Abstract
The main objective of this report is to illustrate the external and internal factors of ÂÂÂADNOC Gas Processing, which is a subsidiary company of ADNOC Group; therefore, the analytical part of the research has used SWOT and PESTEL tools for designing proper strategic recommendations in order to attain the core competence of âAbu Dhabi Economic Vision 2030â. The âliterature reviewâ, SWOT, and PESTEL analyses have identified that the ADNOC Gas Processing is an excellent player in the global fossil fuel market with gigantic economic growth and determinant force of the local economy. Since finite hydrocarbon-based resources and a significant fall in oil prices have driven the UAE to diversify its economic activities towards non-oil sectors, ADNOC Gas Processing has been recommended to engage its efforts on renewable energy sources, and preserve hydrocarbon reserves for the future.
Introduction
ADNOC Gas Processing (previously GASCO) was established in 1978 through joint venture among ADNOC, Shell, TOTAL, and Partex; however, its first plant was introduced in 1981, and the agreement was renewed in 2008 for the next 20 years (ADNOC Gas Processing, 2017). This company is one of the largest suppliers of gas and fuel-related products around the world, and is accountable for processing onshore natural gas, as well as associated gas from onshore production units; it delivers over 10.5 thousand tons of ethane, 4300 MMSCF of gas, 217 thousand barrels of condensate, and 33.9 thousand tons of propane (ADNOC Gas Processing, 2017).
Selection of Organization
This report deals with ADNOC Gas Processing Company since it leads and oversees Abu Dhabiâs natural gas segment; here, table 1 gives more information about the background of this company:
Table 1: Overview of the company (ADNOC Gas Processing, 2017).
Literature Review
Gulf News reported that the UAE Energy Plan for 2050 was introduced to counterpoise energy production and utilization within the next three decades (Nagraj, 2017); this has been thoroughly analyzed in table 2:
Table 2: The UAE 2050 energy aims (Gulf News, 2017).
Graves and Subaihi (2017) stated that the main goal of the UAE Energy Plan 2050 is to cut CO2 emissions by 70%, to boost clean energy use by 50%, and to advance energy efficiency level by 40% within the next 35 years; therefore, the CEO of this company considers it as a significant footstep towards energy security.
Market Competition
Pitatzis (2016) and Dipaola (2017) have provided an in-depth analysis regarding the competitive scenario of the market; the key factors are outlined in table 3:
Table 3: Porterâs five forces model for ADNOC gas processing (self-generated).
Politics
Based on the traditional political configuration without democratic practice, the country attained huge sovereign wealth fund, remarkable heights of foreign direct investment, strong accord with the global credit market, and heavy industrialization by implementing diversification strategy (Davidson, 2009; Oxford Business Group, 2016; Jaber, 2015). Due to participating in different international organizations, the county has taken some steps of economic reformation but failed to provide necessary political liberalization deeply concerned with the political economy (Rafaei, 2017; Ministry of Economy, 2016). As a result, the flourishing economic condition encourages and motivates the entrepreneurs, investors, domestic media, local sponsors, workforces, and all other stakeholders, independent groups including the civil societies urge for greater transparency and accountability for their own economic interest.
Economy
International Monetary Fund (2016) prescribed the UAE authorities to keep their continuous efforts to diversifying the economy far apart from oil, nonstop action to amplify productivity, promoting competitiveness, and improving business environment by regulatory reformation where top priority should be given on higher education, innovation, entrepreneurship, and startups with new law and regulation (p.3)
Analysis
This report will use PESTEL tool to examine external factors and apply SWOT to illustrate internal factors those influence the business operation of ADNOC Gas Processing.
External Analysis – PESTEL
Political Factor
Subsequent expiry of the British accord with the Trucial States, the UAE established a union of Muslim monarchies from seven independent emirates with diversity in 1971 and the monarchical social bonding has facilitated the UAEâs monarchs to enjoy huge bundle of economic benefits as well as limitless legitimacy over the natural resources (Davidson, 2009). The oil-rich lower Persian Gulf of the UAE has demonstrated remarkable economic progress but failed to archive real goals of modernization due to the patriarchal and patrimonial leadership at most of the formal governmental institutions and rising middle class as well as dissatisfied demography.
Without any presence of political parties, every Emir manages and administers his Emirate autonomously without any challenge and such political atmosphere has been assisting ADNOC gas processing to attain more economic growth, but the participating foreign parts express their interest for workers union, democratic liberalization.
