Adnoc said to plan regional oil marker

ADNOC headquarters in Abu Dhabi. The company is considering dropping destination restrictions on all of its oil and allowing it to trade freely on the open market. (AFP)
Updated 17 July 2019

Adnoc said to plan regional oil marker

  • Aims to launch in-house trading for refined products to boost global clout

DUBAI: The UAE’s state-run ADNOC plans an overhaul for its trading operations as it seeks to emulate the success of rival oil majors and bolster its regional influence.
The company has splurged on hiring former employees of private-sector peers and wants to launch a regional oil benchmark, possibly this year, similar to international markers Brent and WTI, four sources familiar with the plans said.
The plan is not yet finalized and still has to be approved by UAE authorities, such as the Abu Dhabi Supreme Petroleum Council, the sources said.
ADNOC did not respond to a request for comment.
“ADNOC hopes the benchmark will allow it to earn more money and gain bigger prestige in the region,” one of the sources said.
The UAE, the third-largest oil producer in OPEC, behind Saudi Arabia and Iraq, pumps around 3 million barrels per day. It plans to boost output to 4 million bpd by 2020. Most of that oil is produced by ADNOC, based in the country’s capital, Abu Dhabi.
For many years it has traditionally sold oil directly to end-users, mainly in Asia, based on a retroactive pricing system rather than the forward pricing used by Saudi Arabia, Kuwait and Iraq.
Now, the company wants to launch full, in-house trading for refined products and crude as part of energy-sector reforms under Sheikh Mohammed and ADNOC Chief Executive Sultan Al-Jaber.
ADNOC is considering dropping destination restrictions on all of its oil and allowing it to trade freely on the open market, as part of a broader transformation to become more proactive and adaptive to market changes, the sources said.
“The idea behind trading is simple — the UAE sells its crude to someone like BP, which then takes it to the UK, where it is refined into jet fuel which then goes to refuel the UAE’s Etihad planes,” one source said, referring to the Abu Dhabi airline.
“So why can’t ADNOC capture some of the value of trading and the supply chain?“
ADNOC is venturing into oil trading as part of an international expansion aimed at securing new markets.
In January, it signed agreements worth $5.8 billion with Italy’s Eni and Austria’s OMV covering refining and a new trading venture to sell refined products jointly.
Over the past year, ADNOC has hired a raft of ex-Total traders, led by executive vice president Philip Khoury. The others include ADNOC’s head of crude, Emmanuel de Reynies, head of products Lionel Richardson, and Jean Marc Cordier, Francois Chupin and Aegidia Schnepp.
Traders from other oil majors and trading houses also joined, including Suzanne Mullen, previously of BP and Citi.
“These guys know how trading works, how benchmarking works,” one of the sources said.
ADNOC has held talks with French energy company Total and trading house Vitol as part of its new crude oil pricing and trading overhaul, the sources said, while beefing up its in-house trading team.
Total and Vitol declined to comment.
One of the options is for ADNOC to team up with a large player whose worldwide storage facilities it would use.
ADNOC is in talks for a stake in Vitol’s storage business VTTI, two of the four sources said.
VTTI owns storage in the Netherlands, the US, Asia and Africa. In the UAE, VTTI holds storage in Fujairah, a bunkering hub where ADNOC sends most of its crude, bypassing the often-troublesome Strait of Hormuz, which is further north. Around a fifth of global oil supply transits through the strait. Tensions between Iran and the West have contributed to fears of disruption there, sparking price rallies.

HIGHLIGHTS

• ADNOC hires former Total traders in bid to rival majors.

• Seeks to turn Murban crude into benchmark.

• Moves seen as part of drive to increase regional influence.

Inside ADNOC, there are growing views that the company could turn its flagship crude Murban into a regional and possibly global benchmark more popular among foreign buyers by using its ability to export and store oil away from the strait.
Murban is exported from Fujairah and is relatively insulated from possible regional unrest, three of the sources noted.
The Abu Dhabi Crude Oil Pipeline, with a capacity of 1.5 million bpd, carries the bulk of the UAE’s crude production to ADNOC’s storage and loading facilities in Fujairah. ADNOC is also building oil storage under the mountains of Fujairah, with completion due next year.
So far, most Middle Eastern grades including those of Saudi Arabia are priced off the Dubai/Oman benchmark for Asian exports, off Brent-related indices for European exports and various US indices for US shipments.
ADNOC may announce plans to launch Murban as a benchmark as early as November and is talking to a number of exchanges including Intercontinental Exchange (ICE) and the Chicago Mercantile Exchange (CME), the three sources said.
ICE and CME declined to comment.
One source said ADNOC had made it clear during discussions that it was prepared to remove all restrictions on oil resales, a key condition for a crude grade to become a benchmark.
Other key conditions for the success of a benchmark are stable and fairly large oil flows and a developed derivatives market, allowing hedging and forward trading.
“The fact that ADNOC wants to turn Murban into a destination-free grade shows they are serious about making it a benchmark,” a source said.
Soaring US production of predominantly light crude could help Murban, also a light grade, become a benchmark even though most regional grades are heavier.


