Abu Dhabi: Shah project back on track

Abu Dhabi’s industrialists, small and medium-sized enterprises (SMEs), and contractors have received welcome news with the announcement that the Shah natural gas project is back on track following the signing of a deal with a new foreign partner.

On January 20 Occidental Petroleum and the Abu Dhabi National Oil Company (ADNOC) announced that they will jointly develop the Shah sour gas field, located about 180 km from Abu Dhabi City in the emirate’s Western Region.

Occidental will take a 40% interest in the project, with government-owned ADNOC holding the other 60%. The cost of development is estimated to be around $10bn and is due for completion in 2014. Overall the field is expected to pump 28.3m cu metres per day of unprocessed gas, producing half that amount of marketable gas.

The Shah gas field has been on ADNOC’s radar for quite some time but developing the idea has not been without its difficulties. The national oil company originally picked US oil group ConocoPhillips as the foreign partner in July 2008, after considering bids from companies such as Shell and ExxonMobil.

In April last year, however, ConocoPhillips walked away from the deal, and exact reasons for their decision – save broad comments regarding a change in company strategy – were not made known. With a new partner now in place, however, the project now looks set to go ahead.

Despite plentiful gas reserves, at around 214.4trn cu feet according to Oil and Gas Journal, the UAE is a net importer of gas from neighbouring Qatar. These imports are mainly used for producing power and desalinated water. According to government forecasts, electricity demand is expected to double by 2020, adding further impetus for the development of the field.

Moreover, a large share of future energy demand will come from the emirate’s burgeoning industrial sector, which the government has invested heavily in as part of its long-term push for economic diversification.

For big industrial players, the news that the Shah project is getting underway augurs well, and is testimony to the government’s promise to help fuel their future expansion plans. Smaller players in the economy, meanwhile, should also benefit. Over the medium to long term the project is expected to translate into higher demand for SMEs in oil and gas services in Abu Dhabi and the wider UAE.

The project is also a welcome fillip for contractors. As early as March 2010, contracts were awarded to both international and local firms, including US engineering company Fluor and Abu Dhabi’s Al Jaber Group, which will be responsible for the project management and the early works, respectively. In May 2010 ADNOC and its subsidiaries awarded a further $5.6bn of contracts related to the field.

Shah’s natural gas is mostly sour, or high in hydrogen sulphide. This poses more challenges from a technical perspective but also creates additional business opportunities along the production chain.

During the treatment process, the hydrogen sulphide will be stripped away and the resulting liquid sulphur will be transported via pipelines to treatment plants for granulation. This processed sulphur will then be transported via UAE’s 1500-km Union Railway to a specialised terminal in Ruwais for unloading and export by ship to international markets.

At the end of December 2010 Abu Dhabi Gas Industries, an ADNOC subsidiary, awarded contracts to plan and build facilities in the Western Region to convert sulphur to granulated form and build the railway system to ship the product. Dubai-based Dodsal Group and a consortium of Techint Group’s Italian arm and local company Al Jaber Energy Services won the contract.

Many more contractors and businesses both large and small are likely to try to get involved in the development in the years ahead. From the government’s point view, though, it is about making rapid but safe progress on a technically difficult project, proving to the rest of the world that sour gas exploration can be worth the challenges.

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