ADNOC's Santos retreat leaves few lasting scars
17/09/2025 18:52
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, Sept 17 (Reuters Breakingviews) - Abu Dhabi’s ambitious energy M&A push has hit turbulence. On Wednesday, state oil giant ADNOC's investment arm XRG dropped their $19 billion pursuit of Australian gas group Santos STO.AX. Coupled with regulatory headaches in Europe over its Covestro 1COVG.DE bid, the Aussie retreat suggests the emirate’s global expansion plans are not going as planned. But the reality is a bit more nuanced, and resilient oil and gas demand may in any case soften the blow.
Through ADNOC and XRG, the United Arab Emirates has pushed into global chemicals and gas, buying into Fertiglobe and merging domestic group Borouge with Austrian oil group OMV's Borealis. That was based on the insight that even in 2050, oil and gas will still be needed to produce petrochemicals used in everything from fertiliser to medical devices. Unlike fossil fuels, these do not produce emissions when the final product is used.
Even before Santos, this objective had encountered roadblocks. ADNOC has spent more than 15 months chasing Germany's Covestro and the 12 billion euro ($14.25 billion) deal is now under EU scrutiny, amid fears UAE backing and its accompanying capital raise could count as state aid. It might therefore seem like Abu Dhabi's diversification ambitions are bumping up against domestic politics - when the offer launched in June, government concerns over foreign ownership of Australian gas assets made it questionable whether it would succeed.
Yet ADNOC's withdrawal seems about other things besides mere politics. One key issue was a dispute between buyer and seller over capital gains tax liabilities arising from a gas field in Papua New Guinea, a person familiar with the process told Breakingviews. That threatened to upend the financial logic of the deal.
Either way, the urgency to devise a petrochemicals Plan B may be dissipating. Bloomberg reportedthis month that a key trajectory of energy consumption outlined by the International Energy Agency could soon find that the peak in oil and gas demand may now take place beyond 2030, a shift from previous assumptions of a nearer-term zenith. The IEA says its World Energy Outlook is still being finalised.
If Plan A lingers longer than expected, it matters less if ADNOC's Plan B encounters some bumps in the road. The group still plans to boost crude output to 5 million barrels per day by 2027, and Covestro may be sorted. If the energy transition proves slower than expected, walking away from tricky deals may look less like retreat, and more like a well-timed pause.
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CONTEXT NEWS
Abu Dhabi National Oil Company (ADNOC) on September 17 said it had withdrawn its $18.7 billion offer to buy Australian gas producer Santos, after months of disagreement over valuation.
Persistent spread between the bid value and the Santos share price https://www.reuters.com/graphics/BRV-BRV/jnvwbznmrpw/chart.png
(Editing by George Hay; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))