Economic Factors
The Ministry of Economy (2016) pointed out that the GDP of the UAE dramatically has risen at 1.8 trillion dirham in 2016 that was 510.9 billion and 1.47 trillion dirham in the preceding two years, the GDP growth rate reached at more or less 3.6% in 2015 although oil price fall but contributed by the non-oil sectors. The decline of income from the oil resources and increase of governmental spending from 4.5% to 6% has forced the economy to mitigate deficits from financial reserves, issuing international bonds and raising the awareness to cutting consumer spending (Ministry of Economy, 2016). Figure 2 illustrates this in more detail:
In the Macroeconomic environment, the UAE has linked with the macro-financial stability risks at an extensive rate although the falling oil price has turned into a driving force to attain position of strengthening diversification of the economic activities at non-oil sectors. Falling oil and gas price has dramatically affected the non-oil activities and the concurrent economic condition has driven the authorities to eradicate risks of macro-financial stability and fiscal stance by emphasizing on economic diversification and put into practice of huge policy reformation. The banking sector of the UAE has remained stronger with capitalization along with the associated pressure of less profitability and significantly slowed down domestic deposit that leads this sector to increase wholesale foreign funding. Real estate sector of UAE is still suffering from declining price due to financing constrains as well as mortgage policy, as a result, this sector has failed to contribute its expected contribution to the GDP growth (International Monetary Fund, 2016).
Social Cultural Factors
The demography of the UAE consists with 13.5% Emiratis along with 86.5% expatriates, as a developed country with remarkable economic progress, the cultural heritage of the country has gained a mufti-cultural attributes where people of different countries influence and share their values and ethnicity with very good companionship (International Monetary Fund, 2016). ADNOC Gas Processing is striving to put into practice the sustainable performance, which is an essential component to attaining excellence of corporate objectives strongly linked with the groupâs mission and vision as well as contribution to the CSR spending in order to care for rich cultural heritage of the country.
Technological Factors
The UAE has aligned to selecting âGreen Technologyâ at every aspect of its industrialization where renewable energy is a basic agenda, for instance different cities of the country has covered with solar security system where the CCTV camera captures electricity from the sun ray and run the system in an automated manner. The country also introduced smart technology in different household where highly steady and safe wireless system integrated for employeeâs entry and attendance, door locking, lighting, interior deformation, vehicle protection, multimedia device, and other luxurious goods that ensued comfort to the citizens life. At the same time, Geo Reference Locator has been widely used in the UAE where tourists and local people could efficiently locate their desired person or place by using digital platform that that ultimately assist him for further data processing as well as information sharing. Due to strong accord with the United States, UAE has aligned to use most modern US defense technology including arms, weapons, aircrafts, and established an exclusive âNational Security Laboratoryâ in order to identifying the secret weapons while the country also aligned with Korea for nuclear technology.
Environmental Factors
The business and industrialization of UAE always been faced to eradicate environmental hazards and maintaining ecological balance keeping highest efforts to the life and nature and to do so, the country introduced âEnvironmental Awareness Training Centerâ to research in this concern and to motivating people for awareness. Besides that, the country has engaged to develop Ecological Park to motivating urban people for sustainable living while the number of industrial parks is increasing awareness to the zero carbon and waste, sustainable transportation, water management, eco-friendly foods and materials, and protecting wild life.
Legal Factors
The legal framework of the UAE has been going through continuous development in order to connecting its economic progress and to ensure sustainable business environment to attract the foreign investors, it has introduced âFederal Law of Commercial Companiesâ that aimed to incorporate diverse business entries in the country. Furthermore, the Telecommunications Regulatory Authority (TRA) regulates Federal Law Electronic Commerce and Transactions in 2006, and Cybercrime Law that facilitated the operation of e-commerce and online transaction, which resulted in the exploration of Information and communication technology (ICT) in the country and it.
Internal Analysis – SWOT of ADNOC Gas Processing
Strengths
Production Capacity: This company processes gas from onshore and offshore sources; it produces more than 3 million barrels oil along with above 9.8 billion cubic feet of raw gas every day; furthermore, it is willing to raise oil extraction by 0.5 million barrels within next year to meet the growing energy demand (ADNOC Gas Processing, 2017).
Corporate Social Responsibility: ADNOC considers a proactive method towards environmental protection; this company is committed to supervise its own greenhouse gas emissions, and introduce to effective long-term solutions to deal with climate change risks.
Strategy: To maximize profit margin and minimize production costs, ADNOC Group has already designed an integrated strategic plan for the next five years business operation of all subsidiaries including ADNOC Gas Processing; however, figure 3 and 4 show these factors in more details:
Other: ADNOC Gas Processing is enjoying competitive advantages due to downstream gas and diversification, well-established partnerships with suppliers, upstream production potential, and distribution network and so on.
