Developing a Gas Network

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Abu Dhabi is set to develop a natural gas network for residential buildings and industrial projects.

The aim is to replace Liquified Petroleum Gas (LPG) with natural gas in all residential units and industrial developments as well as increasing the number of natural gas refilling stations for motor vehicles. According to an Abu Dhabi National Oil Company (ADNOC) official, work will begin on the pipeline by mid-2008. The company is also looking to extend its gas coverage to the industrial zones throughout the emirate.

The official told local press, "The work will start this year to construct a gas network to cover phase two of the Industrial City of Abu Dhabi (ICAD II), including all the big industries such as ceramics, glassware, chemicals, and so forth."

These plans for Abu Dhabi follow a similar project in the emirate of Sharjah, which holds 5% of the UAE's gas reserves. Sharjah Electricity and Water Authority (SEWA) has almost completed a project to connect residents of the emirate to a natural gas pipeline. Emirates General Petroleum Corporation (Emarat) and Dana Gas are also working on a 30km pipeline to take natural gas from Sharjah to the Hamriyah Free Zone, an industrial area within the emirate. Rashid al-Shamsi, the general manager of Emarat, told local reporters that this project, "will be an integral catalyst in fostering industrial growth and economic development."

The move towards residential and industrial use of natural gas within the UAE seems designed to make more cost effective use of gas supplies as natural gas is a cheaper option which allows for the increased export of LPG. However, both Sharjah and Abu Dhabi are somewhat dependent on cross border gas agreements. Crescent Petroleum, a shareholder in Dana Gas, is still in discussion with Iran over a deal to supply gas from the Salman field in the Gulf to Crescent for utilities and industrial users in the UAE. Agreement on pricing seems to be the sticking point as natural gas prices have risen significantly since the initial contract was discussed.

Abu Dhabi is also waiting for the Dolphin project to come on stream to alleviate the pressure on gas supplies in the emirate. The cross border energy deal with Qatar will see the import of 3.2bn cubic feet of natural gas a day. The project will also serve the northern emirates of the UAE as well as Oman in the largest single energy initiative in the Middle East.

The UAE is the third largest marketed producer of natural gas in the MENA region, according to OPEC's most recently published figures. However, despite this and despite sitting on the fifth largest gas reserves in the world, gas supply is presently a major concern for the UAE and Abu Dhabi. Largely as a result of significant real estate and industrial developments, the UAE has had to work extremely hard to meet the demands placed on its gas supply by domestic consumption, the utilities sector and oil recovery. As one industry insider told OBG, "summer 2006 was the first in which Abu Dhabi had to burn fuel oil for power generation. This is obviously less cost efficient than using gas and isn't a formula that the emirate will want to sustain."

Although the Dolphin project, which is expected to come on stream in 2007, will meet some of this demand, ADNOC is looking to increase its own production. Many of the international oil companies operating in the emirate are working with ADNOC to increase gas production and develop sour gas reserves. Deputy General Manager at Total Abu Al Bukhoosh, Sultan al-Hajji, told OBG that the Abu Al Bukhoosh field is now producing more gas than oil. Other companies such as Shell are working with ADNOC to source more opportunities for gas production.

Supreme Petroleum Council Secretary-General and CEO of ADNOC, Yousef Omair bin Yousef, recently told the local press that, "Abu Dhabi will witness a great leap in gas production and processing over the coming few years which will make it one of the biggest gas producers and exporters in the world." He also announced that the company will increase its gas production capacity from 4.5bn to more than 6bn cubic feet per day over the next two years. As part of this strategy, Abu Dhabi will look to double its exports of LPG in the next two years from 6bn tonnes to 12bn. Yousef also said, "We plan to tap sour gas and export it. We are communicating with various companies who have expressed interest. It will be a fair and open selection process."

It is in this context that Abu Dhabi is looking to phase out LPG locally and replace it with a natural gas network. This will provide a cheaper and safer supply for industries as well as a clean fuel alternative for vehicles. Therefore, despite concerns over gas production capacities meeting demand, the emirate is looking to take advantage of its abundant reserves to improve efficiencies at home and become a leading supplier abroad.

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