His Highness Sheik Hamed Bin Zayed Al Nahyan, chairman of the Abu Dhabi Economic Forum, recently announced that the emirate, one of six in the United Arab Emirates, would like to set up a tax-free zone to cater to the needs of oil and gas operators and service players in the Middle East. By establishing a new center for the service and manufacturing industries in Abu Dhabi, service costs may be reduced and logistics simplified, not only for operations in the Middle East, but also in the Caspian region nearby. Abu Dhabi itself accounts for 90% of the UAE's hydrocarbon output and reserves. And, it is the site of the Dolphin Energy project, one of the largest single energy projects in the Middle East, or indeed, the world. It will produce, process and transport 2 billion cubic feet of gas per day from Qatar and Oman to the UAE starting in 2006. (For more, see "An Island of Oil and Gas Stability," Oil and Gas Investor, April 2004.) Reporters Gilles Valentin and Ayse Hazir of London-based Global Business Reports (GBR), with which Oil and Gas Investor has an alliance, interviewed Hamed last spring. They asked him to elaborate on the role of the United Arab Emirates, and Abu Dhabi in particular, in further developing the Middle East's oil and gas reserves. GBR What were the effects of the oil and gas industry on Abu Dhabi since the early discoveries in the 1950s? Hamed From the early days, Sheik Zayed was committed to the people of the kingdom first, and to the country. His strategy was to strike partnerships with the international oil and gas industry without pursuing the concept of nationalization. His way is now being carried out by Crown Prince Sheik Khalifa Bin Zayed. Today we are implementing such an approach with the Dolphin Energy project, which represents a partnership between state organizations and international oil companies. At a time when everybody in the region was nationalizing their oil sectors, we were heavily criticized for not following that path. Thirty years on, we can perceive how right the sheik's vision was, at a time when countries in the region are trying to attract international oil companies back again, and to develop partnerships in the way he did. Establishing a national oil company to develop these partnerships alongside foreign investors was part of that vision. Today, we are trying to develop a regional approach with an oil and gas service complex. GBR How can we measure this country prior to, then after, the discovery of oil? Hamed It is the magic of oil and what it can do for a nation and its people. Forty years ago, we were living in difficult conditions, literacy levels were low and health care limited. Today, we live in peace, with excellent relations with the international community, our population lives in excellent health, the number of universities is rising and Abu Dhabi, Dubai or Sharjah are very renowned business centers worldwide. This wasn't achieved easily and the leadership spared no effort in building the nation. GBR Do you believe Abu Dhabi, the largest producer by far, has a special responsibility to help its fellow emirates develop their oil and gas sector? Hamed Absolutely. Abu Dhabi is offering assistance and providing advice for their oil and gas investments. We are helping them in providing fuel for their utilities and the Dolphin project will extend and strengthen this relationship even further, and help provide the other emirates with a reliable source of gas. Abu Dhabi is at the center of this groundbreaking project. GBR Does this project open the way to further regional cooperation, with Abu Dhabi leading the way again? Hamed It definitely does. At the last Gulf Cooperating Council meeting, there was a proposal put forward to build a pipeline from Kuwait, going south to Oman and finding new outlets for Kuwaiti crude. The UAE, and most specifically Abu Dhabi, will try to host this kind of project and play a key role in it. GBR The recently unveiled project of the Middle East Petroleum Service Base could change the face of the industry in Abu Dhabi. Could you share with us your vision of this project? Hamed To understand this project, one has to look at some of the key facts: First, this region holds 60% of the world's oil reserves. Second, a third of the daily world oil production is coming from this region. Third, nearly $4 billion in oil and gas services is drawn from this region and the potential in demand for services in the future could reach up to $150 billion. Therefore, there is a potential to gather these scattered oil and gas service companies. This is Aladdin's cave and we strongly believe these players can as much as treble their profits! GBR How do you intend to attract these service companies to the kingdom and what competitive advantages will you put forward? Hamed The government will provide the entire infrastructure required for such a project: port, roads, water, electricity, telecommunications, and why not an airport? We will also facilitate access to finance, and the project will run like a free zone and will, of course, have no taxation. We would also facilitate labor. We are committed to make it the best opportunity for international and local oil and gas service companies to go regionally and internationally from the Abu Dhabi base. Why should companies make platforms, rigs, pipelines, hardware and software in Europe or the U.S. and ship them here when 60% of the oil reserves are actually in this region? The market is very big, actually No. 1 in the world. Their competitive advantage will be expanded if they allocate themselves where it is cheaper for them to operate and serve their customers better, and their profits could be greatly increased. GBR Already, a number of local players are increasingly making a name on the regional and international market, notably involved in the fabrication of platforms, topsides or subsea structures. What synergies do you expect between local operators and international service players here? Hamed Everybody expects them to benefit from the arrival of new entrants. The local operators will have the opportunity to build good partnerships with international service companies and go international, penetrate large markets and strengthen their position in this region by entering consortiums with world leaders. Iraq is and will be in the focus, but Central Asia and the Caspian region can be serviced from here too, as that region is landlocked. We are also looking forward to attracting more value-added projects and benefiting from the transfer of technology. We hope we will be able to convince them to set up their base here, and shift manufacturing operations to this complex, where it will be cheaper to run them. GBR Clearly, the ambition is to make Abu Dhabi the service center of choice for the region, with global ambitions. Have you consulted with the existing local service operators to have their feedback on the project? Hamed They were approached, alongside some international oil and gas service companies. The latter were mostly interested, and some of them were enthusiastic to the extent that they sent their engineering teams to look at the project and how they could transfer their manufacturing base. GBR Bearing in mind that most of the potential operators to be attracted here are North American, one major problem that Abu Dhabi could face is its image deficit. How do you intend to fill the gap between perception and reality? Hamed People often think that in this region, all the upstream has been nationalized. It isn't true for the UAE, and secondly, that doesn't mean that the oil services companies cannot enter this market. The national oil companies are always in need of services and this offers a great potential to the companies delivering these services. This future complex would offer increased opportunities to penetrate this market, for companies from Houston or Aberdeen. It would also make it possible for them to enter the Central Asian, Caspian or Russian markets. GBR The Middle East hardly displays an image of stability at the moment. What do you intend to do to reassure the international oil and gas community on the security of investment in the kingdom? Hamed We are dedicated to guaranteeing investment here. Our laws offer security to international investments on the basis of international laws. We have good political and economic stability and have benefited from sustained economic growth for a long time. The UAE, and especially Abu Dhabi, have a very good reputation regionally and internationally and we intend to capitalize on these for this project, to attract international oil and gas service companies. GBR What role do you expect the Abu Dhabi National Oil Co. (Adnoc) and its group of companies to play in raising the profile of the industry in this country and in attracting foreign service companies? Hamed Adnoc would be the first to benefit from the project. Hosting a large number of oil service companies will provide it with great services and offer to the region the benefit of developing a cheaper base for investment. This will in turn develop local industries. GBR What is your message to the E&P community, the service sector as well as the financial community fueling the growth of the industry from Wall Street and Houston? Hamed Prepare for their biggest tactical jump in the region and internationally. When we launch this project, hopefully next year, they are most welcomed to participate. We will be very happy to hear from them and convince them to come to this region and operate from here into regional and international markets.