Weaknesses
Main internal factors for ADNOC Gas Processing include managing human resources and business environment, limited financial or operational freedom; control the operating costs, cut CO2 emissions, and so on.
Opportunities
Business expansion: ADNOC is one of biggest gas processing companies in the globe for which it has an opportunity to generate substantial revenues and utilize significant gas resources of this country by exporting gas and related products; at the same time, it has scope to become the most innovative organization in this sector.
As ADNOC Gas Processing has competitive advantages over the competitors, it has opportunity to supply gas and related products, such as, ethane, propane, and naphtha in new countries using different entry mode strategies; in addition, the diversification of its product line could increase market share.
Rising gas demand: British Petroleum (2016) reported that the production and consumption of natural gas is increasing day by day, for instance, in 2015, the total production of natural gas in the UAE was 55.80 billion cubic meters, but consumption was 69.10 billion cubic meters; therefore, the government of Dubai import natural gas from Qatar (Alkhalisi, 2017).
In this context, ADNOC Gas Processing could increase natural gas production level to expand business in national market; however, figure 5 gives more information in this regard-
Merger or Takeover: It has scope to boost market share by investing more on takeover plants of the national and international competitors to meet demand of natural gas.
Threats
At present, it is very difficult task for this company to save employees and other people from environmental hazard related with gas processing; however, according to the code of conduct 2016 of ADNOC, it is dedicated to protect public health and ensure safety by implementing different policies, actions, and codes of practice.
On the other hand, prevent bribery and corruption is another challenge for this company; however, the management team and other employees need to concentrate on any suspicious activity, unfair transaction by the third parties to take undue advantages from the company.
Good corporate governance plays vital role for the development of its competitiveness but the system of ADNOC Gas Processing is not enough transparent though the board members maintain reliable trustful relations with the investors and shareholders.
Other challenges to operate trades include very limited scope for the stakeholders to know financial performance of the company, protect information and cyber crime in the era of modern technology, and avoid money laundering and irregular payments, theft of assets of the ADNOC Gas Processing, presence of direct and indirect competitors, comply legal framework, and so on.
Conclusion
From the above discussion, it can be concluded that ADNOC Gas Processing has enjoyed huge success from the last three decades and this progress will continue in the future while supply and demand of natural gas is increasing in Abu Dhabi, Dubai and other states.
Recommendation
It is unfortunate that ADNOC Gas Processing never discloses its financial information to the shareholders, which adversely affect to achieve the goal set in âAbu Dhabi Vision 2030â.
In addition, ADNOC Gas Processing should focus more on technological and environmental factors to avoid accident and to protect health and safety; otherwise, this company may face legal barriers or need to pay huge compensation; to overcome from challenges related with economic turmoil and other functional constraints, the management team and the employees should work with integrity.
Impact on Abu Dhabi Economic Vision 2030
The main objective of âAD 2030â was to prepare a roadmap for the economic development of this country (Arnold, 2013); however, this plan recommends the government to create a liberal, well-organized, and transparent business environment where the companies could utilize resources properly.
However, ADNOC Gas Processing will follow the recommendations of this report for increasing natural gas production to meet national demand and reduce emission of carbon dioxide, while contributing significantly to the national GDP; in this way the recommendations will impact on AD 2030.
References
ADNOC Gas Processing. (2017). About ADNOC gas processing. Web.
Alkhalisi, Z. (2017). Qatar keeps gas flowing to UAE despite blockade. Web.
Arnold, T. (2013). Vision 2030: Abu Dhabi focusing on growth strategy. Web.
British Petroleum. (2016). BP statistical review of world energy. Web.
Davidson, C. M. (2009). The United Arab Emirates: Prospects for political reform. The Brown Journal of World Affairs, 15(2), 117-127. Web.
Dipaola, A. (2017). The U.A.E. needs Qatarâs gas to keep Dubaiâs lights on. Web.
Graves, L., & Subaihi, T. (2017). UAE energy plan aims to cut CO2 emissions 70% by 2020. Web.
Gulf News. (2017). UAE energy plan for 2050 to achieve balance between energy production and consumption. Web.
International Monetary Fund. (2016). IMF country report: United Arab Emirates. Web.
Jaber, S. (2015). ADNOC Group sustainability report 2015. Web.
Ministry of Economy. (2016). Annual economic report 2016. Web.
Nagraj, A. (2017). UAE to invest Dhs600bn by 2050 in clean energy strategy. Web.
Oxford Business Group. (2016). The report: Abu Dhabi 2016. Web.
Pitatzis, A. (2016). Porterâs five forces model for oil and gas industry. Web.
Rafaei, H. (2017). An enhanced organization: Resilient, competitive and fit for the future. Web.