Faced with rising consumption by its industries and power generators, Abu Dhabi is determined to leverage its domestic natural gas assets to reduce its reliance on imports. Abu Dhabi National Oil Company (ADNOC) has developed an integrated Gas Master Plan as part of its 2030 Strategy that will see it investing in the expansion of its sour gas facilities, while ensuring it minimises wasteful use of associated gas in its oil fields. The plan also includes a revision of ADNOC’s gas pricing structure to ensure it receives a fair price for its gas.
Strategic Targets
Omar Al Suwaidi, director of gas management at ADNOC, has said he wants to ensure a sustainable and economic gas supply to meet Abu Dhabi’s future demand.
“We believe that we can shrink our energy imports substantially by tapping undeveloped deep and sour gas reserves, unconventional gas resources and deploying innovative technology, such as carbon capture utilisation and storage (CCUS),” said Al Suwaidi. However, the economics of gas in Abu Dhabi presents challenges if these aims are to be met while also pursuing efficiencies in production.
If ADNOC is to adhere to its vision of improving efficiency and profitability, it needs to ensure it can produce its own gas as cheaply as possible and sell it for the highest price. However, this straightforward equation is complicated by long-standing supply contracts that govern the price Abu Dhabi pays for some of the gas it imports, and the amount it charges UAE utilities for the gas it produces itself.
In October 2016 a new long-term gas sales and purchase agreement was signed by Qatar Petroleum and Dolphin Energy, which is majority-owned by Mubadala Investment Company and is behind the 48-inch subsea pipeline that has supplied the UAE with gas from Qatar since it was completed in 2007. At that time it was capable of carrying 2bn standard cu feet per day (scfd), but with investments and upgrades in 2015, capacity was increased to a total of 3.2bn scfd.
In May 2014, when the average Japanese import price of liquefied natural gas (LNG) was $16.79 per million British thermal units (Btu), selling gas for power generation and water desalination in Abu Dhabi rather than exporting it represented an opportunity loss of around $15 per million Btu. However, at that time, when Brent crude cost $110 a barrel, Abu Dhabi could afford to be generous with domestic utility companies, whose water and electricity were also being passed onto customers at a highly subsidised rate.
In November 2016, when Brent crude was just over $50 a barrel, ADNOC was much more focused on efficiencies. At that time, Al Suwaidi said the company had initiated a gas price restructuring exercise to ensure it received a fair price for its gas. At the same time, ADNOC was also feeling the effects of a fall in the export price of its own gas, with the Japan import price at $7.18 per million Btu in November 2016, or almost $10 cheaper than it was two and a half years before.
Development Expense
The spot price paid for imported gas in Japan is also a useful benchmark for firms working with ADNOC to develop the reservoirs of sour gas that lie beneath its desert sands. Unfortunately for Abu Dhabi, some of these reservoirs contain natural gas with very high levels of poisonous hydrogen sulphide. This content makes the gas difficult and expensive to extract and process.
One example of this is the Bab sour gas project. “Bab is one of the most technically challenging projects in the world – with almost 40% sulphur content”, Ali Al Janabi, chairman of Shell Abu Dhabi, told OBG. “This results in gas processing and development costs that are currently not economical for Abu Dhabi compared to alternative sources.”
In January 2016 the Japan import price was $7.85 when Royal Dutch Shell announced it was pulling out of its 40% share in the Bab project, an agreement it had entered into in 2013. In common with all international oil companies, Shell was going through a process of cutting costs and reducing its exposure to higher-risk projects globally; the previous year Shell had halted work on five other developments around the world. “Bab is considered a project that must happen, but with more than 40% sulphur content and the fact it is dry gas makes it incredibly challenging,” Saif Alghfeli, CEO of ADCO, told OBG. “There are perhaps smaller fields like this in the world, but nothing that has the size potential of 1bn scfd,” he added.
Growing Attractiveness
Although a new partner for the Bab development project had not been announced at the time of writing, another of ADNOC’s international partners did reveal plans to increase investment in another of the emirate’s sour gas reservoirs in November 2016.
Occidental Petroleum (Oxy) owns a 40% concession of the $10bn Abu Dhabi Gas Development Company (Al Hosn Gas). In a joint statement with ADNOC, the company announced the facility would increase sour gas processing by 50%. Vicki Hollub, president and CEO of Oxy, said, “We look forward to working on the next phase to optimise the plant’s expansion. Demand for domestic gas is rising, and processing additional sour gas from new and existing reservoirs makes sound business sense.” The Al Hosn Gas facility produces 1bn scfd, which is then processed to make 500m scfd of network gas, 4400 tonnes per day of natural gas liquids, 33,000 barrels per day of petroleum condensates and 9000 tonnes per day of granulated sulphur.
