Conclusiones y recomendaciones

The UAE represents a major market for U.S. exports and serves as an important regional hub for American companies conducting business throughout the Middle East, Africa and South Asia. The Emirate of Abu Dhabi has more than 95 percent of the UAE’s O&G reserves are found both onshore and offshore.

O&G production remains central to the UAE economy. In 2012, UAE hydrocarbon exports were $118 billion, more than half of the country’s goods exports and comprised 80 percent of government revenues. The industry is set for expansion as the UAE seeks to increase daily production from approximately 2.7 million to 3.6 million bbl/d by 2020.

The market potential for UAE is based primarily on the amount of investment that UAE is making in its O&G sector to meet the goal of 3.6 million bbl/d and the increase in demand for natural gas. Over the next five years, Abu Dhabi is planning to spend $60 billion to help reach its production goal.

Natural gas production in UAE is forecasted to rise to support increased crude oil production and power production. For many of UAE’s existing onshore and offshore fields, production is being kept up by using new and highly technical enhanced oil recovery (EOR) techniques. While these techniques have increased production, the UAE has directed approximately 26 percent of natural gas production for EOR, which has taken up marketable gas volumes. In addition to natural gas used for EOR, UAE’s rapidly expanding electric demand is also supplied primarily by power

generated from natural gas. Natural gas processing facilities are needed to keep up with growing domestic demand.

Market share for U.S. manufactured O&G equipment is declining in the UAE. Countries such as China, Japan and Germany have begun to erode U.S. market share, especially in O&G gas equipment trade. In 2009 U.S. O&G exports to UAE were 18 percent but decreased to 8 percent in 2013. In the same time, China’s share of UAE’s O&G equipment trade increased from 8.2 percent in 2009 to 26 percent in 2013. The UAE’s biggest imports of O&G equipment are boring and sinking machinery, line pipe for O&G lines, sub-sea line pipe and casing and tubing for O&G drilling.

One region of particular focus for U.S. companies is the Zakum petroleum system. This system may contain over 65 billion barrels of recoverable oil and is owned by ZADCO, a consortium owned by ADNOC (60 percent), ExxonMobil (28 percent), and the Japan Oil Development Company (12 percent). In July 2012, ZADCO awarded an $800 million engineering,

procurement, and construction contract to Abu Dhabi's National Petroleum Construction Company—along with French firm Technip—with the goal of expanding production to 750,000 bbl/d by 2016. Production from the Lower Zakum field—operated by the Abu Dhabi Marine Operating Company (ADMA-OPCO)—should also increase from the 300,000 bbl/d it currently produces to 425,000 bbl/d.

Type: Large Market; Small Market Share

Overall Rank: 7

In the United Arab Emirates (UAE), goods and services manufactured in the United States enjoy an outstanding reputation for quality, after-sales service and support. With the UAE’s declining production from conventional O&G resources, significant demand exists for companies with advanced enhanced oil recovery technology. Despite the significant amount of opportunity in UAE, the decline in global oil price may negatively impact future O&G projects in UAE and limit growth of O&G equipment imports to the country.

The Shah Gas Project is being constructed to gather and process very sour gas. While the project is behind in development, it is projected to be operational in early 2015. The multi-billion dollar project is being constructed in conjunction with U.S.-based Occidental Petroleum. The plant will process around 1 bcf/day of sour gas into 0.5 bcf/day of usable gas in a remote desert area. The Shah Gas Project is a major priority for the Abu Dhabi government as it looks for new sources of domestic natural gas to reduce its dependence on natural gas imports.

