............ ............ ............. ............. ............. ............. ............. ............ .............. ............. ............ ............. ............. ............. ............. ... 21

Composite Scores................................................................................................................................................................................................. 21Table: Regional Composite Business Environment Rating .................................................................................................................................. 21Upstream Scores .................................................................................................................................................................................................. 22Table: Regional Upstream Business Environment Rating.................................................................................................................................... 22UAE Upstream Rating Overview ...................................................................................................................................................................... 23UAE Upstream Rating Rewards ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. . 23UAE Upstream Rating Risks ............................................................................................................................................................................. 23Downstream Scores ..................... ............ ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 24Table: Regional Downstream Business Environment Rating ............................................................................................................................... 24UAE Downstream Rating Overview .................................................................................................................................................................. 25UAE Downstream Rating Rewards ................................................................................................................................................................... 25UAE Downstream Rating Risks ........................................................................................................................................................................ 25

Business Environment .................................................................................................................................. 26Legal Framework ............ ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ..... 26Intellectual Property Rights ........... ............. ............. ............ ............. ............. ............ ............... ............ ............. ............. ............ ............. ............. .... 26Corruption/Red Tape ................................................................................................................................................................................................ 26Physical Infrastructure ............................................................................................................................................................................................. 27Labour Force ............. ............. ............. ............. ............. ............. .............. ............. ............ ............. ............. ............. ............. ............ ............. .......... 28Foreign Investment Policy ........................................................................................................................................................................................ 29Foreign Trade Regime .............................................................................................................................................................................................. 30Tax Regime ............................................................................................................................................................................................................... 31Security Risk ............................................................................................................................................................................................................. 31

Industry Forecast Scenario ........................................................................................................................... 33


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Oil And Gas Reserves ............................................................................................................................................................................................... 33Oil Supply And Demand ............ ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............ .......... 33Gas Supply And Demand .......................................................................................................................................................................................... 34LNG ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............ ............. ............. ............ 35Refining And Oil Products Trade ............. ............. ............. ............. .............. ............. ............. ............ ............. ............. ............. ............. ............. ..... 36Revenues/Import Costs.............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ....... 36

Table: UAE Oil And Gas Historical Data And Forecasts ................................................................................................................................. 37Other Energy ............................................................................................................................................................................................................ 38

Table: UAE Other Energy Historical Data And Forecasts ............................................................................................................................... 40Key Risks To BMIs Forecast Scenario ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............ ............. ............ 40Long-Term Oil And Gas Outlook ............. .............. ............. ............. ............. ............. .............. ............ ............ ............. ............. ............. ............. ..... 40

Oil And Gas Infrastructure ............................................................................................................................ 41Oil Refineries ............................................................................................................................................................................................................ 41

Table: Refineries In The UAE .............................................................................................................................................................................. 41Oil Pipelines ............................................................................................................................................................................................................. 43Gas Storage Facilities............................................................................................................................................................................................... 43LNG ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............ ............. ............. ............ 43

Table: LNG Export Terminals in the UAE ........................................................................................................................................................... 44Gas Pipelines ............................................................................................................................................................................................................ 44

Macroeconomic Outlook ............................................................................................................................... 46Table: United Arab Emirates Economic Activity .............................................................................................................................................. 47

Competitive Landscape ................................................................................................................................. 48Table: Key Domestic And Foreign Companies In The UAEs Oil And Gas Sector .............................................................................................. 49

Overview/State Role .................................................................................................................................................................................................. 49Licensing And Regulation ............ ............. ............ ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 49Government Policy .............................................................................................................................................................................................. 50International Energy Relations ........... ............. ............. ............ ............. ............. ............ ............. ............. ............. ............ ............. ............. ........ 50Table: Key Upstream Players .............................................................................................................................................................................. 52Table: Key Downstream Players ......................................................................................................................................................................... 52

Company Monitor ........................................................................................................................................... 53Abu Dhabi National Oil Company (ADNOC) ............ ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. . 53Dolphin Energy ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ........ 58Emirates General Petroleum Corporation (Emarat)...................... ............. ............. ............. ............. ............ ............. ............. ............. ............. ....... 61Emirates National Oil Company (ENOC) ............. .............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ..... 63ExxonMobil ............ ............. ............. ............. ............. ............. ............. ............ ............. .............. ............. ............. ............ ............. ............. ............. . 65

BP Summary ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ... 68Rosneft Summary ................... ............. ............. ............. ............. ............. ............ .............. ............. ............ ............. ............. ............. ............. ... 68Total Summary .................................................................................................................................................................................................. 68ConocoPhillips Summary .................................................................................................................................................................................. 69Royal Dutch Shell Summary .................... ............. ............ ............. ............. ............. ............ .............. ............. ............ ............. ............. ............ 69Korea National Oil Corporation Summary ....................................................................................................................................................... 70Dana Gas Summary ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ..... 71Occidental Petroleum Summary........................................................................................................................................................................ 71Japan Oil Development Company (JODCO) Summary ...................... ............. ............. ............ ............. ............. ............. ............. ............ ........ 71Cosmo Oil Summary ......................................................................................................................................................................................... 72Abu Dhabi National Energy Company (TAQA) Summary................. ............. ............ ............. ............. ............. ............. ............. ............. ......... 72CNPC Summary ................................................................................................................................................................................................ 72RAK Petroleum Summary ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ .......... 73


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Oil And Gas Outlook: Long-Term Forecasts ............................................................................................... 74Regional Oil Demand .................. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ..... 74

Table: Middle East Oil Consumption (000b/d) .................................................................................................................................................... 74Regional Oil Supply ............ ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 75

Table: Middle East Oil Production (000b/d) ....................................................................................................................................................... 75Regional Refining Capacity ............. ............. ............. ............. ............. ............ ............. .............. ............. ............. ............ ............. ............. ............. . 76

Table: Middle East Oil Refining Capacity (000b/d) ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ........... 76Regional Gas Demand ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ......... 77

Table: Middle East Gas Consumption (bcm) ....................................................................................................................................................... 77Regional Gas Supply ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............ 78

Table: Middle East Gas Production (bcm) .......................................................................................................................................................... 78UAE Country Overview ....................................................................................................................................................................................... 78

Methodology And Risks to Forecasts ............ ............. ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. . 79Glossary Of Terms ......................................................................................................................................... 80Oil And Gas Ratings: Revised Methodology ............................................................................................... 81

Introduction ............ ............. ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............ ............. ............. ............. . 81Ratings Overview ............. ............. ............. ............ ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ............. ..... 81

Table: BMI Oil And Gas Business Environment Ratings: Structure .................................................................................................................... 82 Indicators ............. ............. ............. ............. ............. .............. ............. ............. ............ ............. ............ ............. ............. ............. ............. ............. ... 83

Table: BMI Oil And Gas Business Environment Upstream Ratings: Methodology ............. ............. .............. ............. ............ ............. ............. ... 83Table: BMI Oil And Gas Business Environment Downstream Ratings: Methodology ......................................................................................... 84

BMI Methodology ........................................................................................................................................... 86How We Generate Our Industry Forecasts ............ ............. ............. ............. ............. ............. ............. ............ ............. ............. ............. ............. ..... 86Energy Industry .............. ............. ............. ............. ............ ............. ............. ............. .............. ............ ............. ............. ............. ............. ............. ..... 87Cross checks ............................................................................................................................................................................................................. 87Sources ..................................................................................................................................................................................................................... 87


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Executive Summary

We forecast that the United Arab Emirates will account for 8.6% of Middle East regional oil demand by

2015, while providing 9.9% of supply. Middle East regional oil use rose to an estimated 7.6mn b/d in

2010. It should average 7.9mn barrels per day (b/d) in 2011 and then climb to around 8.9mn b/d by 2015.

Regional oil production was 22.83mn b/d in 2001 and averaged an estimated 24.5mn b/d in 2010. After

an estimated 25.7mn b/d in 2011, it is set to rise to 30.5mn b/d by 2015. Oil exports are growing steadily,

because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an

average of 17.85mn b/d. This total will have eased to an estimated 16.88mn b/d in 2010 and is forecast to

reach 21.54mn b/d by 2015. Iraq has the greatest export growth potential, followed by Qatar.

