Abu Dhabi and South Korea, its second-largest oil customer, have signed a wide-ranging oil co-operation agreement that will pave the way for Korean companies to take a stake in the capital's coveted oilfields. The deal signed yesterday, which also provides for the Abu Dhabi National Oil Company (ADNOC) to operate oil storage in Korea, is a further deepening of the commercial relationship between the two nations, defined by the awarding of a US$20 billion (Dh73.46bn) nuclear power deal last December.
The preliminary agreement "marks the first time the two countries have agreed to work together on finding and developing new oilfields" in Abu Dhabi, reported Yonhap, the Korean state news agency, citing the country's ministry of knowledge economy. The two sides will establish joint teams to identify specific opportunities to explore for oil, the ministry said. The agreement "goes a bit further than just diplomatic window-dressing", said Tom Grieder, an Asian oil analyst at the energy consultancy IHS Global Insight.
"South Korea's government is trying to leverage its energy relationship with Abu Dhabi to gain access to the upstream because the country is an important supplier of crude oil to South Korean refineries." The main concession agreement that defines foreign companies' role in the emirate's onshore oilfields expires in 2014, while the major offshore concession expires in 2018. The Government is still considering whether to renew the agreements, introduce new companies, or subdivide the concessions into smaller areas.
Another opportunity for Korea's National Oil Company (KNOC) would be if the Government created new concessions, as it did for two small oilfields near the capital and a major gas project at Shah. ADNOC officials did not respond to a request for comment yesterday. Oil companies from around the world are jockeying for a position in the emirate, where revenues for oil companies are low but dependable and companies are guaranteed long-term access to low-cost crude.
The holders of the big concessions now include Royal Dutch Shell, BP, Total, ExxonMobil and Japan Oil Development. ADNOC has been courted by other potential newcomers besides KNOC, including Statoil of Norway, Wintershall of Germany, and OMV, the Austrian oil company in which the Abu Dhabi Government owns a 20 per cent stake. South Korea has no oilfields but KNOC owns equity stakes in about a dozen concessions around the world. Analysts say KNOC could offer enhanced oil recovery technology it acquired earlier this year.
"These are definitely skills that Abu Dhabi is seeking to support its oil output expansion programme," Mr Grieder said. "KNOC might be able to team up with other South Korean companies to carry out (construction) contracts to upgrade associated field infrastructure." The agreement yesterday also represents ADNOC's first step towards establishing crude oil storage tanks in South Korea, where it sells about 300,000 barrels per day.
The storage centre would allow ADNOC to continue to supply oil even if tanker routes are disrupted. The storage plans complement KNOC's own drive to double storage capacity to 287 million barrels by 2013, "to support its strategy of becoming a commercial stockpiling hub for north-east Asia", Mr Grieder said. ADNOC last year agreed to set up an oil storage depot on Okinawa, Japan, that would hold 3.6 million barrels.