Getting to the gas: Rising demand requires new strategies for sourcing energy

Some $20bn is being invested to tap deeper into Abu Dhabi’s large reserves of natural gas. Consumption is surging, however, and despite having significant reserves the emirate remains a gas importer. The pressures of demand are leading the government to seek new and innovative techniques for getting the gas it needs. “There are three stages of gas,” said John Barry, the country chair for Shell Abu Dhabi, told OBG. “At first it is viewed as a waste product that is flared. In the second instance, it is captured, but any productive use of it is seen as positive. Finally, the true value of gas is realised when subsidy structures and the uses of gas are re-examined. Abu Dhabi is currently moving into the third phase.”

SOUR GAS: The emirate’s latest solution to the gas equation is also one of its most technologically pioneering: to produce and process gas from the onshore Shah field, most of which is deemed “sour” because of its high content of hydrogen sulphide. At a time when only a select few countries are looking to develop their sour gas reserves, this $10bn investment is considered advanced in the world’s upstream gas industry and could make Abu Dhabi an expert in the field. “Given the sheer scale and scope of the scheme, Abu Dhabi National Oil Company (ADNOC) could emerge as a global leader in sour gas development,” the consultancy Deloitte commented in a 2011 report called “Show Me the Money - Middle East Energy and Resources: Managing scarcity for the future”.

With some 40% of global gas reserves thought to be sour, expertise in sourcing such gas will be increasingly valuable. “Abu Dhabi’s work with sour gas is as important as the shale gas revolution occurring in other parts of the world,” Saif Al Ghafli, the chief executive of Al Hosn Gas, a joint venture formed in 2010 between ADNOC and US firm Occidental Petroleum, told OBG. “Our project is the first to develop gas with such a high concentration of sulphide. The technology and expertise that Abu Dhabi will accumulate in the coming years can be exported to other parts of the world,” he said. Due for completion in 2014, the Al Hosn project will develop several systems for improving gas collection, as well as construct new gas and liquid pipelines and processing techniques for 1bn cu feet of high-sulphur-content gas. The new capacity is expected to yield production of around 540m standard cu feet of gas per day (scfd), as well as a significant amount of condensate and natural gas liquids. Additionally, it is expected that some 3.4m tonnes of sulphur will be produced, processed and granulated every year, which will then either be exported or put to use in the emirate’s growing fertiliser industry. “Countries like Morocco, Jordan and China purchase significant quantities of sulphur to feed their fertiliser production. Many other countries also show a growing demand in sulphur for medicine and pharmaceutical production,” Al Ghafli said.

Although the current efforts are concentrated on Shah field, the emirate is also interested in developing sour gas reserves from Bab field, which will likely be used as feedstock for electricity production. Like Shah, this field was tendered in 2007 and has attracted interest from France’s Total, although ADNOC has said that it does not expect to make an award for Bab before 2015.

INTEGRATED GAS DEVELOPMENT: The development of sour gas comes on the back of another recent investment nearing $10bn in value. The Integrated Gas Development (IGD) was initiated in 2007 by GASCO, a joint venture between ADNOC, Shell, Total and Partex. Its main purpose is to allow for gas produced at the Umm Shaif field to be transported to a new onshore processing complex known as Habshan 5, whose output can be used for local consumption. Ethane produced at the plant is to be fed to the Borouge petrochemicals complex – itself undergoing an ambitious expansion – while naphtha, propane and butane are to be exported.

The construction of Habshan 5 is the focal point of the IGD project. Some $9bn worth of construction work was parcelled out in 2009 to a host of EPC firms, with a Japanese-Italian consortium of JGC Corporation and Maire Tecnimont taking the majority in a $4.7bn award. The UK’s Petrofac and Korea’s GS Engineering secured a $2.1bn contract for a natural gas liquids processing train at Ruwais, while a second Korean firm, Hyundai Construction and Engineering, snapped up the $1.7bn construction works for utilities and offsite facilities, and US firm CB&I won a $533m contract for the construction of propane, butane and pentane storage facilities. Encouragingly, especially for such a large-scale energy project, Habshan 5 is ahead of schedule: the project is due to come on-line in 2013, but was reported to be 90% complete in May 2012.