In terms of natural gas, the region consumed an estimated 391bn cubic metres (bcm) in 2010, with

demand of 487bcm targeted for 2015, representing 25% growth. Production of an estimated 455bcm in

2010 should reach 642bcm in 2015 (+41%), which implies net exports rising to 154bcm by the end of the

period. The UAE's estimated share of gas consumption in 2010 will have been 15.5%, while its share of

production is put at 11.2%. By 2015, its share of gas consumption is forecast to be 15.9%, with the

country accounting for 9.7% of supply.

The 2010 full-year outturn was US$77.45/bbl for OPEC crude, which delivered an average for North Sea

Brent of US$80.34/bbl and for West Texas Intermediate (WTI) of US$79.61/bbl. The BMI price target of

US$77 was reached thanks to the early onset of particularly cold weather, which drove up demand for and

the price of heating oil during the closing weeks of the year.

Global GDP growth in 2011 is forecast at 3.5%, down from 4.3% in 2010. Growth in the US is now

expected to slow down, but growth in the Eurozone should be marginally higher than last year, while

Chinese economic expansion will slow and Japans growth will slump to 0.7% as a result of the

devastating earthquake and tsunami in March 2011. Our oil price forecast for 2011 is US$101.90/bbl for

the OPEC Basket, putting Brent at US$106/bbl and West Texas Intermediate (WTI) at US$95.30,

although these differentials are subject to change.

UAE real GDP rose by 1.4%% in 2010, and we expect average annual growth of 3.35% in 2010-2015.

We expect oil demand to rise from an estimated 682,000b/d in 2010 to 771,000b/d in 2015, lagging our

underlying economic assumptions. State-owned Abu Dhabi National Oil Company (ADNOC) is the

biggest national oil company, working in partnership with major international oil companies (IOCs) to

deliver 2.85mn b/d of oil and liquids production in 2010, rising to 3.02mn b/d by the end of the forecast

period subject to OPEC quota policy. Gas production should reach 62bcm by 2015, up from 51bcm in

2010. Consumption is expected to rise from 61bcm in 2010 to 77bcm by the end of the forecast period,

requiring net imports of around 15.8bcm.


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Between 2010 and 2020, we are forecasting an increase in UAE oil production of 22.9%, with volumes

rising steadily to 3.50mn b/d by the end of the 10-year forecast period. Oil consumption between 2010

and 2020 is set to increase by 28.0%, with growth slowing to an assumed 3.0% per annum towards the

end of the period and the country using 872,500b/d by 2020. Gas production is expected to rise from an

estimated 51bcm in 2010 to 70bcm by the end of the period. With 2010-2020 demand growth of 62.9%,

this provides a net gas import requirement rising to nearly 30bcm over the period.

The UAE now holds first place, above Israel and Qatar, in BMIs composite Business Environment

Ratings (BERs), which combine upstream and downstream scores. The UAE holds second place, behind

Qatar, in BMIs updated upstream ratings, thanks largely to its significant oil and gas resource base and

investor-friendly climate. It stands just two points behind Qatar and may have to settle for second best.

The UAEs score reflects the countrys gas reserves, high RPR, plus non-state competition, established

licensing framework and generally encouraging country risk factors. The UAE is around the mid-point of

the league table in BMIs downstream ratings, with some high scores and further progress up the rankings

possible over the longer term. It is ranked fifth, ahead of Qatar and Bahrain, thanks largely to high scores

for oil and gas demand, refining capacity expansion and nominal GDP.


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SWOT Analysis

United Arab Emirates Political SWOT

Strengths Standards of living are high for nationals, which has dampened any demands forgreater political representation.

The monarchy enjoys strong support nationwide.

Weaknesses Lack of democracy poses long-term risks, given trends towards greater popularparticipation elsewhere in the region.

Sheikh Khalifa bin Zayed assumed the presidency after the death of SheikhZayed al-Nahayan. He is equally conservative and is unlikely to make concertedefforts to address constitutional issues.

The succession lineage is somewhat opaque, raising concerns about longer-term

stability.

Opportunities The UAE cooperates closely with other GCC states in security and economicpolicy.

The UAE is typically a 'dove' within OPEC, sympathetic to the needs of consumerstates, which is good for its relations with the West.

Threats There is a long-running territorial dispute with Iran, which continues to affectbilateral relations.

Relatively poor living conditions among some foreign workers have led to strikesand demonstrations. Given the size of the expatriate community, this poses somethreat to domestic stability.


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United Arab Emirates Economic SWOT

Strengths The UAE has one of the most liberal trade regimes in the Gulf and attracts strong

capital flows from across the region. In common with most Gulf states, there are a high number of expatriate workers

at all levels of the economy, making up for the otherwise small workforce.

The UAE is progressively diversifying its economy, minimising vulnerability to oilprice movements.

Weaknesses The UAE's currency is pegged to the dollar, giving it minimal control overmonetary policy and reducing its ability to tackle inflationary pressure.

The state's location in a volatile region means that its risk profile is, to someextent, affected by events elsewhere. US concerns about regional militant groupsand Iranian weapons of mass destruction programmes could affect investorperceptions.

Opportunities Oil prices are expected to stay high (by historical standards) over the forecastperiod.

Economic diversification into gas, tourism, financial services and high-techindustries offers some protection against volatile oil prices.

Despite the impact of the 2009 downturn, the tourism and financial sectors stillhave good medium-term growth prospects, driven by domestic and foreigninvestment.

Threats Heavy subsidies on utilities and agriculture, and an outdated tax system, havecontributed to persistent fiscal deficits in the past, although rising oil revenues

have masked the problem in recent years. Several high-profile construction projects have been delayed and the property

market crash could threaten future development.


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United Arab Emirates Business Environment SWOT

Strengths The UAE is a member of the Gulf Cooperation Council, a six-member common

market, and has been a member of the WTO since 1996. The state has invested large sums in infrastructure, and will continue to do so over

the next 10 years.

The UAE's diversified economy reduces risks from volatile oil prices.

Oil and gas reserves are vast and underutilised, providing a high reserves-to-production ratio (RPR) that facilitates medium- to long-term production growth.

Weaknesses Owing to the state's federal nature, regulations can vary considerably across theemirates.

The regional economy is oil-dependent. This has historically been very cyclical,which increases risks for long-term projects.

Growth in oil production is subject to OPEC policy and substantial ongoinginvestment that can be guaranteed only with continuing IOC participation.

