Energy Quest

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While the United Arab Emirates (UAE) is credited with oil reserves of 97.9bn barrels and 214.4 trn cubic feet (tcf) of natural gas - in both cases the fifth largest reserves in the world - the Northern Emirates' combined reserves account for only 1.6% of the federation's oil and about 5.5% of its gas. Of all, Sharjah is the best-endowed, with reserves of 1.5bn barrels of oil and 10.7tcf of gas.



But in a world of soaring oil prices, growing demand and dwindling reserves, smaller fields in more remote locations are no longer deterring energy companies. As such, the long-overlooked Northern Emirates' energy sector is heating up, with these emirates embarking on ambitious plans to raise their profile in the global energy race and secure enough supplies for their own soaring energy consumption.



Sharjah, Ajman and Umm al-Quwain have joined forces to develop two offshore gas fields. The areas - Umm al-Quwain-3 in the eponymous emirate, and Al Zora sitting on the Sharjah-Ajman border - would produce 150 million cubic feet (mcf) per day initially, and up to 300mcf per day in the more distant future.



The Al Zora field, the larger of the two with recoverable reserves of 317 billion cubic feet (bcf), was initially discovered by Sharjah's Crescent Petroleum Company, which will co-develop it in partnership with Atlantis Holdings. Atlantis Holdings and Abu-Dhabi based UAE Offset Group will develop the Umm al-Quwain field, with an estimated 300bcf of recoverable reserves.



The acquisition of Atlantis Holdings by Chinese state-owned giant Sinochem in 2003, shortly after it had announced it would co-develop the two fields, is a strong sign of renewed international interest in previously overlooked regions, such as the Northern Emirates: high oil prices, combined with new recovery techniques such as horizontal drilling, mean that small and technically challenging assets can now be profitable.



Ras al-Khaimah (RAK), meanwhile, has adopted a different strategy. Cognisant of the fact that it has little oil and gas resources of its own, the emirate created RAK Petroleum in 2005, aiming to develop it into an international player. The company rapidly went on a shopping spree, acquiring all of Indago Petroleum's production assets (and 50% of its exploration assets) in March of 2007, a move followed by the buyout of London-based Gulf Keystone.



Indago Petroleum's assets are located in RAK and in Oman. Among them, the West Bukha-2 field, located off the coast of RAK, seems to be the most promising, with tested flows of 12,750 barrels per day (bpd) of oil and 26mcf/day of gas. Exploration wells are also being drilled on the Jebel Hafit prospect onshore Oman. Similarly, the acquisition of Gulf Keystone has given RAK Petroleum access to that company's assets in Algeria, where it is developing several hydrocarbons fields. Finally, RAK Petroleum signed a memorandum of understanding with Australia's Anzon Energy that will increase both companies' co-operation in the Middle East.



Fujairah's oil sector is also in for a boost, in a different fashion. Fujairah's unique location overlooking the Indian Ocean has allowed it to become the third bunkering port in the world, a position it secured during the Iran-Iraq conflict: war operations blocked the Strait of Hormuz, and dropping anchor at Fujairah soon became an attractive alternative for tankers.



History may be repeating: Abu Dhabi-based International Petroleum Investment Company (IPIC) recently announced plans to build a pipeline from Abu Dhabi's oilfields to Fujairah as soon as 2008. This decision is nothing short of strategic, and is mostly driven by the fear that tensions between Iran and the US might escalate into a full-scale conflict, once again leading to the closure of the Strait. This pipeline would have a capacity of 1.5m bpd, allowing roughly 50% of the UAE's exports to bypass the Strait completely.



IPIC is also planning to build a 500,000 bpd capacity refinery and has announced it would go ahead with the plan even if its partner, US-based ConocoPhillips, who is reportedly unhappy with delays and rising costs, steps out. The government of Fujairah announced last week the sale of its stakes in the existing Fujairah refinery to Swiss group VITOL. That refinery, which was put on hold in 2003 due to poor profitability, has a capacity of 82,000 bpd. These two developments would transform Fujairah into a significant refining hub for the region, putting it at the forefront of the Northern Emirates' - and the region's - oil industry.

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