Policy Context: Opportunities and Challenges While recent exploration in the UAE has not yielded any new significant discoveries of crude oil, the UAE is looking to increase production from existing O&G assets. ADNOC’s expansion of production in O&G fields, both onshore and offshore provides

opportunities across a wide range of technologies and services. As costs of field exploitation rise, technologies that improve yield and drive costs down will be particularly attractive. To keep production up and to meet the 3.6 million bbl/d target by 2020, current production will have to come from existing, but mature, fields and companies will need to employ even more advanced EOR technologies. Opportunities exist for companies with natural gas flooding, CO2 flooding, or other advanced reservoir stimulation technologies. The UAE is currently renegotiating contract terms for its largest oil fields with international oil companies. ExxonMobil, Shell, Total and BP have each held a 9.5 percent stake in the Abu Dhabi Company for Onshore Oil Operations (ADCO) since the 1970s. The deal expired in January 2014 and Shell, Total and BP have made new bids along with new companies like Norway’s Statoil, China’s National Petroleum Corporation (CNPC), Italy’s ENI, and Occidental

Petroleum Corporation. In August 2014, CNPC secured the rights to produce and will help develop several onshore and offshore fields in Abu Dhabi. CNPC will hold a 40 percent stake in a joint venture and ADNOC will hold the other 60 percent controlling stake. The joint venture will drill for crude and build the processing and transport infrastructure needed to export it to China.

Recommendations for Export Strategies

U.S. firms are highly regarded for superior technology and quality. There is a strong demand for companies with sour gas treatment equipment, drill bits, drilling fluids and upstream chemicals. Goods and services sourced from foreign companies must be prequalified before they can be sold to ADNOC. Companies should be aware that the prequalification process is both cumbersome and complicated.

Foreign companies must have a legal presence in the UAE in order to be able to bid on Abu Dhabi National Oil Company (ADNOC) procurement tenders and projects, and must employ a local agent. Selection of the right agent continues to be a very important decision. Registered agents may only be terminated by mutual consent, and disputes are resolved by a government committee that has historically ruled in favor of the local agent. In most cases, compensation to a terminated agent is required even if the

committee rules for the foreign firm. Only UAE

nationals or companies wholly owned by UAE nationals can register with the Ministry of Economy as local agents.

Burma

Burma is a promising market for U.S. exporters as the country continues to integrate with the global economy. Following the transition to a civilian government in 2011, Burma has transformed its economy through the introduction of a managed float of its currency, the establishment of independence for the Central Bank, and the easing of international sanctions. As a result, foreign investment into Burmese O&G is estimated at $14 billion. Although Burma still has a long way to go in order to improve its institutions, infrastructure, and human capital, the recent political and economic developments show Burma to be one of the most promising small markets for U.S. exports of O&G upstream materials.

While there is optimism about Burma’s potential O&G reserves, there is also a huge degree of uncertainty. Proven natural gas reserves are only about 555 bcm and crude oil 50M bbl, respectively, but there is hope that further exploration will unveil much more substantial reserves. Burma is known to possess significant O&G resources, but more than a decade of sanctions decreased investment in exploration and production. With the country now formally open to international exploration, major international oil companies are making significant investments in Burma using updated technology to locate new resource plays.

Another of Burma’s great strengths is geography, since it is located between the rapidly growing markets of China and India, as well as its fellow members of the Association of Southeast Asian Nations (ASEAN). Ease of access to Southeast Asia’s dynamic economies can facilitate greater investments in O&G equipment. Increased energy demand in the region has resulted in gas prices for northeast Asia to be multiple times the

prices in Europe or the United States. Asian national oil companies have already constructed some infrastructure to bring the gas to those markets, including a pipeline to China and another to Thailand. Burma’s imports of O&G equipment were small— between $100 million and $150 million until 2011 when imports peaked at $671 million. In 2013, China, Indonesia, Thailand, Singapore and Japan were the top the sources of these imports, while the United States was ranked eighth in 2013. While Burma is currently ranked 118th _{in the world for U.S. O&G field}

equipment exports, U.S. exports to Burma grew over 300 percent from 2012 to reach $2.7 million in 2013. Parts for boring and sinking machinery and casing and tubing are the largest portion of these exports to Burma from the United States.

