The UAE has the world’s seventh-largest proven natural gas reserves, at 215trn standard cu feet (scf), accounting for 3.3% of the global total. The country is also a net importer, as demand is growing. Consumption rose 4.5% in 2013 to 2.45trn scf, considerably more than the 1.97trn scf produced. Demand is being driven by consumption from households and industry, while a substantial amount of gas is reinjected as part of enhanced oil recovery (EOR) techniques.
Economic Case
With demand so strong, the economic case for developing Abu Dhabi’s sour gas reserves has become irrefutable. Sour gas is defined by its significant hydrogen sulphide content, which makes it very corrosive, volatile and difficult to process. These technical difficulties in commercially exploiting sour gas, and the attendant costs, are the reason why the resource has lain beneath the surface in some fields for decades after its initial discovery. However, the combination of rising demand and technological advances has now made extraction and processing viable. The benefits of sour gas development in terms of boosting gas supply, supporting EOR operations and fuelling industry growth are considerable, and energy firms have been investing heavily in the segment. In exchange, they are bringing new technology to the emirate’s hydrocarbons industry – a model that the Abu Dhabi National Oil Company (ADNOC) wishes to strengthen across the sector. “There is great potential for sour gas exploration in Abu Dhabi,” Andrew Vaughan, country chair at Shell, told OBG. “Developing these fields requires great technical know-how to ensure quality projects that can deliver results. Moreover, sour gas not only produces sweet gas when processed, but it can also be treated further to produce commercially traded sulphur.”
Al Hosn Gas
The most advanced sour gas project in the emirate, located 210 km south-west of Abu Dhabi City, is the Shah Gas field operated by Al Hosn Gas, which recently commenced production. In 2011 Occidental Petroleum joined the joint venture with ADNOC to develop the Shah field, following the withdrawal of ConocoPhilips. The project will produce 1bn scf of gas a day, 500m scf of which will be “stripped” sales gas. This is expected to make a significant contribution to the country’s gas supply over a period of 30 years. The remote Shah field was discovered in 1960, but its hydrogen sulphide levels were too high for safe extraction. However, the development of more robust equipment, resistant to the corrosive effect of the chemical, has made it possible to extract the gas in a cost-effective, environmentally friendly and safe manner.
The Al Hosn Gas project includes four main elements: a gathering system, a processing plant, product pipelines and a sulphur granulation facility. Contractors have included Saipem, Technicas Reunidas, Punj Lloyd, Samsung Engineering, Al Jaber Group, Ascon and Consolidated Contractors Company. Remarkably, the development is likely to come in below budget, at $9.7bn, Saif Al Ghafli, the CEO of Al Hosn Gas, told OBG. Initial cost estimates were as high as $17bn, but this fell to $14bn and, most recently, $10bn. As Al Ghafli says, delivering mega-projects of this scale on time and below budget is rare anywhere in the world.
One of the main reasons that the cost has come down is the advances in technology that have made the project viable in the first place: developments have made it possible to exploit the field while drilling fewer wells, bringing costs down. Progress has also been aided by the project’s clear definition and scope. The relationship between ADNOC and Occidental is well established, meaning that it has avoided some of the bumps that similar developments can face. Initial production will be at 50% of capacity, rapidly ramping up to 100% within months (during the first quarter of 2015), with the possibility for production expansion considered “in due course”, said Al Ghafli.
Challenge & Costs
The technical challenges that the project must overcome include a hydrogen sulphide content of 23%, carbon dioxide content of 9%, pressure as high as 5500 pounds per square inch and bottom hole temperatures of approximately 150°C.
According to Al Hosn Gas, their facility will be the first single gas plant worldwide with the capacity to process more than 1bn scf of sour gas per day with a hydrogen sulphide concentration higher than 20%.
While the cost of sour gas extraction has certainly fallen, it remains relatively higher than any other existing project in the emirate. However, given the costs of alternative sources – particularly imported liquefied natural gas – the project partners are certain that Al Hosn Gas is a strong commercial prospect. “This country imports gas and that doesn’t come cheap,” said Al Ghafli. “The economic case is robust. Costs can be managed without compromising safety, environmental responsibility or sustainable production.”