In addition to putting gas resources to better use, the facility will house new sulphur recovery units expected to further cut down on emissions. This is in line with several emissions-reduction projects currently being undertaken in the emirate, many of which are yielding new engineering, procurement and construction work.

IMPORTS: Despite the significant investments made in technologies and facilities over the past few years, it is unlikely that local production alone can satisfy Abu Dhabi and the UAE’s short- and medium-term demand for gas. The use of imported natural gas and liquefied natural gas (LNG) in Abu Dhabi’s energy mix is likely to continue growing in the coming years, demonstrating that policymakers have formed realistic expectations of the emirate’s near-term production capacity and are taking steps to best address the situation. In fact, the government made a decision more than a decade ago to make gas imports a fixture of its energy mix by founding Dolphin Energy, a massive gas-import project between Qatar, Abu Dhabi and Oman that was spearheaded in 1999. The initiative developed into a joint venture of the same name, and by 2002, Occidental Petroleum and Total had become shareholders alongside the government-owned investment company, Mubadala. In 2007 gas began flowing into the emirate via the newly constructed pipeline stretching from Qatar’s vast North gas field through a sub-sea pipeline to Taweelah in Abu Dhabi and on to Oman.

Although gas flow has been steady since 2008, the project continues to generate more work. In April 2012 Dolphin Energy announced that Rolls Royce Dresser will install three new gas compressors, while a tender has been issued for an upgrade to the gas compression facilities at Ras Laffan in Qatar. Delivering around 2bn scfd, the Dolphin pipeline contributes a significant portion of the nearly 6bn scfd consumed in the UAE. But as local demand for gas continues to surge, the UAE and Qatari governments will have to address increasing the supply, and at what price. Qatar is currently providing the gas at a fraction of market rates, but for the UAE to secure additional gas at the same price is likely to be a challenge. Furthermore, Qatar and the UAE are currently operating under the phase one agreement of the Dolphin pipeline, which stipulates a delivery of 18.6bn cu metres of gas per year through 2032. At this time, there are no talks of adjusting the agreement.

However, other factors are working in Abu Dhabi’s favour. As new supplies of shale gas are set to come on-line in Australia and other regions, Qatar may see decreased demand for its LNG supply from Asian buyers in the future, which in turn could free up more supplies for neighbouring Abu Dhabi. Furthermore, Abu Dhabi has several alternative energy sources entering the mix, notably four nuclear plants that were announced in July 2012 and utilities-scale solar power plants, freeing up gas for industrial and other uses.

Although Abu Dhabi is aiming to meet 25% of its energy needs from nuclear generation by 2020, the first of four upcoming plants will not come on-line until 2017. According to research published in 2010 by the Dubai Initiative in cooperation with the Harvard Kennedy School, the UAE will likely have to increase imports to match demand. Perhaps in recognition of this reality, the government of Abu Dhabi has thrown its weight behind plans to secure the country’s LNG import capability. In partnership with the International Petroleum Investment Company (IPIC), in early 2012 Mubadala indicated its intention to build a new LNG reception facility in Fujairah through the newly established Emirates LNG project. In addition to boosting supply, the project, which is still in the engineering phase, will allow LNG shipments to the UAE to avoid the Strait of Hormuz. The first deliveries to Fujairah are expected in either 2014 or 2015 and the facility will have a total reception capacity of 1.2bn scfd, according to Mubadala.

RE-INJECTION: Another solution that continues to generate excitement focuses on finding substitutes for the gas that is currently re-injected into oilfields. Re-injected gas amounts to as much as 38% of the UAE’s total production, says the Dubai Initiative report. Since the gas is “associated” – a by-product of oil-producing wells – it will be produced in increasing quantities over the coming years, as the emirate pushes to boost its oil production. This creates greater incentives for finding alternative gases for oil-field injection. CO 2 offers one option: not only would it free up natural gas supplies, but, if implemented on a wide scale, it would also reduce emissions. If the UAE were able to replace natural gas injection schemes entirely with carbon or nitrogen, 18bn cu metres per year of gas could be freed up for local domestic, industrial and retail consumption.