Opportunities Large number of free trade zones offering tax holidays and full foreign ownership.

Comparatively relaxed rules on expatriate employment.

The UAE's social stability and relative prosperity means that there is far lessconcern for security than in some other Gulf states.

The UAE is set to upgrade two refineries by end-2011 in order to meet risingdomestic demand for refined products.

Threats The state is bureaucratic relative to regional peers.

Strong oil prices have massively increased liquidity in the region. This has resultedin strong financial inflows, increasing risks that projects of lower investmentpotential are currently being funded.

Abu Dhabi in particular has less near- to medium-term oil and gas productionupside potential than other Gulf States and investment opportunities elsewhere inthe region could make IOCs less enthusiastic regarding longer-term UAEparticipation.


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UAE Energy Market Overview

The collection of states that forms the UAE has proven oil reserves estimated at 97.8bn bbl (BP Statistical

Review of World Energy, June 2011), or nearly 10% of the world total. It also houses the worlds fifth-

largest natural gas reserves at 6,031bcm at end-2010, and exports liquefied natural gas (LNG) to Japan. It

is also importing gas from Qatar. Abu Dhabi dominates the UAE oil and gas sector, with 94% of its oil

(over 92bn bbl). Dubai contains just 4bn bbl of reserves, followed by Sharjah and Ras al-Khaimah, with

1.5bn bbl and 100mn bbl respectively.

The UAE is a member of OPEC and it has recently (April 2011) been producing 2.51mn b/d, against

sustainable productive capacity estimated at 2.69mn b/d. There are also significant volumes of gas liquids

that are exempt from OPEC quotas.

There are five operational refineries providing end-2009 capacity of approximately 673,000b/d, according

to BP data. The December 2010 Oil & Gas Journal (OGJ) refining survey suggests an increase in UAE

crude distillation capacity to 773,250b/d by the end of 2010. Company data suggests that capacity was

between these two figures, at 685,000b/d. UAE oil consumption was 682,000b/d in 2010, while its gas

demand of 60.53bcm in 2010 exceeded production of around 51bcm.

Prior to the outbreak of unrest in the Middle East in 2011, the UAE had moving slowly towards

liberalising fuel prices. State-run Abu Dhabi National Oil Company (ADNOC) raised gasoline prices in

September 2010 for the third time in a year. The price rises boosted sales in neighbouring Oman as

motorists crossed the border to fill up on cheaper fuel, with some beginng to resell it to UAE firms. In

August 2010, the federal government set up a committee of UAE oil companies to monitor fuel prices in

an effort to reduce losses incurred by retailers. The eventual elimination of price controls would slow the

pace of UAE oil consumption growth, which has benefited from cheap gasoline.

Following demonstrations and violence across the Middle East in early 2011, the UAE appeared to halt its

liberalisation of fuel prices. Unwilling to risk unrest by raising fuel prices in line with higher crude oil

prices, the government chose to let retailers shoulder the burden of worsening margins between wholesale

and retail fuel prices. In May 2011 this led to fuel shortages, first in Sharjah and then nearby emirates

such as Umm al Quwain. In Sharjah, shortages forced motorists to buy gasoline in Dubai, forcing the

problem westwards and leading to fuels retail stations closing their doors or initiating rationing.

According to a June 2011 New York Times report, almost 200 UAE fuels retail stations shut because of

shortages.


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Gas was the dominant fuel for the UAE in 2010, accounting for an estimated 71% of primary energy

demand (PED), followed by oil at 29%. Regional energy demand is forecast to reach 1,117mn tonnes of

oil equivalent (toe) by 2015, representing 20.8% growth over the period since 2010. The UAEs estimated

2010 market share of 8.52% is set to rise to 8.58% by 2015. Our projections suggest that by 2015, UAE

will be dependent on gas for 74% of PED, with the share of oil at a forecast 26%.

The Dubai government is said to be considering the possibility of using coal and nuclear technology to

diversify energy resources to meet future demand, according to June 2010 reports by Qatar News Agency

(QNA). The government's newly created Supreme Council of Energy has reportedly hired global advisory

group McKinsey & Company to help develop an Energy Strategy 2030 that will help the emirate to

explore alternative energy resources to power its utilities sector and meet future demand. Currently, the

council is studying the development of short-, medium- and long-term strategic plans for the energy

sector in Dubai.

Under the UAEs 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 OPEC or bound by its quotas.


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Regional Energy Market Overview

The Arabian Gulf states will continue to dominate oil supply, backed by huge and largely untapped

reserves. Gas is another important export product for the region, mainly in the form of liquefied natural

gas (LNG). The Gulf plays a growing role in the supply of the worlds gas. Large parts of the region

remain off limits to IOCs, thanks to state control in the major Gulf countries. Iraq is formulating oil laws,

however, that may result in foreign partnerships. Investment in Iran by IOCs has come under increasing

pressure thanks to the nuclear standoff. Refinery investment opportunities do exist for IOC partners, with

the region building a substantial surplus with which to meet demand growth in Asia, Europe and North

America.

Oil Supply And DemandThanks to the Gulf producers, this remains the key region in terms of supply, and has an increasingly

significant role to play as a consumer of oil. Oil- and gas-based wealth creation has stimulated regional

economies, triggering a surge in fuel demand that could ultimately have a negative impact on the export

capabilities of Iran and others. OPEC policy and a relatively high level of quota adherence meant a

meaningful downturn in 2009 regional supply, but there was noticeable growth in 2010 thanks to quota-

busting activities of certain members. We see the possibility of OPEC quota compliance falling below

50% in H211, particularly after the June 2011 summit produced a fissure between price doves and hawks.

Iraq remains the regions wild card, having medium-term production potential of around 6mn b/d by

2015, with the government admitting that it will likely have to downgrade its ambitious long-term

production goal of 12mn b/d. For the immediate future, volumes look set to continue recovering slowly in

spite of the uncertain political climate. Baghdad is hoping that new deals with IOCs will result in

investments to develop new reserves. For the region as a whole, we expect to see output capacity to reach

30.48mn b/d by 2015, representing a gain of 24.4% on 2010. With regional consumption set to reach

8.95mn b/d in 2015, the growing export capability is clearly vast. The Middle East region will have an

export capacity of 21.53mn b/d in 2015, up from 16.88mn b/d in 2010.


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Table: Middle East Oil Consumption (000b/d)

Country 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Bahrain 44.0 39.3 45.0 44.6 45.9 47.3 48.7 50.1

Kuwait 369.9 418.5 422.7 429.0 435.0 450.0 460.0 475.0

Iran 1,761.0 1,741.0 1,731.0 1,790.0 1,843.7 1,899.0 1,956.0 2,014.7

Iraq 616.0 660.0 700.0 720.0 771.8 810.3 850.9 893.4

Israel 251.0 250.0 253.8 257.6 261.4 265.3 269.3 273.4

Oman 63.0 64.0 67.2 70.6 74.1 77.8 81.7 85.8

Qatar 197.6 209.4 220.0 233.2 247.2 262.0 277.7 294.4

Saudi Arabia 2,386.5 2,623.9 2,812.3 2,964.0 3,105.0 3,213.7 3,277.9 3,376.3UAE 653.7 616.1 681.6 698.7 716.2 734.1 752.4 771.2

Other 696.4 694.7 696.1 698.2 700.3 703.8 707.3 710.8

BMI Universe 6,342.7 6,622.3 6,933.6 7,207.6 7,500.2 7,759.5 7,974.6 8,234.2

Total 7,039.1 7,317.0 7,629.7 7,905.8 8,200.5 8,463.3 8,681.9 8,945.1

e/f = estimate/forecast. Historical data: EIA/BMI. All forecasts: BMI.

