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Historic shift as Abu Dhabi looks to Asia for oil concession

[ABU DHABI] Gulf emirate Abu Dhabi seems likely to choose Asian firms when it renews a decades-old major oil concession, sources and analysts told AFP, in a historic shift for the global energy market.

Powerful Western companies have dominated the Middle East oil industry for nearly a century but are facing increasing competition from energy-hungry Asia.

Now Asia appears set to win its first major concession in the Middle East after the expiry of a World War II-era contract to exploit Abu Dhabi's main onshore oil fields.

"The Far East is 'the' market for Gulf oil and energy-based products like chemicals," Jean-Francois Seznec, a Georgetown University professor and oil expert, told AFP.

Experts believe it is inevitable that, after seeing huge boosts in oil exports to Asia, Middle East producers like the United Arab Emirates will seek to attract Asian companies as production partners as well.

This will "help the UAE secure a market share in the Far East at this time of ample supplies and relatively weak demand," Mr Seznec said.

Industry sources tell AFP that global giant China National Petroleum Corporation (CNPC) is the top contender for the Abu Dhabi bid, along with firms from South Korea and Japan.

The 75-year-old concession ran out in January and state-owned Abu Dhabi National Oil Company (ADNOC) is reviewing bids from nine international majors to award new long-term production-sharing agreements.

The ultimate decision will be taken by the Abu Dhabi Supreme Petroleum Council, the emirate's highest decision-making body on energy issues.

An industry source said a decision is expected by the end of the year or early 2015, barring any last-minute hurdles.

The previous concession, granted in January 1939, was operated by Western companies ExxonMobil, Royal Dutch Shell, BP and Total, with 9.5 per cent each, in addition to Partex Oil and Gas with two percent.

The Abu Dhabi Company for Onshore Oil Operations (ADCO), which currently operates production, had the remaining 60 per cent.

The new concession will be for 40 years, local media reported and the goal is to raise output from the current 1.5 million barrels per day to 1.8 million by 2017.

As well as China's CNPC, the Korean National Oil Corporation (KNOC) and Japan's Inpex Corporation are among the nine companies bidding for the concession.

The former partners - US giant ExxonMobil, Anglo-Dutch Shell, Britain's BP and Total of France - are also bidding, along with newcomers Statoil of Norway and Russia's Rosneft.

"There is certainly a natural fit for Asian oil companies interested in these concessions," Victor Shum, vice-president at IHS Energy Insight, told AFP.

The Middle East is the primary supplier of crude oil to Asian nations and Asia's importance in the energy market has risen in recent years amid fundamental changes in production, exports and prices, he said.

Last year China replaced the United States as the world's top crude oil importer, after US producers increased domestic output of oil and natural gas from conventional and shale sources.

China imports more than six million barrels per day, mostly from the Gulf, as opposed to about five million by the United States.

Chinese and Korean companies have already struck smaller concession deals in undeveloped areas of Abu Dhabi. China also signed a strategic deal to import 200,000 barrels per day from the UAE until 2020.

"With the growing supply from the United States, we expect that Middle Eastern countries would likely have to focus more on the Asian region," said Daniel Ang, an investment analyst at Phillip Futures in Singapore.

"We already saw Saudi Arabia, Iraq and Iran cut prices and believe that this is already a step towards maintaining their market share in the Asian market," Mr Ang told AFP.

While demand from the United States and Europe is declining or stagnant at best, thirst for oil is increasing rapidly in Asia and emerging markets.

IHS forecasts that the Asia-Pacific share of world consumption will rise from 26.4 per cent in 2014 to 34.4 per cent by 2024.

The UAE, OPEC's fourth-largest supplier, is one of the last nations still giving major concession rights to international oil majors.

Industry sources said ExxonMobil bid reluctantly to stay in the concession, after securing rights alone at the 550,000 barrel per day Upper Zakum offshore field under improved conditions.

Given their track record on the concession, some of the Western firms are likely to win parts of the rights.

Total, which has operated in the UAE for the past 40 years, is confident of retaining at least its current share, an industry source said.

"There is room for everybody," Mr Shum said. "But Asian oil companies certainly are emerging as key investors."


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