Boeing 777X delays may affect Dubai-based Emirates’ fleet plans: president

Updated 15 min 25 sec ago

Boeing 777X delays may affect Dubai-based Emirates’ fleet plans: president

  • Emirates has 150 of the 350-400-seat model on order, of which eight were originally slated for delivery next year
  • Boeing suspended load testing on its new 777X in September, when media reports said a cargo door failed a ground test

LONDON: Delivery delays to Boeing’s 777X jetliner are holding back Emirates’ growth and could partially affect the Gulf carrier’s broader fleet requirements, airline President Tim Clark said on Thursday.
Dubai-based Emirates has 150 of the 350-400-seat model on order, of which eight were originally slated for delivery next year, and has yet to firm up orders for 40 of Boeing’s mid-size 787 jets.
The world’s largest operator of long-haul aircraft is also in talks to complete an order for 70 Airbus jets, with both sets of negotiations in focus ahead of the Dubai Airshow in November.
Boeing suspended load testing on its new 777X in September, when media reports said a cargo door failed a ground test. There have also been issues with its General Electric GE9X engine, the largest ever produced for an airliner.
The plane was originally due to enter service with Emirates in June 2020. In an interview, Clark said Emirates no longer expects to receive the first 777X before “April or the second quarter” of 2021.
“That has conditioned everything else,” he told Reuters on the sidelines of the Airlines 2050 conference in London.
“First of all, I want to know when the thing’s going to come,” he said. “Our fleet plans are very much driven by when these aircraft are going to be delivered to us.”
The airline’s capacity growth is being held back by the delivery delays and will resume only “when I get some visibility on all this,” Clark said.
A Boeing spokesman said the US manufacturer was working through its “disciplined development process” to prepare the 777-9 for its first flight and delivery to launch customers.
In September, Boeing Chief Executive Dennis Muilenburg said it was “working toward entry into service (of the 777X) by the end of 2020,” subject to the availability of engines.
There has been speculation that Emirates could defer or reduce 777X orders, or else downgrade some to the smaller 787.
Clark told the Seattle Times in June that Emirates was discussing a combination of 777Xs and 787s that may preserve overall numbers but substitute some jets and defer others.
Planemakers already face pressure over late deliveries of smaller aircraft, with Boeing’s 737 MAX grounded following two accidents and Airbus’s A320neo hit by industrial delays. But the November air show is expected to test airlines’ leverage in negotiations for some of the industry’s biggest jets.
While Boeing tries to finalize its 787 deal, Airbus will be hoping to complete an order for 40 similar-sized A330neo and 30 A350 jets which Emirates tentatively ordered in February when Airbus decided to halt production of its flagship A380.
Asked about the status of new Airbus orders, Clark stressed the importance of keeping costly assets working reliably.
“You’ve probably heard me say in the industry, I want aircraft that will give me 99.9 percent dispatch reliability from day one. Until they can contract for that, we’re not going to take them.”
An Airbus spokeswoman said the A330 family has a dispatch reliability — or the proportion of departures without technical problems — of 99.4 percent, with the A350 already at 99.9 percent.
Clark said the aerospace industry had “over-promised” in recent years, placing jets in the market before they had the technical maturity to deal reliably with hot Gulf conditions.
“The engines in particular have got to be able to do that, and I’m not quite sure they are there yet.”
He also said Emirates would begin flying to Mexico City as planned on Dec. 9, despite a successful challenge by Delta Air Lines’ partner Aeromexico against a bilateral government pact underpinning the new route.
“This is Aeromexico and Delta making life difficult for us,” Clark said. “There will be a legal wrangling going on, but as far as I’m concerned, we’re going to fly.”
Delta referred queries to Aeromexico which had no immediate comment.