Middle East regional oil use of 4.98mn b/d in 2001 rose to an estimated 7.63mn b/d in 2010. It should

average 7.91mn b/d in 2011 and then rise to around 8.95mn b/d by 2015.


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Table: Middle East Oil Production (000b/d)

Country 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Bahrain 48.0 49.0 46.0 58.0 65.0 75.0 82.0 90.0

Kuwait 2,782.0 2,481.0 2,495.0 2,505.0 2,575.0 2,630.0 2,700.0 2,785.0

Iran 4,327.0 4,216.0 4,190.0 4,210.0 4,275.0 4,300.0 4,340.0 4,450.0

Iraq 2,423.0 2,482.0 2,450.0 2,725.0 3,470.0 4,438.0 5,379.0 6,218.0

Israel 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Oman 754.0 810.0 865.0 900.0 920.0 900.0 880.0 853.6

Qatar 1,378.0 1,345.0 1,569.0 1,714.5 1,808.8 1,860.4 1,943.6 1,998.8

Saudi Arabia 10,846.1 9,713.0 10,007.0 10,630.0 10,600.0 10,706.0 10,866.6 11,029.6UAE 3,087.9 2,749.9 2,848.5 2,919.7 2,948.9 2,978.4 3,008.2 3,015.0

Other 33.0 37.0 38.0 39.0 40.0 42.0 43.0 44.0

BMI Universe 25,646.1 23,846.0 24,470.6 25,662.3 26,662.9 27,887.9 29,199.5 30,440.1

Total 25,679.1 23,883.0 24,508.6 25,701.3 26,702.9 27,929.9 29,242.5 30,484.1

e/f = estimate/forecast. na = not applicable. Historical data: EIA/BMI. All forecasts: BMI.

Regional oil production was 21.79mn b/d in 2001 and averaged an estimated 24.51mn b/d in 2010. After

an estimated 25.70mn b/d in 2011, it is set to rise to 30.48mn b/d by 2015. Oil exports are growing

steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was

exporting an average 17.85mn b/d. This total eased to an estimated 16.88mn b/d in 2010 and is forecast to

reach 21.53mn b/d by 2015.


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Oil: Downstream

Table: Middle East Oil Refining Capacity (000b/d)

Country 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Bahrain 262.0 262.0 262.0 262.0 262.0 262.0 262.0 302.0

Kuwait 931.0 931.0 936.0 990.0 990.0 990.0 990.0 1,150.0

Iran 1,805.0 1,860.0 1,532.0 1,922.0 2,212.0 2,502.0 2,792.0 3,152.0

Iraq 779.0 804.0 825.0 895.0 1,000.0 1,150.0 1,300.0 1,300.0

Israel 220.0 220.0 220.0 220.0 320.0 320.0 320.0 320.0

Oman 85.0 85.0 85.0 205.0 205.0 205.0 205.0 290.0

Qatar 240.0 380.0 380.0 520.0 520.0 520.0 586.0 586.0Saudi Arabia 2,100.0 2,100.0 2,097.0 2,097.0 2,097.0 2,297.0 2,697.0 3,097.0

UAE 673.0 673.0 685.0 685.0 735.0 735.0 835.0 935.0

Other 778.0 817.0 765.0 765.0 803.0 843.0 886.0 930.0

BMI Universe 7,095.0 7,315.0 7,022.0 7,796.0 8,341.0 8,981.0 9,987.0 11,132.0

Total 7,873.0 8,132.0 7,787.0 8,561.0 9,144.0 9,824.0 10,873.0 12,062.0


Refining capacity for the region was 6.88mn b/d in 2001, rising gradually to an estimated 7.79mn b/d in

2010. Kuwait, Iran, Iraq and Saudi Arabia are all expected to significantly increase their domestic

refining capacity, with the regions total capacity forecast to reach 12.06mn b/d by 2015.


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Gas Supply And Demand

Table: Middle East Gas Consumption (bcm)

Country 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Bahrain 12.7 12.8 12.6 13.5 14.2 15.2 15.9 16.7

Kuwait 12.8 13.4 13.9 15.9 16.7 17.5 18.4 19.3

Iran 119.3 131.7 133.0 135.0 138.4 140.0 142.8 145.7

Iraq 4.0 4.8 5.0 6.0 7.0 8.0 9.0 11.5

Israel 1.0 2.3 2.7 3.5 4.5 7.0 7.0 7.0

Oman 13.5 13.8 15.0 16.5 18.0 19.0 20.3 21.0

Qatar 19.7 20.0 20.4 24.1 26.1 29.1 31.3 36.9

Saudi Arabia 80.4 77.5 83.9 88.5 88.3 89.0 95.0 96.0

UAE 59.5 59.1 60.5 63.6 66.7 70.1 73.6 77.3

Other 39.7 41.7 43.8 46.0 48.3 50.7 53.2 55.9

BMI Universe 322.9 335.3 347.0 366.5 379.9 394.9 413.3 431.3

Total 362.6 377.0 390.8 412.5 428.2 445.6 466.5 487.2


The region consumed an estimated 391bcm of natural gas in 2010, with demand of 487bcm targeted for

2015, representing 24.7% growth. Production of an estimated 455bcm in 2010 should reach 642bcm in

2015 (+41%), which implies net exports rising to 155bcm by the end of the period.


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Table: Middle East Gas Production (bcm)

Country 2008 2009 2010 2011f 2012f 2013f 2014f 2015f

Bahrain 12.7 12.8 12.6 13.5 14.2 15.2 15.9 16.7

Kuwait 12.8 12.5 13.2 13.9 14.2 14.6 15.0 15.3

Iran 116.3 131.2 140.0 147.0 153.0 165.0 185.0 185.0

Iraq 4.0 4.8 5.0 6.0 13.0 28.6 32.9 36.9

Israel 1.0 1.0 1.0 1.0 2.0 7.0 7.0 7.0

Oman 24.1 24.8 26.5 29.0 31.0 32.0 33.5 35.0

Qatar 77.0 89.3 116.3 135.0 155.0 160.0 170.0 179.0

Saudi Arabia 80.4 77.5 83.9 88.5 88.3 89.0 95.0 96.0UAE 50.2 48.8 51.0 55.0 58.0 60.0 61.5 62.0

Other 4.5 4.9 5.4 6.0 6.6 7.2 7.9 8.7

BMI Universe 378.5 402.7 449.5 488.9 528.7 571.4 615.8 632.9

Total 383.0 407.6 454.9 494.9 535.3 578.6 623.7 641.6



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Liquefied Natural Gas

Table: Middle East LNG Exports/(Imports) (bcm)

Country 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Kuwait na (0.9) (0.7) (2.0) (2.5) (2.9) (3.4) (4.0)

Oman 10.9 11.5 11.5 12.0 12.0 12.0 12.0 13.0

Qatar 39.7 49.4 75.0 90.9 108.9 110.9 113.7 112.1

UAE 7.5 7.0 7.9 7.9 7.8 7.7 7.7 7.6

Iraq na na na na na na na 5

Regional Total 58.1 67.0 93.7 108.8 126.2 132.7 140.0 147.7

e/f = estimate/forecast. na = not applicable. EIA/BMI. All forecasts: BMI

The leading LNG exporter by 2015 will be Qatar (+49% from 2010). Kuwait took its first deliveries of

imported LNG from the summer of 2009. The UAE is balancing LNG imports, growing domestic gas

demand and LNG exports in an effort to meet supply commitments. Iraq could emerge an LNG exporter

by the end of the forecast period.


