NICOSIA (AFP) – Dubai’s newly discovered oil field is unlikely to generate the big cash needed to get the debt-ridden emirate out of the doldrums, analysts say, challenging the government’s claim that it could inject new life into its ailing economy.
“Foreign companies have explored and developed the area over a long period and any large finds should already have been made,” says Middle East energy analyst Samuel Ciszuk at IHS Global Insight in London.
The announcement by Dubai’s ruler Sheikh Mohammad bin Rashed al-Maktoum of a sizeable offshore discovery on February 4 has attracted considerable attention.
Against the scale of Dubai’s debts, generally estimated at between 80 billion dollars and 100 billion dollars, but with some reports taking it as high as 170 billion dollars, the emirate’s oil reserves are a small fraction of neighboring Abu Dhabi’s.
The government said the preliminary drilling results on the new Al-Jalila field, named after a daughter of Sheikh Mohammad, “indicate that commercial production can begin in one year.” It provided few other details.
Paul Tossetti, senior advisor on oil markets at Washington-based PFC Energy, said “we would be surprised if the discovery is of a size that would have a material impact on the state’s oil output or finances.
“I would think that if this were a major discovery — say 50,000 barrels per day — that construction of an offshore platform and pipeline ashore and associated treatment facilities would certainly take longer than the next 12-18 months.”
Dubai’s oil output peaked in the early 1990s — at over 400,000 bpd — and has since plummeted in the absence of any big discoveries.
Current production is a “state secret” as one analyst says, but is reckoned to be around 70,000 bpd. That compares with the United Arab Emirates’ total output of 2.8 million bpd, some 95 percent of which is produced in Abu Dhabi.
John Sfakianakis, chief economist at Saudi bank Al-Fransi, says the new discovery may be “a good find”, capable of producing anything between 10,000-15,000 bpd.
But he is highly doubtful it will be of any significant economic benefit for Dubai, which gets just 3 percent of its revenues from oil. Most of its income is from the real estate, financial services, retail and tourism sectors, all of which were battered by the global economic crisis.
“Dubai is a service-based economy. Oil revenues are nothing. They are not significant at all. Even the 70,000 bpd that they produce is not enough to cater for the local needs.”
Despite the vast oil wealth in neighboring Gulf countries, Dubai has been suffering from rapidly declining output for well over a decade and the industry does not see it as a growth area.
The offshore concession where the new field was found, which was operated by ConocoPhillips and Total, expired in 2007 and was not renewed.
“The companies probably found, with production in terminal decline, that it was not profitable enough for their portfolios. Dubai took it over and didn’t lease it out again,” says Ciszuk.
He believes that, rather than raising Dubai’s overall oil output and boosting revenues, the new field will more likely slow the rate of decline.
“As you try to stem decline, or slow it down, there will be a lot of development drilling and so on, and they might have struck another pocket. I think that’s what people are expecting,” says Ciszuk.
The UAE publishes very little detailed information about its oil and gas sector and the state-owned firm Dubai Petroleum, which manages the offshore acreage where the recent discovery was made, declined an AFP request for comment on the size of the new field.
“Without information on the reserves and the development plan, it’s really impossible to judge whether this discovery will be able to do anything more than slow Dubai’s output declines,” says Bill Farren-Price, Middle East energy consultant at Medley Advisors.
“My feeling is that this a political message aimed at trying to provide a more positive piece of news in an otherwise quite depressing outlook for Dubai, which is obviously struggling with its para-statal debts.”
Sfakianakis describes the lack of details surrounding the new oil find as typical of Dubai.
“I think it’s a continuation of the lack of clarity that we have, not just in the oil sector. It’s on most government-related subjects. We have no clarity whatsoever on Dubai’s world debt.”