UAE is most committed to Opec, Opec + agreements, says Ministry of Energy

The UAE supported an increase in oil output from August but suggested deferring to another meeting a decision by Opec+ on extending its global oil supply pact beyond April 2022, the Ministry of Energy and Infrastructure said on Sunday.

The Organisation of the Petroleum Exporting Countries (Opec) and its allies, a group known as Opec+, will resume talks on Monday after failing to reach a deal on oil output policy on Friday as the UAE opposed some aspects of the pact.

“The UAE backs an output increase from August as the market is in dire need of higher production. It is willing to extend the agreement further, if required, but asks that baseline production references — the level from which any cuts are calculated — be reviewed to ensure that they are fair to all parties,” according to the energy ministry statement.

The UAE and its international partners have invested significantly in growing its production capacity and believes that, if/when the agreement is extended, the baseline reference figures should reflect its actual production capacity, rather than the outdated October 2018 production reference, the statement said.

“The UAE demands to have justice in the new agreement after April, and it is our sovereign right to demand reciprocity with the rest of the countries,” Suhail bin Mohammed Faraj Faris Al Mazrouei, UAE Minister of Energy and Infrastructure, told Sky News Arabia during an interview.

He said the UAE was ready to have a committee of independent bodies formed to look into its request.

The UAE Energy Ministry said that an Opec+ ministerial panel, the Joint Ministerial Monitoring Committee (JMMC), had made the output increase conditional on extending the current agreement.

“It makes no sense to attach conditions to an increase in August. We fully support an increase in August,” the ministry said.

Opec+ sources said the UAE said its baseline was originally set too low, an issue it raised before but was ready to tolerate if the deal ended in April 2022 but not if it went on longer. The UAE has ambitious production plans and has invested billions of dollars to boost capacity. The Opec+ pact has left about 30 per cent of UAE capacity idle.

The UAE is a longstanding and committed member of Opec, and Opec+, and have been a reliable partner in the current Opec+ agreement, delivering compliance of 103 per cent throughout its two-year term, the ministry said.

“The UAE, which has raised its production capacity since 2018 when the individual baselines were set, insisted on having its baseline lifted by 0.6 million barrels per day (bpd) to 3.8 million bpd, thereby allowing them a unilateral production increase within the current quota framework,” according to Ole Hansen from Saxobank.

Saudi Arabia and Russia support extending the deal as it is until December 2022, the UAE wants to lock in an increase in production before agreeing to an extension beyond April when the current agreement expires, according to an analyst.

“Negotiations... will be difficult as Opec+ knows that if the UAE is allowed to produce from a different base, other members may protest,” said Louise Dickson from Rystad.

Bloomberg news agency reported on Thursday an agreement had been floated that would raise production by 400,000 barrels per day (bpd) each month from August onwards, reaching an extra two million bpd by the end of 2021.

“The UAE has supported production increases in May, June and July of this year which had no extension conditions attached to them. So it makes no sense to attach conditions to increase in August. We fully support an increase in August,” the ministry statement said.

The statement said the JMCC unfortunately only put one option forward, to increase production on the condition of an extension to the current agreement, which would prolong the UAE’s unfair reference production baseline until December 2022, from the existing agreement end date of April 2022. “

“The UAE proposed to de-couple the matters of increasing production and the extension of the agreement, to progress an increase to production starting in August. But the JMMC insisted on coupling the increase with the extension of the agreement,” the statement said.

It noted that the Opec+ agreement is scheduled to run for another nine months until April 2022, “so there is plenty of time to review terms for its extension and we see no need for such a condition to be included at this time”.

“The UAE and its international partners have invested significantly in growing its production capacity and believes that, if/when the agreement is extended, the baseline reference figures should reflect its actual production capacity, rather than the outdated October 2018 production reference,” the statement concluded.