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Business Environment Ratings

Middle East Region

The regional business environment scoring matrix is broken down into upstream and downstream

segments, providing a detailed analysis of the growth outlook, risk profile and market conditions for both

major elements of the oil and gas industry.

The Middle East region comprises nine countries, including all major Gulf states. State influence remains

very high, with limited privatisation activity. Oil production growth for the period to 2015 ranges from a

negative 1.3% for Oman to a positive 63.6% in Bahrain, while oil demand growth ranges from 7.7% to

33.8% across the region. Increases in gas output range from 10.7% to 600% during the period to 2015.

The spread of gas demand growth estimates ranges from 7.8% to 130%. The political and economic

environment varies, depending partly on market maturity and specific factors such as the uncertainty in

Iraq and the nuclear-inspired standoff in Iran.

Composite Scores

Composite Business Environment scores are calculated using the average of individual upstream and

downstream ratings. The UAE occupies the top slot of the regional league table, but is only one point

above Qatar and Israel. Kuwait is at the bottom, although only just behind Saudi Arabia. The highest

composite upstream and downstream combined score is 58 points and the lowest is 44, out of a possible

100. This represents a particularly narrow spread for the Middle East region, thanks to the similar riskprofiles. Iraq has the potential to challenge the leaders, while Iran is at risk of falling back towards the

foot of the table.

Table: Regional Composite Business Environment Rating

Upstream Rating Downstream Rating Composite Rating Rank

UAE 66 49 58 1

Qatar 68 46 57 2=

Israel 55 58 57 2=

Iraq 63 41 52 4

Iran 49 53 51 5

Bahrain 54 46 50 6=

Oman 47 52 50 6=

Saudi Arabia 38 51 45 8

Kuwait 44 44 44 9

Source: BMI. Scores are out of 100 for all categories, with 100 the highest.


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Upstream Scores

Qatar and Saudi Arabia remain the best and worst performers in this segment, showing that the overall

pecking order is quite different from that for combined scores. The UAE has remained just behind Qatar,

but has remained well clear of Iraq and has a score of 66 against the 68 of Qatar. Israel continues to

squabble with Bahrain over fourth and places, with respective scores of 55 and 54 points. Irans

worsening risk profile will probably push it in further down the table, although it may be able to keep

ahead of Kuwait. Saudi at the foot of the table has accumulated 56% of the points allocated to Qatar.

Table: Regional Upstream Business Environment Rating

Rewards Risks

IndustryRewards

CountryRewards Rewards

IndustryRisks

CountryRisks Risks

UpstreamRating Rank

Qatar 65 85 70 65 59 63 68 1

UAE 60 75 64 75 62 71 66 2

Iraq 78 65 74 45 22 37 63 3

Israel 34 70 43 95 66 85 55 4

Bahrain 36 65 43 85 64 78 54 5

Iran 70 35 61 15 34 22 49 6

Oman 26 60 35 90 54 77 47 7Kuwait 61 15 50 10 68 30 44 8

Saudi Arabia 56 10 45 10 50 24 38 9

Scores are out of 100 for all categories, with 100 the highest. The Upstream BE Rating is the principal rating. Itcomprises two sub-ratings Rewards and Risks, which have a 70% and 30% weighting respectively. In turn, theRewards Rating comprises Industry Rewards and Country Rewards, which have a 75% and 25% weightingrespectively. They are based upon the oil and gas resource base/growth outlook and sector maturity (Industry) andthe broader industry competitive environment (Country). The Risks rating comprises Industry Risks and CountryRisks which have a 65% and 35% weighting respectively and are based on a subjective evaluation of licensing termsand liberalisation (Industry) and the industrys broader Country Risks exposure (Country), which is based on BMIsproprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for which BMI provides

Business Environment Ratings methodology, and is designed to enable clients to consider each rating individually oras a composite, with the choice depending on their exposure to the industry in each particular state. For a list of thedata/indicators used, please consult the appendix. Source: BMI


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UAE Upstream Rating Overview

The UAE holds second place, behind Qatar, in BMIs updated upstream BERs, thanks largely to its

significant oil and gas resource base and investor-friendly climate. It stands just two points behind Qatar

and may have to settle for second best. UAEs score reflects the countrys gas reserves, high RPR, plus

non-state competition, established licensing framework and generally encouraging country risk factors.

UAE Upstream Rating Rewards

Industry Rewards: On the basis of upstream data alone, the UAE takes fifth place behind Kuwait in the

ME region. The country ranks fifth and fourth respectively in terms of proven oil and gas reserves. Its oil

and gas production growth outlook are third and fourth, while the oil and gas RPR are third and fifth

respectively.

Country Rewards: Influencing the UAEs third place in the Rewards section is the second-placed

country rewards rating, behind Qatar. UAE ranks third by the number of non-state operators in the

upstream sector, and equal third in terms of state ownership of assets.

UAE Upstream Rating Risks

Industry Risks: The UAE is ranked fourth in the Risks section of our ratings, behind Oman. Its fourth

position for industry risks is attributable to a joint first-placed licensing environment and fifth-placedprivatisation trend.

Country Risks: The UAEs broader country risks environment is relatively attractive, ranking UAE

fourth behind Bahrain. The best score is for long-term policy continuity, while corruption fares relatively

well. Would-be investors are also faced with less impressive scores for physical infrastructure and rule of

law.


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Downstream Scores

Israel and Iraq bracket the remaining six ME states in the downstream rankings, with the former driven by

the favourable country risk profile, privatisation moves and the competitive landscape. Israel is now five

points ahead of Iran, which performs well in spite of its country risks profile. Saudi Arabia has now fallen

from a share of second place to outright fourth, while Qatar has the potential to overtake Bahrain and

challenge the UAE above it. There is little to choose between Kuwait and Iraq near the foot of the table,

although the latter arguably has greater long-term promotion potential.

