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July 19, 2017

Volume 17 Issue 52

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Adnoc Rolls Dice to Attract Downstream Investors

Abu Dhabi National Oil Co. unveiled a far-reaching plan to open up its downstream business to international investors, a development which could significantly alter the base oils landscape in the Middle East.

The announcement – titled “A new era for Adnoc” – detailed plans for Adnoc’s upstream and midstream businesses in an advertorial via the Twitter account of a local media outlet on July 10.

Adnoc owns Takreer, a base oils refiner producing API Group II and III base oils at its plant in Ruwais, United Arab Emirates. The plant, which commenced production in April 2016, can produce up to 500,000 tons per year of Group III and 100,000 t/y of Group II base oils. Approximately 50,000 t/y is earmarked for Adnoc Distribution.

Adnoc is opening the business to create new investment and partnership opportunities, according to Group CEO Sultan Al Jaber. “We are offering strategic partnerships and co-investments across our service and refining businesses and select infrastructure assets, such as Adnoc pipelines and storage facilities, which we’ve not done before.”

Unconfirmed press reports say Adnoc Distribution – which markets finished lubricants as part of a sprawling group that also includes filling stations, service centers and convenience stores – is considering a public listing that may attract a valuation of up to $14 billion. Adnoc Distribution’s media relations department did not reply to a question from Lube Report about the accuracy of the report and valuation.

Analysts say Adnoc’s newfound receptiveness to partnering contrasts with recent decisions by regional refiners. Bahrain’s Bapco will end its marketing agreement with Finnish base oil refiner and marketer Neste in October, mirroring Takreer’s earlier decision to pursue its own marketing strategy after protracted discussions with Neste. Johnny Stewart, principal analyst at Wood Mackenzie’s refining and chemicals research team, considers it new territory for the UAE refiner.

“The recent announcement by Adnoc represents a cultural shift within the company’s refining business, as it has historically operated its assets independently of partners,” said Stewart, who believes there will be opportunities that benefit all in an increasingly cluttered market. “Venturing into partnerships has a number of benefits to both parties. Adnoc will benefit from additional capital, knowledge transfer, shared technical expertise and entry into target export markets. Potential partners will gain access to a world-class refining asset and an advantaged location.”

The Middle East has established itself as a base oils hub, disrupting traditional supply chains as Bahrain, Saudi Arabia, Qatar and U.A.E. increasingly contribute to global base oil stockpiles. Saudi Aramco is the latest national oil company to announce its entry into the base oils market as it seeks to bolster its downstream assets ahead of a highly anticipated initial public offering. Adnoc’s new strategy differs from Saudi Aramco, which is slated to float 5 percent of the parent company, a move Adnoc has ruled out.

The ongoing diplomatic blockade of Qatar by several Arab countries could jeopardize the Middle East Gulf’s position as a stable source of base oils because it is fueling concerns the dispute could escalate and interrupt shipments.