Abu Dhabi’s $19 Billion Offer Drives Push for Top LNG Ranks
(Bloomberg) -- Abu Dhabi is boosting its ambitions to build a top liquefied natural gas producer with its biggest energy deal, as the petrostate targets a market it sees as key to its economic growth.
Abu Dhabi National Oil Co.’s unit is leading a group that’s offered $19 billion for Australia’s Santos Ltd., which would give it access to production and export of LNG feeding straight into fast-growing Asian markets. The investment unit — XRG PJSC — would add Santos to a tally of gas and chemicals deals on the US Gulf Coast, Africa, the Middle East and Europe.
The United Arab Emirates, the oil-rich Gulf state of which Abu Dhabi is the capital, is seeking to parlay its natural-resource earnings into lasting economic growth by investing in technology, manufacturing and tourism. It aims to be self-sufficient in natural gas this decade and is striving to play a role as a global supplier of the fuel.
“Abu Dhabi is long oil, but is seeking to be a more material player in LNG markets,” Bernstein analysts including Neil Beveridge said. “The acquisition of Santos would help enable Adnoc to become a bigger LNG player in key growth markets in Asia.”
Adnoc as a group would be thrust into the ranks of oil majors Shell Plc and Exxon Mobil Corp. in terms of LNG production and exports, according to analysts at Bernstein, if the deal is completed.
Santos’ capacity is set to reach 7.5 million tons a year once Australia’s huge Barossa LNG project starts later this year, according to Bernstein.
Bernstein’s calculations factor in Abu Dhabi’s domestic production, including LNG export terminals in the Gulf with capacity of 6 million tons a year and a planned 9.6 million-ton facility being built on the coast. Adnoc Gas Plc owns the offshore terminal and will also own the planned facility.
Still, with other companies also adding capacity, Adnoc could be comparable to the likes of ConocoPhillips and Eni SpA, according to Bloomberg Intelligence.
“It would still be a big leap from where they are now, which is mostly domestic-focused,” said Salih Yilmaz, a senior analyst at BI. “Depending on how Adnoc scales its own portfolio, it could be positioned in the 15-20 MTPA range — which would make them a mid-tier LNG position globally.”
A deal could also further Adnoc’s ambitions to expand its trading operations, he added.
XRG is the investment unit founded by Adnoc in November with an enterprise value of $80 billion. It plans to double that in a decade as it bulks up to become Adnoc’s international gas and chemicals arm.
The unit is seeking upstream production to add to a supply contract for 1.9 million tons of LNG annually over 20 years from the Rio Grande LNG facility being developed in the US by NextDecade Corp.
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The company is targeting LNG capacity of 20 million to 25 million tons a year by 2035, it said earlier this month. XRG is aiming to become among the five biggest integrated global gas and LNG businesses, it said last month.
While it has little operational LNG export capacity so far, XRG has a pipeline of about 6.5 million tons of LNG capacity annually between supply contracts and equity stakes in projects in operation or on the drawing board, according to Bloomberg calculations based on company disclosures. With Santos’ 7.5 million tons of capacity, XRG would have a 14 million-ton stable of projects, production and supply.
The deal would also give Adnoc access to a major market that it has yet to tap. A presence in Asia will allow XRG into high-growth markets and diversify away from the US, where most new deals are getting done.
(Updates with gas growth aim in the 13th paragraph.)
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