Table: Regional Downstream Business Environment Rating

Rewards Risks

IndustryRewards

CountryRewards Rewards

IndustryRisks

CountryRisks Risks

DownstreamRating Rank

Israel 37 74 46 100 68 87 58 1

Iran 66 62 65 10 46 24 53 2

Oman 52 44 50 60 49 55 52 3

Saudi Arabia 61 52 59 10 64 31 51 4

UAE 50 50 50 50 54 52 50 5

Bahrain 39 44 40 60 62 61 46 6=

Qatar 54 34 49 20 66 39 46 6=Kuwait 51 40 48 15 48 28 42 8

Iraq 53 40 50 10 35 20 41 9

Scores are out of 100 for all categories, with 100 the highest. The Downstream BE Rating comprises two sub-ratingsRewards and Risks, which have a 70% and 30% weighting respectively. In turn, the Rewards Rating comprisesIndustry Rewards and Country Rewards, which have a 75% and 25% weighting respectively. They are based uponthe downstream refining capacity/product growth outlook/import dependence (Industry) and the broader socio-demographic and economic context (Country). The Risks rating comprises Industry Risks and Country Risks whichhave a 60% and 40% weighting respectively and are based on a subjective evaluation of regulation and liberalisation(Industry) and the industrys broader Country Risks exposure (Country), which is based on BMIs proprietary CountryRisk Ratings. The ratings structure is aligned across the 14 Industries for which BMI provides Business Environment

Ratings methodology, and is designed to enable clients to consider each rating individually or as a composite, with thechoice depending on their exposure to the industry in each particular state. For a list of the data/indicators used,please consult the appendix. Source: BMI


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UAE Downstream Rating Overview

The UAE is around the mid-point of the league table in BMIs downstream ratings, with some high

scores and further progress up the rankings possible over the longer term. It is ranked fifth, ahead of Qatar

and Bahrain, thanks largely to high scores for oil and gas demand, refining capacity expansion and

nominal GDP.

UAE Downstream Rating Rewards

Industry Rewards: On the basis of downstream data alone, the UAE ranks seventh among the regions

nine countries, behind Kuwait. This score reflects the regions fifth-ranked refining capacity and oil

demand, third-placed gas consumption and third-placed refining capacity expansion plans.

Country Rewards: The UAE shares fourth place with Oman in the Rewards section, and its country

rewards rating takes fourth place behind Saudi Arabia. Population and nominal GDP rank the country

sixth and fourth respectively, while growth in GDP per capita is the third highest. State ownership of

assets is ranked equal fourth.

UAE Downstream Rating Risks

Industry Risks: In the Risks section of our ratings, the UAE is ranked fourth, behind Oman. Its fourth

place for industry risks reflects the fifth-placed regulatory regime and fifth-ranked score for privatisationof government-held assets.

Country Risks: The UAEs broader country risks environment is broadly neutral, ranked fifth ahead of

Oman. The best score is for short-term policy continuity. A reasonable score is awarded for legal

framework and physical infrastructure. Operational risks for private companies are raised by the short-

term economic external risk, short-term economic growth risk and the rule of law.


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Business Environment

Legal Framework

Although investment laws and regulations are undergoing a period of evolution and becoming more

conducive to foreign investment, at present the regulatory and legal framework still favours local over

foreign nationals. Foreign ownership of land and stocks is restricted, although specific rules vary among

emirates. Dubai was the first emirate to open its property market to foreign ownership, followed by Abu

Dhabi (although ownership in both is limited to certain designated property developments). Ras al-

Khaimah also offers freehold land to offshore companies in designated areas.

However, investors should be aware of impediments to the exercise of rights over property. In Dubai, for

example, foreign owners of 'freeholds' cannot register titles with the Dubai Land Department, which

would allow them access to the full range of legal protections and transactions that property ownership

requires. Freeholds are a new phenomenon in Dubai and very few court precedents exist, so there is still

considerable ambiguity concerning property rights and inheritance laws. Lack of clarity over the link

between property ownership and residency has caused some confusion among expatriates. Many

developers in Dubai and Abu Dhabi sold properties to foreign buyers with the implicit guarantee that they

would be granted residency permits. UAE authorities then clarified that there was not a link between the

two. In June 2011, however, the Dubai government announced that expatriate home owners would

thereafter be eligible for a three year (up from six-month previously) renewable, multi-entry visa.

Intellectual Property Rights

The UAE is a regional leader in the protection of Intellectual Property Rights (IPRs), with improving

enforcement of copyright, trademark and patent laws. Anecdotal evidence suggests that the federal

government is enforcing these laws, which were passed in 2002. The rate of software piracy in the UAE

is regarded as one of the lowest in the Middle East. However, enforcement of anti-piracy measures can

vary between emirates, with Dubai seen as the best performer. More could be done in other emirates,

while the UAE remains a major centre for the trans-shipment of counterfeit goods.

Corruption/Red Tape

Corruption is not endemic to UAE business life, and the country ranks 28th of 178 states in Transparency

International's Corruption Perception Index 2010, second only to Qatar in the Middle East. Nevertheless,

large state-owned enterprises continue to control large swathes of the economy and are not subject to

extensive scrutiny. Furthermore, those convicted of corruption have often escaped effective punishment

in 2001, the former head of the Dubai Customs and Port Authority was convicted of corruption and

embezzlement and sentenced to 27 years in prison, but was quickly pardoned by the Dubai government


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and released. A law passed in 2005 now stipulates minimum sentencing requirements for public officials

found guilty of corruption.

Under its WTO membership obligations, the UAE has undertaken measures to reduce red tape

surrounding the foreign investment approval process. Investors are now exempt from obtaining a Ministry

of Labour card in addition to an Immigration Department visa, and investors no longer need to appear in

person to enquire about the status of business applications; a new automated service allows them to

receive information about their business licences over the phone.

Physical Infrastructure

The UAE has around 1,000km of paved roads linking all the emirates, mainly along the coast. Road is the

major means of transport between the emirates given that there is no railway system.

However, much of the UAE's international trade is done by sea, and all seven emirates have modern port

facilities. Dubai dominates the cargo and re-export markets thanks to the size of its two ports, Port Rashid

and Jebel Ali Port. The former is one of the busiest ports in the Gulf region with 35 berths, while the latter

has 63 berths and is part of a free economic zone. Abu Dhabi's Mina Zayed port has been upgraded to 21

deep water berths, which has helped eliminate waiting times. Construction is now under way on a new

industrial port in Abu Dhabi, the first phase of which should be completed by 2012, with the full port and

accompanying zone slated for completion by 2028.

Other emirates are seeking a share of the re-export business, although their facilities are currently smaller

than those available in Dubai or Abu Dhabi. Sharjah is the only emirate with ports on both the Persian

Gulf and the Indian Ocean, which offers it significant advantages; international cargo ships can save

around 24 hours in a trip from East Asia to Europe by not having to join the queue to enter the busy Gulf.

Avoiding the Gulf also results in significant insurance savings. Ras al-Khaimeh's new Saqr port is

currently nearing completion.

The UAE is home to two major airline carriers. Emirates Air is owned by Dubai and flies to destinations

across the Middle East, Europe, Australia, Africa and the Indian subcontinent. Etihad Airways is owned

by Abu Dhabi and was established in 2003.

Mobile phone use in the UAE is among the highest in the Middle East and, indeed, the world, with

services provided by two carriers: Etisalat and newcomer Du. Fixed-line services are less popular, and

although broadband is now gaining in popularity penetration grew from less than 3% in 2005 to 11.0%

in 2008 broadband networks are not as developed as in some neighbouring states, such as Bahrain.

Customers have complained of high prices and poor service quality, although this should improve as Du


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expands its services nationwide, providing greater competition to Etisalat (which offers services under the

name e-Company).

Labour ForceAccording to our estimates, the UAE's population is slightly under 5mn (BMI's population data is

sourced from the World Bank). Emiratis account for 16.5% of the total population. Meanwhile, the

expatriate population has increased significantly, with Indians accounting for the largest share at 1.75mn.

It is estimated that as many as 98% of private-sector workers are non-UAE nationals. Most UAE

nationals seek employment opportunities in the public sector, due to the higher salaries, greater benefits,

shorter working hours and job security on offer. The construction sector is a major employer of foreign

labour, mainly from the Indian sub-continent.