Sulphur Potential
One of the reasons for this confidence is the other products Al Hosn Gas will also yield. As well as its natural gas, Al Hosn Gas will produce 30,000-35,000 barrels per day (bpd) of petroleum condensates, 25,000-30,000 bpd of natural gas liquids and 1400 tonnes of ethane. Additionally, a sulphur granulation plant 15 km from the main gas processing site is expected to produce an average of 9200 tonnes of sulphur a day, or 3.4m tonnes per year. This is equivalent to 5% of the world’s supply of sulphur, a commodity with a notoriously volatile price, which has varied between $50 and $800 per tonne over less than a decade. In the longer term, up to 7m tonnes of granulated sulphur a year will be shipped via the Etihad Railway to Ruwais, Al Gharbia’s main industrial city and port, for export from Al Hosn Gas and other ADNOC projects. Al Hosn Gas is confident that the global market can absorb this “very easily”, said Al Ghafli. The company expects the price to remain above $100 per tonne – it was around $175 in late January 2015.
Meanwhile, other developments are under way in the sour gas segment, such as Wintershall and OMV’s joint projects at the Shuweihat field. Uwe Salge, the general manger of German oil and natural gas producer Wintershall, told OBG, “The deposit at the Shuweihat sour gas and condensate field has a high percentage of hydrogen sulphide, which presents certain challenges associated with exploration and production. However, the development of new gas-cleaning technology has provided an efficient and safe way of removing the hydrogen sulphide from the gas, such as that provided by our parent company BASF under the OASE brand.” Others are more cautious about the outlook for sulphur, but assert that the upsides of sour gas extraction outweigh these concerns. Given the levels of investment that are going into sour gas projects, the volume of sulphur may also distort the global market. This will drive down the price, and it may become increasingly difficult to find markets that can absorb this supply.
Next Steps
“Demand for gas in the UAE will continue to grow and despite the 500m scf per day that we will produce, there will be a need for further sour gas projects in the future. The lessons learned and the expertise gained from developing the Shah gas field will be instrumental in assisting the development of similar projects in the future,” Al Ghafli told OBG. Indeed, the government has already identified three more fields for development: Umm Shaif, Shuweihat and Bab, which have sulphur content ranging from 2% to 33%. Developing these will require investment of around $30bn.
In May 2013, Royal Dutch Shell was selected as ADNOC’s JV partner for the development of the Bab sour gas field. Bab has some of the largest non-associated gas deposits in the UAE, but is a very challenging field, with hydrogen sulphide content of 30% and carbon dioxide content of 10%. “The development of the Bab field will add around 500m scf to the emirate’s supply of natural gas,” Shell’s Vaughan told OBG. “Bab’s sour gas has an even higher sulphur content than that extracted from Shah, making it an extremely challenging field. Reliable mechanisms must be in place to ensure environmental and operational safety.” The company aims to bring its experience and technology for developing sour gas projects to Bab – again in keeping with Abu Dhabi’s increasing emphasis on knowledge and technology transfer. Shell has two processes for cleaning gas – first, the sulfinol process, which uses water, amine and sulfolane-based solvents to remove contaminants. The second is the Shell Claus off-gas treating process. Shell intends to bring down the cost of hydrogen sulphide and carbon dioxide separation.
In 2012, ADNOC chose Wintershall and OMV (in which Abu Dhabi’s International Petroleum Investment Company has a 24.9% stake) to appraise the Shuweihat sour gas field, with drilling starting in 2014.
If the assessment concludes that commercial extraction is possible, the two companies expect to form a JV project company with ADNOC. The evaluation includes up to three field appraisal wells and a 3D seismic survey. Work has been under way on the first onshore well since spring 2014, and the other two are set to begin in the next few years.
While sour gas may make the project more challenging, OMV has significant experience through similar operations in Austria and Pakistan. In October 2014 Georg Wachtel, general manager and director of business development for the Middle East at OMV Abu Dhabi, told local press, “We have a proven record with operating these kinds of complex fields in a safe and environmentally protective manner.”
In addition, the Shuweihat agreement is also seen as the perfect opportunity to expand the company’s presence in the country. Wachtel told OBG, “The Shuweihat project will play an important role in the development of sour gas in the western province of Abu Dhabi. A successful appraisal campaign will contribute towards addressing the growing hydrocarbons demand of the UAE.” OMV has increasingly focused on exploration and production in the UAE in recent years. In 2013 OMV won the rights to explore for oil and gas in the East Abu Dhabi area, signing the contract with ADNOC in June of that year. The firm is now doing seismic surveying.
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