In April 2016 Abu Dhabi Ports and the German exploration and production company Wintershall signed a contract to set up a facility at Mugharraq Port in the Al Dhafra Region. The facility will cater to Wintershall’s offshore drilling activities in the Shuwaihat sour gas field. At the same time, the facility will expand Abu Dhabi Ports’ existing services to the exploration and production sector in Abu Dhabi.
Uwe Salge, general manager, Middle East, of Wintershall, told OBG, “Working with Abu Dhabi Ports around Mugharraq will help facilitate our work around sour gas in the Al Dhafra Region. It signifies another area in which the energy industry can contribute to development.” The field is being developed as a joint venture with Wintershall, Austrian company OMV and ADNOC – which is the major stakeholder. “We are very happy with the appraisal results received so far at Shuwaihat and look forward to further discussions around bringing these fields to the development phase with ADNOC,” Salge told OBG.
OMV, in which International Petroleum Investment Company – prior to its merger – had a 25% interest, and ADNOC are also partnering with Oxy in a four-year exploration and appraisal project of Ghasha and Hail, two potential sour gas fields in the Al Dhafra Region.
Emerging Producer
ADNOC says the expansion of the Al Hosn Gas plant would make Abu Dhabi one of the world’s largest producers of sulphur. Today, at full capacity, the Al Hosn Gas facility is capable of producing 3.3m tonnes a year, and could generate almost 5m tonnes upon completion. ADNOC says it wants to nurture a downstream industry of firms using sulphur manufacturing processes to help diversify the economy. According to ICIS, an international energy information company, 27m tonnes of sulphur was produced from processing natural gas globally in 2015, while a further 28m tonnes was produced as a by-product of oil refining. According to ICIS, 90% of sulphur produced is burnt to produce sulphuric acid, of which around 54% is used to produce fertilisers, 14% is used in the chemicals industry, and 9% each is used in petroleum refining, ore leaching, and plastics and rubber manufacturing.
ADNOC hopes to see the existing urea and ammonia production operated by its downstream subsidiary FERTIL expanded in order to take advantage of the increased input. FERTIL currently has a daily capacity of 3300 tonnes of ammonia and 5800 tonnes of urea, and exports 1.9m tonnes a year.
Carbon Capture
Another way in which the energy sector can extract the most value from its natural gas is to reduce the amount it reinjects into its wells to boost oil production. One solution, which also enables the emirate to reduce carbon emissions, is through CCUS. Ali Al Janabi, chairman of Shell Abu Dhabi, told OBG, “Carbon capture technologies have significant potential, particularly after the world subscribed to the COP21 UN Conference on Climate Change, and will be important to minimise CO levels in the environment.”
In 2013 ADNOC and Masdar formed a joint venture, Al Reyadah, to develop this technology for use in Abu Dhabi. In 2016 Al Reyadah began a project with Emirates Steel (ES) in which gas is captured from ES facilities, compressed and dehydrated at Al Reyadah’s facility, and transported as CO gas for injection into ADNOC onshore oil fields as part of enhanced oil recovery, thereby freeing natural gas from use in the process and allowing it to be used for power generation.
Al Reyadah, which is operating the world’s first industrial-scale carbon capture facility from a steel plant, will capture approximately 800,000 tonnes of CO annually. The project was inaugurated in November 2016 by ADNOC’s group CEO and chairman of Masdar, Sultan Al Jaber, who said, “This project will allow for the more productive use of a valuable commodity, natural gas, whether for power generation or as petrochemicals feedstock, or for export.”
In light of the Al Reyadah project, sustainability continues to take centre stage across the whole of the oil and gas value chain. One prominent example of this trend is Intecsa Industrial, a Spanish engineering procurement construction (EPC) company, engaged in a number of projects with Abu Dhabi Oil Refining Company, including a waste-disposal facility for radioactive material, located in Ruwais.
“We definitely see a theme of more sustainable and environmentally friendly factors, which opens up these kinds of projects to companies with the right expertise,” Jose Carlos Gil, executive director of Intecsa Industrial, told OBG. “It has nonetheless been a tense situation for all EPC contractors, with ongoing restructuring and substantial levels of competition. We expect that 2017 will be an improved year,” he added.
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