In recent years, the federal and emirate governments have implemented a number of measures to increase

the cost of hiring expatriate workers, as part of an effort to bring more UAE nationals into the private

sector. 'Emiratisation' of the UAE workforce is a government objective, though less rigorously enforced

than in other Gulf States (although this appears to be changing, in response to the economic downturn).

Compulsory hiring of nationals has been limited to sectors such as banking (which has a 4% quota),

insurance (5%) and trade (2% for companies employing 50 workers or more). In 2006, the government

added Emiratisation requirements that all secretaries and PR officers must also be UAE nationals.

Calls for reform of labour laws, including the right to create trade unions, are growing louder. The US

insisted on this during negotiations over its free trade agreement with the UAE. The current law does not

specifically give workers the right to engage in collective bargaining. Neither do labour laws cover

government employees, domestic servants and agricultural workers.

Industrial unrest grew during 2007, particularly among construction workers, the vast majority of whom

come from the Indian subcontinent. In November 2007, nearly 40,000 labourers working for the country's

largest construction firm Arabtec went on strike in a high-profile protest. However, protests have eased

since, and with unemployment likely to have risen in 2009 and 2010, we expect a net loss of foreign

workers, particularly those on short-term contracts, who will be unable to renew their residency permits

without a firm offer of employment from a UAE-based firm.

In the wake of those protests, the Labour Ministry drew up new laws, which came into force in early

2008. These include the mandatory use of electronic payment systems for unskilled workers, increased

fines for companies found to be employing illegal workers, and compulsory health cover (already in place

in Abu Dhabi but to be extended to the other emirates). The ministry has also drawn up a series of

standards for worker accommodation to cover all industry sectors. Protests have been few and far since


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mid-2008, although this probably reflects the tighter conditions in the labour market as much as any real

improvement in living conditions for labourers. Domestic servants continue to face considerable difficulty

in negotiating employment contracts because mandatory requirements in the labour law do not apply to

them. The Labour Minister Dr Ali bin Abdullah al-Ka'abi has ruled out any possibility of expatriates

being awarded citizenship, no matter how long they have worked in the emirates or their level of

expertise in their field.

Foreign Investment Policy

The UAE's investment climate is becoming more clement for foreign direct investors: the federal

government, led by Abu Dhabi, has made significant headway in the past five years in increasing the role

of the private sector. Yet, the overall legal framework continues to favour local over foreign investors - a

fact that partly reflects the historically benign macro environment in light of the country's substantial oil

revenue windfall. This has endowed local and regional Gulf investors with substantial liquidity,

disincentivising the search for new FDI sources from outside the region.

At present, foreign shareholders may only hold up to 49% equity interest in limited liability companies;

indeed, all companies established in the UAE are required to have a minimum of 51% national

ownership, although profits may be divided differently. In the insurance sector, companies must be 75%

owned by a UAE national or 100% by a UAE corporation.

Full foreign ownership is generally allowed only within economic free zones. In order to do business in

the UAE outside the free zones, a foreign business must usually have a UAE national sponsor, agent or

distributor which, once chosen, has exclusive rights. In order to bid for federal projects, a contractor must

be at least 51% owned by UAE nationals, and tenders must be accompanied by a bid bond - an

unconditional bank guarantee for 5% of the value of the bid. However, government tendering practices do

not live up to international standards, and re-tendering is common.

On the positive side, the absence of income tax compensates for the restrictive investment environment.

The UAE is now the Gulf's second-biggest FDI destination after Saudi Arabia.

The UAE is considering revising its system of oil and gas concessions to spur technological development

and introduce more competition into its upstream segment. Having concluded its sour gas licensing round

with IOCs, it is expected that ADNOC (Abu Dhabi National Oil Company) will focus on reforming the

concessions system as it seeks to boost production capacity.


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Foreign Trade Regime

The UAE has a free and open trade regime, with more than three-quarters of goods entering the country

duty free. The average tariff rate is just 4%, while free trade zones offer numerous incentives, such as

exemptions from taxes and duties. The WTO has urged the authorities to prioritise the rationalisation of

the trade regime in line with plans for uniform customs procedures among the six members of the GCC.

The UAE has been a WTO member since its 1995 inception.

The UAE's open-border foreign labour policy has proved a major bulwark of the liberal trade regime,

enabling the private sector to recruit expatriate workers at internationally competitive wages.

In January 2003, the UAE joined the GCC Customs Union, which equalises the duties paid upon entry of

an item to any member state, regardless of country destination. The union establishes a single tariff of 5%on 1,500 imported items from non-member countries. It also lists other imports that are not subject to

duties. The UAE government is also negotiating a free trade agreement with the US, a move opposed by

Saudi Arabia, which had wanted to sign a joint GCC-US FTA. However, talks between the UAE and US

stalled in early 2007, with US trade officials citing 'investment issues', such as ownership and access to

each others' markets, as the major stumbling blocks.

In December 2007, GCC members confirmed the launch of a common market in January 2008. The new

rules allow all GCC citizens the right to work in all government and private institutions throughout the

common market, as well as the ability to buy and sell real estate, make other investments, move freely

between the six states and receive equal education and health benefits. The six states also committed

themselves to entering a common currency regime by 2010, though this goal has certainly proven to be

too optimistic. In mid-2009, the UAE pulled out of the currency, apparently in response to the decision to

locate the central bank in Riyadh, Saudi Arabia, rather than in Abu Dhabi, as proposed by the UAE. The

currency is now slated for launch in 2012, which does leave the UAE with an opportunity to rejoin before

this date, if it so wishes.

In the UAE, the customs duty for most items is 5% calculated on CIF value. Imports of liquor are subject

to a 70% customs duty while imports of tobacco products face a 100% duty on their CIF value. But a

number of essential items staple foodstuffs and pharmaceuticals enjoy duty-free status. Goods

produced within the GCC are exempt from customs duties.

The UAE maintains non-tariff barriers to trade and investment in the form of restrictive agency or

distribution requirements. The federal authorities are under pressure to boost IPR protection. Under WTO

TRIPS agreement provisions, the UAE must grant patents to pharmaceutical and agricultural chemicals

products. Similarly, the textile sector will be forced to put a halt to import quotas.


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The UAE, led by Dubai, has pioneered the free trade zone model. There are currently 12 in operation,

developed along specialised lines including free zones covering ICT, media, finance, gold and jewellery

and healthcare. Jebel Ali Free Zone, in Dubai, is now one of the world's largest FTZs. The FTZs allow

100% foreign ownership with no recruitment or sponsorship restraints. There is full corporate tax and

customs duty exemption on imported raw materials and equipment, and there is no levy on exports and

imports.

Tax Regime

The UAE's substantial hydrocarbons resource revenues mean that the government has no pressing need to

raise income via direct taxes.

Corporate tax: Only banks and oil companies pay corporate tax, at a rate of 50% (55% in Dubai) for oil

companies. Oil companies also pay royalties on oil and gas they produce. Net taxable income of foreign

banks is subject to tax at a flat rate of 20%, implemented in Abu Dhabi and Dubai. Alongside all the other

benefits enjoyed by companies operating in the free trade zones, there is no corporate tax for 15 years,

renewable for an additional 15 years.

