Energy & Mining

The Gas Must Flow

ADNOC Pipeline Deal

ADNOC continues to attract FDI to the UAE as it signs a USD20.7 billion pipeline deal with a consortium of leading infrastructure and sovereign wealth funds from around the world.

While everything might seem all doom and gloom in many sectors due to COVID-19, there are rays of hope coming from the energy sector in Abu Dhabi. Even during this global crisis, the Abu Dhabi National Oil Company (ADNOC) has pulled together the single largest global energy infrastructure deal in 2020. The USD20.7 billion gas pipeline deal will bring together six international investors to create a new entity to handle ADNOC’s gas pipelines. The group of six consists of Global Infrastructure Partners, Brookfield Asset Management, GIC, Ontario Teachers’ Pension Plan Board, NH Investment & Securities, and Snam, which will hold a 49% share in the new subsidiary with a combined investment of USD10.1 billion. The remaining 51% will be held by ADNOC Gas Pipelines. The network covers 982.3km across 38 pipelines, taking gas all across the UAE to ADNOC’s customers.

Some of the finer details still need to be ironed out, but the new deal will allow ADNOC to lease ownership interest in the assets to ADNOC Gas Pipelines for 20 years. While a floor and a cap have still to be negotiated, the returns will be on a volume-based tariff. This transaction should provide ADNOC with proceeds of over USD10 billion. For the partners, it is a low-risk deal that will generate a steady flow of cash while giving them to opportunity to invest in quality energy infrastructure.

The announcement on June 23 is the second major capital investment in Abu Dhabi’s infrastructure after a USD5 billion in 2019 from BlackRock and KKR leasing rights for oil pipelines. Both of these investments show a confidence in the UAE and ADNOC by the global community. “Globally, there has been a huge drop in investments in the oil and gas sector. [But] ADNOC in the UAE and the likes of it in the region are very attractive for foreign investors,” Mazen Al Sudairi, Head of Research at Al Rajhi Capital in Riyadh told the local press in the UAE. He went on to say, “When the oil market is down and capex is being rationed, the most attractive is the GCC market, because the cost of production is low and level of reserves are very healthy, above the global average.”

The UAE’s stability is also a major factor in its ability to attract FDI, even in this time of crisis. According to the United Nationals Conference on Trade and Development (UNCTAD), global FDI is expected to drop by as much as 40% in 2020. Even in 2018/2019 at the beginning of the US-China trade wars and a general fall in FDI globally, the UAE managed to buck this trend and has been one of the largest recipients of FDI in western Asian, attracting USD10.4 billion in both 2017 and 2018 and USD13.8 billion in 2019, with 2020 looking to draw a similar amount.