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Abu Dhabi, UAEThursday 15 November 2018

Adnoc and CNPC agree to explore partnership opportunities as emirate plans downstream expansion

The two companies will discuss upstream and downstream business opportunities

Dr Sultan Al Jaber, UAE Minister of State, Chairman of Masdar and CEO of ADNOC Group, exchanges an MOU with a member of the Chinese delegation. Crown Prince Court - Abu Dhabi
Dr Sultan Al Jaber, UAE Minister of State, Chairman of Masdar and CEO of ADNOC Group, exchanges an MOU with a member of the Chinese delegation. Crown Prince Court - Abu Dhabi

State-owned Abu Dhabi National Oil Company signed a wide-ranging agreement with China National Petroleum Company to explore partnership opportunities in the emirate as Adnoc’s plan to expand its refining and petrochemical operations attracts global investors.

The companies will explore potential Chinese investments in downstream projects including an aromatics plant, a mixed feed cracker and a new refinery in the UAE, Adnoc said in a statement on Friday. Talks will encompass partnership opportunities in at least one of CNPC’s downstream assets in China as Adnoc targets international growth.

“With CNPC, we will assess possible investment and partnership options that have the potential to create more value from our oil and gas resources and give greater access to the Chinese market, while also helping support China in meeting its expanding energy needs,” said Dr Sultan Ahmed Al Jaber, UAE Minister of State and Adnoc Group chief executive.

The deal comes as Adnoc, which produces 4.5 per cent of the world’s total crude output, seeks to invest Dhs165 billion with partners in the downstream sector over the next five years. Its investment includes building of the world’s largest refining and chemicals facility in the western desert suburb of Ruwais as well as plans for a derivatives and conversions park that will evolve using feedstock from the larger complex. Abu Dhabi’s pivot to downstream comes amid a growing demand for products and their compounds in the large crude-buying nations of India and China.

Listen: Business Extra podcast: How energy security drives UAE-China relations

Further upstream, Adnoc and CNPC are eyeing potential exploration and development opportunities across the emirate, including six oil and natural gas blocks tendered earlier this year, the statement said. Establishing a "technology hub" linked to the Al Yasat concession, in which CNPC has a 40 per cent stake, for the transfer of knowledge and tech is also on the cards. The first batch of crude, a 50,000 barrel per day cargo, was shipped to China in June from one of the concessions operated by Adnoc unit Al Yasat.

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Adnoc to invest Dh165bn with partners in downstream

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Adnoc and CNPC are also assessing options for crude storage in China as the Abu Dhabi company looks at the sale of its products in the world’s biggest energy market, Adnoc said.

“We believe an enhanced level of collaboration would help ADNOC maximise the value of its assets and resources, while also contributing to China’s energy security,” Wang Yilin, chairman of CNPC, said.

On Thursday, Adnoc awarded contracts worth Dh5.88bn ($1.6bn) to a unit of CNPC to conduct one of the world’s largest 3D onshore and offshore seismic surveys.

The agreement comes during the three-day visit of President Xi Jinping to Abu Dhabi and was confirmed after he was received by the UAE leadership for bilateral talks on Friday, as the two countries further extended their co-operation on energy security.

China is the world’s biggest importer of crude, with around 42 per cent of it sourced from the Middle East. The UAE sells approximately 7 per cent of its crude to China, whose biggest suppliers are Saudi Arabia, Iran and Iraq.

"The UAE is among China top ten crude suppliers as well as an important source of refined petroleum products," said Hugo Brennan, Senior Asia Analyst at global risk consultancy, Verisk Maplecroft. "It has a role to play in ensuring that China maintains well diversified energy import routes."

Beiijing, which seeks foreign oil asset purchases to guarantee its energy security, has increasingly looked towards Abu Dhabi to provide cheap risk-free crude. Adnoc produces about 250,000 bpd alongside its Chinese partners, with 120,000 bpd exported to China.

Chinese firms have made inroads into Abu Dhabi’s energy sector, wining about $1bn worth of offshore concessions in March and are also eyeing the six blocks on offer as part of Adnoc’s first licensing round this year.