Individual tax: There is no income tax on individuals resident in the UAE. Dubai imposes a rental tax on

expatriates equal to 5% of rental charges. There is no VAT in the UAE, but the federal government, on

the advice of the IMF, is discussing the introduction of a VAT system. However, this is unlikely to be

introduced in the near term.

There are no withholding or capital taxes. Business properties pay a municipal tax set at 10% of annual

rental value. Double taxation agreements exist with France, Pakistan, Poland, Turkey, China, Romania,

Italy, Egypt, Germany, Singapore, Malaysia, Indonesia and India.

Security Risk

While there remains a generalised threat of terrorism throughout the Middle East, the UAE has not yet

been the target of a major attack. Given the large number of expatriate workers and the high visibility of

Western businesses in the country, particularly in Abu Dhabi and Dubai, authorities have stepped up

security measures in recent years. However, unlike neighbouring Saudi Arabia, the UAE has no known

domestic groups operating on its territory, and the emirates rank top in BMI's regional risk ratings and

state terrorism vulnerability index for the Middle East.

Risks to physical safety are also relatively low, despite the large number of foreign non-citizens. The vast

majority are Muslim, coming from South Asia or other Arab states, and work in low-paid, unskilled jobs.

Those who are more attractive targets for criminal gangs, namely highly paid expatriates from Europe and


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other Western states, tend to live in well-guarded compounds. Furthermore, security and police forces are

well-equipped and well-trained.

Some visitors have run into trouble with Iranian Coast Guard forces for alleged violations of Iranian

territorial waters around the island of Abu Musa, located around 20 miles from Dubai city. The UAE and

Iran are locked in a long-running dispute over the jurisdiction of Abu Musa and two other islands in the

Gulf, and sailing in these waters can result in the seizure of vessels and detention of passengers in Iran.


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Industry Forecast Scenario

Oil And Gas Reserves

Our view is that the UAEs proven oil reserves will slip gradually over the period to 2015, dropping to

92.4bn bbl from the end-2010 total of 97.8bn. Exploration and development activity is on the rise, but

may not be sufficient to maintain the current reserves position while delivering rising output. We also see

scope for some contraction of gas reserves, to around 5,880bcm over the next five years.

Oil Supply And Demand

UAE crude supply averaged 2. 51mn b/d in April 2011. Over the course of 2010, the UAEs crude

production averaged 2.3mn b/d, according to the EIA.

Sustainable capacity is estimated at 2.69mn b/d, but is capable of reaching 3.00mn b/d in 2013 as a

number of new projects come online, including expansion of Umm Shaif, the Lower and Upper Zakum

fields plus other enhanced recovery schemes. The UAE plans to have added around 340,000b/d of gas

liquids capacity by early-2011, including the start-up of the delayed 270,000b/d Habshan processing

facilities.

The UAE plans to increase its oil output capacity to 3.5mn b/d by 2018, according to an independent

report sponsored by Abu Dhabi's Department of Economic Development published in August 2010.

Abu Dhabi hopes to boost its onshore crude output capacity by around 120,000b/d during 2011. To meet

the target the state will need to increase the production capacity ofAbu Dhabi Company for Onshore

Oil Operations (ADCO) from about 1.50mn b/d to 1.62mn b/d. The company has embarked upon a

US$5.3bn investment programme that could see its capacity reach 1.8mn b/d by 2017.

ADCO is looking to add 213,000b/d by 2012 from existing and new fields. An additional 200,000b/d of

output would be sourced from the producing Bab, Asab and Qusahwira fields, for which ADNOC islooking to award contracts starting in 2012, according to remarks made by the ADCO CEO to Bloomberg

in October 2010. ADCO is shooting seismic surveys and is planning to drill an unspecified number of

exploration wells in 2011. In total, ADCO is looking to raise output by 400,000b/d to a total of 1.8mn b/d

by 2017.The average per-barrel cost of production for the additional capacity was estimated by ADCO at

US$6-7, but the incremental cost for some capital-intensive fields could rise as high as US$30/bbl.

Overall UAE crude production could reach 3.02mn b/d by 2015. We forecast total 2011 production

averaging 2. 92mn b/d (including gas liquids), providing exports of 2.22mn b/d. This represents a slight

increase from the 2010 level.


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Gas Supply And Demand

Over the past decade, gas consumption in

the UAE has virtually doubled, with Abu

Dhabi gas use rising more than 100%

during the period. The development of

gas fields also results in increased

production and exports of condensates,

which are not subject to OPEC

production quotas.

Dubais gas consumption has been

growing by nearly 10% annually, due to

the expansion of the emirates industrial

sector, a switch to gas by its power

stations, and the need for an EOR system

based on gas injection for its mature oil

fields. The UAE imports and exports gas

using a growing regional pipeline system and LNG. Overall UAE gas consumption is forecast to reach

77.26bcm by 2015. Production of gas is also on the rise, with at least 62bcm achievable by 2015, leaving

a net import requirement of around 15.76bcm.

Like other Gulf countries, the UAE's natural gas consumption is soaring on the back of rising residential

and commercial usage. Bloomberg quoted an ADNOC official as saying in October 2010 that ADNOC

aims to double output of LPG by 2015, targeting both the domestic petrochemicals industry and the

export market. For all these reasons, ADNOC is keen to maximise the value of associated gas by reducing

its use for oil field injection. ADNOC is also developing the Shah sour gas field.

ADNOC is looking into freeing up natural gas volumes by substituting carbon dioxide (CO2) in oil field

reinjection. EOR through gas injection is a key component of ADNOC's strategy to boost oil output.

ADCO's CEO told Bloomberg that the company has started a pilot project to substitute CO2 as an EOR

medium at the Rumaitha field, into which about 4.25Mcm/d of gas is currently injected. Successful CO2

substitution would allow ADNOC to channel about twice the amount of gas from its north-eastern fields

into the country's gas grid.

US independent Occidental Petroleum (Oxy) has been awarded the contract to develop the Shah sour

gas field in Abu Dhabi. Oxy will take a 40% stake in the project, while ADNOC will hold the remaining

60%. The contract award is a major step forward for the US$10bn project, which had been on hold since

UAE Gas Production,

Consumption And Exports(2000-2015)

e/f = estimate/forecast; Source: Historical data - BP StatisticalReview of World Energy; Forecasts BMI.


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ADNOC's former partner US major ConocoPhillips pulled out in April 2010. It also boosts the chances of

the Shah field's coming onstream in 2014/15.

The Shah gas project is aimed at monetising the sulphur-rich gas of the Shah field, located along the

UAE's border with Saudi Arabia. The gas contains around 30% hydrogen sulphide, making Shah much

more challenging to develop than a conventional deposit. The field will have capacity to produce

10.34bcm of gas annually, in addition to 50,000b/d of condensates, 4,400 tonnes per day (t/d) of natural

gas liquids (NGLs) and 10,000t/d of sulphur. Actual sales gas will reportedly be around 5.58bcm annually

once all the impurities are removed. The project hinges on whether the impurities can be stripped out and

commercialised or disposed of in a cost effective way. As part of its project plans, ADNOC had called for

the export of sulphur and condensate by-products through the port of Ruwais.

ADNOC has said that it plans to issue a tender for the development of the Bab sour gas field in ar

5-bmi united arab emirates

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