Abu Dhabi to Invest $20 Billion to Raise Oil Output

By Ayesha Daya

Aug. 7 (Bloomberg) -- Abu Dhabi, the largest sheikhdom in the United Arab Emirates and owner of the world's fifth-biggest oil reserves, will spend $20 billion to raise crude production by 30 percent in the next two years.

``Forecasts of strong global demand for oil in the long run coupled with diminishing supplies has prompted the emirate to allocate investments of up to $20 billion to raise its oil production capacity to 3.5 million barrels a day by 2010, up from 2.7 million barrels a day at present,'' the Abu Dhabi Department of Planning and Economy said in an e-mailed report today.

The oil industry accounted for 241 billion dirhams ($65.6 billion) of Abu Dhabi's 400 billion-dirham national income last year. Oil sales represented 92 percent of government revenue, the report said, without giving a monetary value.

It is unlikely that the U.A.E., the third-largest member of the Organization of Petroleum Exporting Countries, will be able to raise oil output by some 800,000 barrels a day in such a short time even with its budget, said Ross Cassidy, a Middle East research analyst at Wood Mackenzie Consultants Ltd.

``I don't think it is possible -- a good few oil projects would have to contribute to such a target and with the shortage of materials and labor, the whole industry is suffering from delays,'' Cassidy said in a phone interview from Edinburgh. ``We predict a slight increase of maybe 100,000 barrels a day by 2010.''

The U.A.E. produced 2.65 million barrels a day in July, according to Bloomberg estimates.

IEA Estimate

The International Energy Agency, the energy adviser to 27 nations, expects the U.A.E.'s production capacity to reach 2.82 million barrels a day in 2010, according to its Medium-Term Oil Market Report published last month. The country won't reach 3.5 million barrels a day until 2019 at the earliest as field expansion costs double and supplies of natural gas, which the U.A.E. uses to re-inject into ageing oil reservoirs to push more oil out, fall, the IEA said.

Abu Dhabi will continue to base its economic development on the hydrocarbons industry, the report said, even as it acknowledged that price fluctuations leave little financial control in the hands of the government. Oil prices touched a record $147.27 on July 11, more than doubling from a year earlier. It has fallen 17 percent since then, and was trading at $120.92 a barrel at 1:04 p.m. London time.

The manufacturing industry, consisting mainly of oil and gas-related activities such as petrochemicals production, was the second-largest contributor to Abu Dhabi's gross domestic product, representing 10 percent of national income in 2007, the report said.

To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.net