UAE’s ADNOC can supply over 4 mil b/d in April, speed up raising capacity to 5 mil b/d

Dubai — Abu Dhabi National Oil Co, the UAE's biggest producer – pumping some 3 million b/d – can supply the market with over 4 million b/d of crude in April and is speeding up plans to boost capacity to 5 million b/d, which was originally targeted for 2030 as the deluge of oil supply continues.

"We are in a position to supply the market with over 4 million b/d in April," ADNOC Group CEO Sultan al-Jaber said in a statement on Wednesday. "In addition, we will accelerate our planned 5 million b/d capacity target.”

The UAE is following in the footsteps of Saudi Arabia, which Wednesday announced plans to boost its production capacity by 1 million b/d to 13 million b/d as the price war and flood of oil supply picks up. Saudi Arabia also said on Tuesday it would supply the market in April with some 12.3 million b/d, an increase of 300,000 b/d on its maximum sustained capacity of 12 million b/d.

ADNOC, which earlier had said it was on track to boost production capacity to 4 million b/d by 2020 and to 5 million b/d by 2030, is ramping up production with the help of international oil companies, who were awarded various concession agreements over the past two years.

"Operators in the UAE have ample production capacity that will be quickly brought online given the current circumstances," UAE energy minister Suhail al-Mazrouei tweeted on Wednesday.

The UAE pumped a record 3.45 million b/d in November, "just shy of capacity,” and exported 3.3 million b/d, the International Energy Agency said in revised figures published in its oil market report last month. IEA revised its estimate of the UAE's November 2019 oil production after taking into account more cargoes to South Korea, India and Japan in the fourth quarter.

Forward pricing

Al-Jaber also said ADNOC would announce forward pricing for March and April "shortly." Currently, ADNOC uses retroactive pricing for its crude.

"In response to market conditions, and to provide better forward visibility to our customers, ADNOC will shortly announce forward prices for the months of March and April 2020," al-Jaber said. "This decision has been made to ensure that our customers have visibility of the price so they can plan accordingly."

ADNOC slashed outright official selling prices for all of its four grades by $11.70/b month-on-month in a notice issued late Monday, mimicking Saudi Arabia's unprecedented move in which it slashed prices for some its crude by the biggest cut ever in what analysts are calling a price war.

The sharp cuts in crude prices follow the failure of OPEC kingpin Saudi Arabia to convince Russia, its main ally in the 23-member OPEC+ coalition, to extend and deepen production cuts beyond March, leaving countries in the alliance to pump at will as of April.

The so-called price war pushed benchmark oil futures on Monday to lows not hit since Saudi Arabia and Russia came together in 2016 to forge the alliance to halt price declines to less than $30/b that occurred in the beginning of that year.

Prices have clawed back some of Monday's plunge but are still trading around $35/b.

Murban futures

The CEO also said ADNOC is still on track to launch futures for its flagship crude, Murban, which it had earlier said would start in the first half of this year. ADNOC and the Intercontinental Exchange have teamed up to launch the ICE Futures Abu Dhabi, the exchange hosting the Murban futures.

"As announced in November 2019, ADNOC remains firmly committed to moving from its current retroactive pricing mechanism to a new forward pricing mechanism for its flagship Murban crude oil," al-Jaber said. "This will be traded on a new independent exchange, ICE Futures Abu Dhabi (IFAD), which is expected to launch after the necessary regulatory approvals are obtained."

The launch of the exchange has been delayed beyond its expected first half 2020 kick-off due to regulatory hurdles, sources close to the matter told S&nbp;P Global Platts earlier this month.

To guarantee liquidity for the Murban futures contract, nine international energy companies will be partners in the exchange, although the breakdown of the shareholding has not been disclosed.

Murban will be the second physically delivered futures contracts traded on a regional exchange after Dubai Mercantile Exchange's Oman crude futures.

Murban is also a deliverable grade in the Platts Dubai and Oman crude assessment process.