The largest exporter of O&G field equipment by far to Burma was China. In 2012, China exported $380 million in equipment consisting mostly oil line pipe and some submersible drilling equipment, and in 2013, it exported $274 million to Burma including floating drilling platforms and vessels, but also parts for derricks and parts for boring equipment. Indonesia’s O&G field equipment exports consisted mainly of line pipe.

Policy Context: Challenges and Opportunities Substantial progress has recently been made for international participation in Burma’s O&G sector. In 2013, the Ministry of Energy stated that deep-water blocks would not be encumbered by local ownership requirements, that there would be tax-based incentives for these investments, and that each

Type: Small Market; Small Market Share

Overall Rank: 56

Positive developments in Burma’s political and economic environment have created space for U.S. companies to participate in developing its extensive natural resources. While Burma’s geographic position is ideal for supplying energy resources to the rapidly growing economies of South and East Asia, uncertainty remains regarding domestic political risks and overly optimistic estimates of proven reserves. As production blocks are studied and more detailed estimates of potential reserves are released, developments in Burma’s O&G sector will continue to be closely watched.

company would be limited to three blocks in order to promote competition between firms.

In the spring of 2014, the government awarded 20 blocks for offshore O&G exploration to foreign firms in a bidding process widely believed to be transparent and fair. Blocks were awarded to prominent groups including Chevron, Shell, Statoil, Total, ENI, and other regional players and independents. These blocks are far from the development stage, with optimistic estimates that production could begin by 2020. Though companies are optimistic about future rewards, they are still striving to mitigate risk by operating in coalitions.

The companies’ production-sharing contracts with the Burmese government are structured such that they have two years in order to make their finds, and either leave in the event no resources have been found, or develop the resources within three years. The government is expected to ask for a high percentage of revenues, and to promote its own domestic consumption of natural gas rather than its

exportation; however, the contract specifics have yet to be negotiated. In order to develop the oil blocks in a country without the local expertise available, there is an increasing reliance on foreign companies to provide specialized O&G support services, such as Halliburton and Schlumberger.

Burma has recently joined the Multilateral Investment Guarantee Agency (MIGA) and is also a candidate country for the Extractive Industries Transparency Initiative (EITI)—two positive steps for the country’s integration into the world economy. In late 2013, MIGA, the insurance and credit enhancement arm of the World Bank Group, accepted Burma as a member, increasing favorability of the country for investing. The country’s MIGA membership allows foreign direct investment to become eligible for investment guarantees. As a candidate for the EITI, the country must disclose the recipients of the blocks awarded in the 2013-2014 bidding rounds, its oil receipts, as well as its production data. Disclosing the recipients of the

blocks may help to allay allegations of corruption and political cronyism that some have directed at the government. The country still ranks very low on the World Bank’s Doing Business ranking, and must prove itself to be committed to transparency and openness in the long run.

Despite the political liberalization experienced since 2011, Burma is still vulnerable to political instability, as well as high tension between the Muslim and Buddhist populations. The elections in 2015 will be important for determining the country’s future political stability. A major challenge for American firms will be to

penetrate the market as it develops. Although efforts are being conducted to build diplomatic ties with Burma, these relationships are much weaker than those for competing countries in Asia. A new market like Burma, if its resource endowment is near the size of what some experts and its government expect, could become an ideal partner for exports from U.S. firms.

To address these challenges, Secretary of Commerce Penny Pritzker recently inaugurated the new Foreign Commercial Service office at the U.S. Embassy in Rangoon. This office will help U.S. companies navigate the complexities of the market, find reputable partners and promote U.S. exports into the Burmese market. Nine foreign banks have received licenses to conduct business in Burma, making it easier for foreign firms to do business there. The licenses allow foreign banks to open a single branch and offer loans to foreign companies. The banks will be restricted to providing loans in foreign currency and be required to partner with local banks in order to lend to local companies. The banks are from the countries of Japan, Singapore, Australia and New Zealand, Thailand, China, and Malaysia. The fact that all the banks originate from the Asian-Pacific region may disadvantage foreign entities attempting to do business that are not from the region.