Factbox: Abu Dhabi missile attack a reminder of risks to UAE energy infrastructure

A foiled Houthi missile attack on Jan. 24 directed at OPEC's third-largest oil producer, the UAE, has highlighted the ongoing geopolitical risks to the oil market.

The intercepted attack followed a Jan. 17 drone and missile strike on an Abu Dhabi National Oil Co. fuel depot in the industrial zone of Musaffah, which killed three people.

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The incidents were "a reminder that Iran's regional proxies will continue to act aggressively, with or without direct guidance from Tehran, while also demonstrating a clear ability to strike sensitive targets in the GCC," said Paul Sheldon, chief geopolitical adviser for S&P Global Platts Analytics.

The following are key facts on the potential impact for the UAE's energy sector:

Trade flows

-- The UAE is a seen as a core OPEC producer with spare capacity to meet supply needs.

• The UAE is OPEC's third largest crude oil producer, pumping 2.87 million b/d in December, according to the latest S&P Global Platts survey of the group's output. The vast majority of the country's crude is produced in Abu Dhabi by ADNOC.
• ADNOC's primary crude grades are the onshore Murban and the offshore Upper Zakum, Das Blend and Umm Lulu.
• Along with the rest of OPEC and its allies, the UAE aims to completely unwind its pandemic production cuts through gradual quota hikes, with a production target of 3.50 million b/d by late 2022. That would represent a record production level for the country, if achieved. It has a long-term target of 5 million b/d capacity by 2030.

-- Major oil consumers in Asia are heavily exposed to geopolitical risk in the region and account for the largest share of the region's exports.

• Japanese companies, who hold equity stakes in some of ADNOC's concessions, are typically the largest customer of ADNOC crudes. Japan imported 737,000 b/d in December, 28% of the UAE's total 2.598 million b/d in exports, according to Kpler shipping data. Other key buyers include China and India.
• Following the Jan. 17 attack, ADNOC said it had "activated the necessary business continuity plans to ensure the reliable, uninterrupted supply of products to its local and international customers".
• The Abu Dhabi attacks, along with the ongoing Houthi operations aimed at Saudi Arabia, raise "modest security concerns in the world's two biggest sources of spare capacity," Sheldon at Platts Analytics said. By June 2022, global spare production capacity will fall to 1.8 million b/d, 95% of which will be in Saudi Arabia and the UAE, according to Platts Analytics.
• ADNOC also imports some crude to feed its giant Ruwais refinery, which is undergoing a modernization upgrade, and free up more Murban for export. Recent imports have come from Sudan, Cameroon, Angola, Nigeria and Argentina, according to Kpler.
• The UAE imports about 2 Bcf/d of natural gas from Qatar via the Dolphin Energy pipeline.

Prices

-- Oil prices have pushed closer to breaking above $90/b partly on heightened geopolitical concerns.

• Crude prices have surged in recent weeks on increased geopolitical risks in the market, including from the Russia-Ukraine crisis, as well as growing concerns over shrinking spare production capacity.
• Platts assessed Dated Brent at $89.81/b on Jan. 21. The global crude benchmark had hit $90.51/b on Jan. 19, its highest since Oct. 7, 2014.
• Platts Dubai, the key Middle East sour crude benchmark, was assessed at $86.74/b on Jan. 24, the highest since Oct. 14, 2014, though traders said spot activity had slowed, with an expected slowdown in Asian economic activity for the Lunar New Year.

-- Abu Dhabi hopes to establish its own domestic crude contract as a global benchmark.

• Murban crude futures have been traded on an Abu Dhabi-based exchange launched by ADNOC and ICE in March 2021.
• ADNOC bases its official selling price for its flagship Murban crude on the monthly average of the Murban futures prices, which go to delivery two months ahead of the month of trade. OSPs for Upper Zakum, Das and Umm Lulu are set as differentials to the Murban OSP.

Infrastructure

-- The UAE has invested heavily to build capacity, new refineries, pipelines and underground storage.

• ADNOC's main refinery is the 817,000 b/d Ruwais complex, where a $3.5 billion crude flexibility project is set to be completed in 2023. When fully operational, nearly half of Ruwais's capacity will be able to process crudes other than Murban.
• Dubai's Emirates National Oil Co. operates a 140,000 b/d refinery in Jebel Ali.
• ADNOC recently closed the 74,000 b/d Abu Dhabi, or Umm al-Nar, refinery, redeploying all personnel to Ruwais.
• The eastern port of Fujairah has developed rapidly in recent years to capitalize on its strategic location on the Gulf of Oman, outside the Strait of Hormuz chokepoint, with several tank farms, bunkering facilities and simple refineries.
• Fujairah is the terminus of the 1.5 million b/d Habshan pipeline, which carries Murban crude from Abu Dhabi to an ADNOC terminal.
• ADNOC is building underground caverns in Fujairah to store 42 million barrels of oil, with completion set for 2022.
• In May 2019, four commercial ships, including two Saudi-registered oil tankers, were sabotaged off Fujairah's coast, with the UAE accusing a "state actor" for the attacks. In August 2021, a bitumen and asphalt tanker was boarded briefly by suspected hijackers off Fujairah's coast.

-- The UAE has also become the first Gulf country to generate nuclear power.

• In December 2017, Houthi militia claimed to have struck Abu Dhabi's Barakah nuclear power plant, which was still under construction at the time. UAE officials rebuffed the claims, saying the country's air defense system was "capable of dealing with any threat of any kind" and that the reactor was "immune".
• Barakah began operations in 2020 and currently has two working 1.4 GW units out of four that are planned.