Sharjah establishing new gas deals

A persistent shortage of gas has been a key challenge to electricity production in recent years, as the emirate’s installed power generation capacity is dominated by gas-powered facilities. State-owned hydrocarbons company Sharjah National Oil Corporation (SNOC) provides locally produced gas to the emirate’s electricity producer, the Sharjah Electricity and Water Authority (SEWA), from its fields via the Sajaa gas processing facility, but such local production only meets approximately 10% of SEWA’s feedstock requirements. As a result, SEWA is forced to source fuel from outside of the emirate. There have been occasions where the producer has not been able to secure enough gas, meaning it has resorted to fuel oil as an alternative, which is more expensive, less environmentally friendly and degrades generation facilities.

Extra Capacity

A shortage of gas supply has also constrained the expansion of power generation capacity, which has led to difficulties in supplying electricity to industrial operations. To remedy this, the emirate has taken a number of steps to secure additional gas supplies. One example came in 2016 when SNOC formed a 60:40 joint venture with liquefied natural gas (LNG) provider Uniper to import LNG into Sharjah. The agreement was finalised in May 2017, with plans to begin importing the commodity via an onshore facility at Hamriyah Port and SNOC’s Sajaa gas field complex from early 2019 onwards.

In November 2017 the two firms completed a feasibility study for the project, which envisages the construction of a floating storage regasification unit (FSRU) offshore Hamriyah Port with a storage capacity of 180,000 cu metres and send-out capacity of 28.3m cu metres per day. The decision to make an offshore FSRU where there are no limitations on the size of both the unit itself and LNG-carrying vessels using the facility will help avoid the additional port congestion that an onshore facility would have generated. The envisioned launch date has since been pushed back, and is now scheduled for late 2019. The two firms plan to award an engineering, procurement and construction contract for the project in the second quarter of 2018.

It is likely that more developments of this kind will follow. “In light of current diplomatic challenges in the region, there is a need for additional floating terminals and LNG terminals more generally,” George Berbari, CEO of DC Pro Engineering, told OBG.

Iranian Supplies

Iran has been sought out as another potential source of gas. In 2001 Iran signed a 25-year agreement with local private firm Crescent Petroleum to export 600m cu feet of gas per day to the emirate, with a price linked to oil. This was followed by the construction of pipeline and processing facilities for the project.

However, stalled exports and a request by the National Iranian Oil Company (NIOC) to revise the agreed price upwards meant that no gas was ever exported outside of a test phase. It was reported that Crescent Petroleum offered to pay more to acquire the gas, but eventually took the case to international arbitration at The Hague in 2009, which ruled in its favour in 2014. As of early 2018 the company was still awaiting a decision from the tribunal regarding the size of damages it would receive.

Some hope remains that the project could still go ahead. In March 2017 Bijan Zangeneh, Iran’s minister of petroleum, told national media that Crescent Petroleum had been informed that NIOC was willing to consider resurrecting the project. In November 2017 Dana Gas said it was ready to import gas from Iran via the pipeline, provided that it could be assured that the supply was reliable “in terms of volume and duration”. Some have speculated that Iran could provide the company with gas via the pipeline as payment in kind for the damages that it is ordered to pay by the arbitration tribunal.