New supply: Steadily increasing consumption at home has put pressure on natural gas resources

In 2008 Abu Dhabi became a net importer of natural gas for the first time, primarily as a result of rising domestic demand for electricity. According to data from the Abu Dhabi Council for Economic Development (ADCED), a government entity charged with facilitating economic diversification, around 60% of the UAE’s total gas consumption goes toward generating electricity, while the rest is used in manufacturing and other industrial activities.

Rising Consumption

This figure has risen substantially over the past two decades, as a result of the emirate’s population growth and the rapid expansion of heavy manufacturing, particularly aluminium and petrochemicals “The major development and solid economic growth the UAE has witnessed over the past years, has resulted in increasing energy demand coupled with a big increase in the population and the use of public transport,” said Abdullah Salem Al Dhaheri, the CEO of Abu Dhabi National Oil Company (ADNOC) Distribution. Despite these recent changes, Abu Dhabi remains a major gas producer. According to the US Energy Information Administration (EIA), the emirate boasts the fifth-largest gas reserves in the world, with 198.5trn cu feet of potential reserves. However, the great majority of this production is unavailable for domestic consumption. Indeed, as a result of a series of long-term export agreements that date back to the 1970s, more than 90% of Abu Dhabi’s liquefied natural gas (LNG) is currently exported to Japan. ADNOC and other oil-related firms use much of the rest of the emirate’s domestic gas production in enhanced oil recovery (EOR) activities. The Abu Dhabi National Energy Company (TAQA), which provides 98% of the emirate’s power and water, currently operates eight power plants, all of which are fuelled by natural gas. In 2012 nearly 60% of the fuel required to power the plants was imported via the Dolphin Energy project, an Abu Dhabi-owned pipeline that is used to bring gas from Qatar’s North field into the UAE and onwards to Oman. ADNOC provided the remaining 40% of TAQA’s fuel in 2012. According to estimates from the US EIA, between 2003 and 2012 gas consumption in the UAE as a whole grew by more than 5% on an annual basis.

Similarly, according to ADCED data, gas consumption in Abu Dhabi alone has increased by around 11% annually in recent years. This is in line with rising gas consumption rates throughout the Gulf region. Indeed, according to a recent report issued by Wood Mackenzie, an Edinburgh-based energy consultancy, as of late 2013 total demand for gas in the Gulf as a whole was at around 18bn cu feet per day (cfpd). This figure has the potential to rise to nearly 30bn cfpd by 2030.

With this situation in mind, and considering the fact that demand for energy is expected to continue to rise, Abu Dhabi’s government has developed a long-term strategy to ensure that the emirate has access to natural gas for the foreseeable future. Broadly, the plan involves a handful of key components, namely establishing a new large-scale LNG import terminal and regasification facility in the emirate of Fujairah; boosting imports through the Dolphin Energy pipeline; reducing the widespread use of natural gas in EOR activities; and, eventually, transitioning to other, more sustainable types of electricity generation, including nuclear power and renewables (see Utilities chapter).

New Import Stream

In March 2012 the government of Abu Dhabi established Emirates LNG, a new company charged with developing additional import capacity in Fujairah. According to the company – a 50:50 joint venture between the International Petroleum Investment Corporation and Mubadala Petroleum, both of which are controlled by the emirate’s government – when the facility becomes operational, it will be able to handle approximately 9m tonnes of LNG on an annual basis, which is equal to around 1.2bn cfpd. The location of the Emirates LNG project in the Gulf of Oman, outside the strategically important Strait of Hormuz, is considered to be an advantage. Unlike many of the existing LNG terminals in the Gulf, the facility would theoretically be accessible even if the narrow waterway – a key international shipping lane – were to be blocked for any reason. Another key advantage of the project is its scale – the terminal will be built to handle the world’s largest ships, giving it a major leg up on older terminals in the region. The Emirates LNG development is a major component of the development of Fujairah as a regional energy transport hub over the past decade (see overview).

Upgrades & Expansion

Dolphin Energy, a joint venture between Abu Dhabi’s Mubadala Development Company (51%), US-based Occidental Petroleum (24.5%) and France’s Total (24.5%), was established by the government of Abu Dhabi in 1999, though it did not begin operations until July 2007. The project spans three countries and much of the gas value chain. Raw gas from Dolphin’s wells in Qatar’s vast North field is first taken to a processing plant at Ras Laffan Industrial City, in northern Qatar, where it is processed and compressed in preparation for transport by pipeline. This process yields a variety of byproducts, including low-sulphur condensate, propane, butane, sulphur and ethane.

Most of these products are sold in Qatar. From Ras Laffan the processed and compressed natural gas is sent to Taweelah in Abu Dhabi via a 364-km sub-sea pipeline with a maximum capacity of 2bn cfpd. From there it is distributed for consumption across all seven emirates, via a network of Dolphin pipelines that link Taweelah to Fujairah and Al Ain, the latter of which is located in eastern Abu Dhabi. From Al Ain a substantial percentage of Dolphin’s gas is piped onward to meet demand in Oman.

Since the pipeline project came on-line in 2007, Dolphin Energy has undertaken a number of upgrade, expansion and other projects. Most recently, in November 2012 the firm issued a $250m engineering, procurement and construction contract to upgrade the gas processing plant in Ras Laffan Industrial City in Qatar. The project, which was awarded to the Indian company Larsen & Toubro, involves the installation of three new gas turbine compressors that together will expand the plant’s capacity by a third. In November 2013 Dolphin signed a five-year memorandum of understanding with Nord Stream, a joint European-Russian firm, under which the two firms have agreed to share technical knowledge and emergency response duties. Nord Stream, which operates a 1222-km subsea pipeline that links Vyborg, Russia to Greifswald, Germany via the Baltic Sea, is one of only a handful of firms around the world to operate a cross-border subsea gas pipeline.

Other Sources

 In addition to Emirates LNG’s new import facilities at Fujairah and Dolphin’s expansion activities at Ras Laffan, recent changes in Abu Dhabi’s oil industry are expected to result in new gas resources being made available in the coming years. In November 2013 Masdar and ADNOC announced the formation of the Gulf’s first large-scale carbon capture, utilisation and storage company.

The firm’s initial project involves capturing carbon from the Emirates Steel plant, near Khalifa Port in Abu Dhabi, and piping it to ADNOC’s oil fields, where it will be used in EOR activities. At present, ADNOC’s EOR activities primarily use natural gas, which, given the rising domestic demand, is increasingly costly. By piping in carbon to inject into oil reservoirs, ADNOC expects to free up substantial amounts of natural gas, which will instead be used to fuel the emirate’s power plants.

Finally, a wide variety of new gas processing and production projects are expected to come on-line in the coming years. For example, Abu Dhabi Gas Industries, an ADNOC subsidiary that controls much of the emirate’s gas infrastructure, is currently at work on an $11bn integrated gas project, which is scheduled to be completed in the near future.

The complex, which includes a wide variety of new processing trains and related facilities, will likely be supplied at least in part from a new joint ADNOC-Occidental Petroleum project that is under way in the emirate’s onshore Shah gas field, which is located about 210 km south-west of Abu Dhabi City.