The coronavirus outbreak and the oil supply glut are set to lower Abu Dhabi’s oil revenues in the short term, according to Moody’s report on credit developments from coronavirus
However, unless oil prices depart significantly and durably from the medium-term range, the credit implications of such changes in prices will be limited, stated the report.
The total government debt in Abu Dhabi is equivalent to five per cent of the total value of the Abu Dhabi Investment Authority's (ADIA) gross assets under management, stated Moody’s.
A very high per capita income, vast hydrocarbon reserves and superior infrastructure support creditworthiness. In addition, domestic politics are stable and the UAE has good relations with the international community.
Abu Dhabi's main credit challenges lie in a lack of institutional data transparency, particularly the absence of public figures on prospective budgets and on the composition of offshore assets managed by ADIA. Regional geopolitical tensions present event risks, and the emirate's dependence on hydrocarbons is also a significant vulnerability. That said, the investment returns from ADIA provide an additional source of stable revenue for Abu Dhabi
“The stable outlook indicates that the rating is supported by medium-term upside potential from continuing diversification efforts, but constrained by lingering government-related entity contingent liabilities and geopolitical tensions. The coronavirus outbreak and the oil supply glut will lower oil revenues in the short term, but unless oil prices depart significantly and durably from our medium-term range, the credit implications of such changes in prices will be limited,” according to Moody’s.
Abu Dhabi has abundant hydrocarbon resources. According to the US Energy Information Administration’s estimates, Abu Dhabi alone holds the seventh-largest oil reserves in the world and accounts for about 94 per cent of the UAE’s reserves. Most recent estimates put the UAE’s oil and natural gas reserves at 138 bbl of oil equivalent, which corresponds to 68 years of production at current levels.
Falling global demand and deeper production cuts to reduce capital investment in hydrocarbon
We have revised down our 2020 average production forecasts to 2.77 mmbbl per day after emergency OPEC+ talks in April brought an end to the oil price war triggered in March that led to the removal of all price production targets, and agreed to remove an additional 9.7 mmbbl per day from the market in May and June, before easing to 7.7 mmbbl per day for six months and then 5.8 mmbbl per day for a further 16 months. Our forecast assumes that production from May onwards will average 2.45 mmbbl per day, with the annual average skewed higher by unrestrained production across part of March and April.
