www.poten.com June 30, 2009

Abu Dhabi Gas Demand Could Limit Sour Gas for LNG

Abu Dhabi Gas Liquefaction Co is considering plans to increase LNG production at its complex on Das Island beyond 2019, when its 4.7 MMt/y LNG sales contract with TEPCO expires. The expansion option would include replacing smaller existing trains with a much larger new one. It would depend upon expanding gas production to cover growing domestic demand and reinjection into oil fields, while freeing up extra offshore gas for LNG export. With domestic energy demand growing at 10% per year, Abu Dhabi has decided to move forward with a plan to invest up to $50 billion in developing large onshore and shallow water sour gas reserves. But freeing up extra gas for LNG could prove to be a very tall order.

Standing at more than 6 Tcm, the UAE’s gas reserves are the world’s fifth largest. However, much of the gas is either already locked into the gas caps in Abu Dhabi’s oil fields or needed for reinjection. With official oil reserves of 98 billion barrels, the gas reinjection requirement will continue for many years. Abu Dhabi National Oil Co injects 18 Bcm/y into its oil fields and this is projected to increase by 8% annually through 2020. With the country almost exclusively dependent on gas-fueled power generation, total gas consumption is projected to reach close to 90 Bcm/y by 2018, doubling the 50 Bcm including reinjection used in 2008. The UAE has already tapped gas supplies from Qatar via the Dolphin pipeline to meet its needs, but its large sour gas reserves in the past had been considered too costly to develop.

ADNOC has now decided to go ahead with developing the onshore Shah sour gas development, though it is hoping to reduce the cost of this 1 Bcf/d $10 billion project by 30%. The project consists of developing wells, pipelines, and gas plants using corrosion-resistant material throughout to handle 23% H2S and 10% CO2 gas. The sulfur and condensates would be removed and exported through

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the port of Ruwais, while the treated lean gas would be fed back into the domestic market. This level of capital expenditure implies a cost of $4/MMBtu for the gas. In hopes of lowering these costs, ADNOC has issued tenders for four large construction packages prior to concluding a final venture agreement with its partner ConocoPhillips. The tenders cover gas gathering systems, wells, gas pipelines, processing plant, off-site facilities, utilities, and sulfur recovery. Officials expect the joint venture agreement to be finalized in the next few weeks and the project to start up in 2015.

Notably missing is a Abu Dhabi Gas Infrastructure tender for a 136-km liquid sulfur pipeline connecting the Shah field to Ruwais, where the sulfur, more than 4.2 MMt/y, is to be granulated and exported to global markets. It is understood the sulfur pipeline package was not released due to a

lack of qualified Source: Poten & Partners bidders. Sulfur is already trucked from the Habshan gas treatment plants to Ruwais. However, that option is hardly viable for the expansion, as it would add more than 600 20-tonne truckloads of molten sulfur per day to the traffic on the main western highway. Any delays in the pipeline would therefore be controversial. Once Qatar’s current projects are fully operational, the Gulf area will be exporting huge quantities of sulphur, perhaps more than can be absorbed in the global market. The alternative to exporting would be to cast the sulfur in giant blocks in the desert, an option that has not been acceptable to ADNOC in the past, but would remove the need for the pipeline or trucking.

Receiving much less publicity is the $7 to $8 billion Integrated Gas Development project. IGD will generate an additional 1 Bcf/d

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(10.34 Bcm/y) through the construction of a 38-km pipeline from offshore fields to Das Island where the gas will be partially processed. It will then be piped to an onshore plant in Ruwais for final processing and use in the domestic market. The project is scheduled for completion by 2014. ADNOC has awarded a $402 million engineering, procurement and fabrication contract to majority government-owned National Petroleum Construction Co. The contract covers part of the offshore pipeline construction and is scheduled for completion by mid-2012. ADNOC plans an additional four tender package releases for IGD in the next few months, covering gas development work in the onshore Bab field

and the offshore Umm Shaif field. IGD’s first phase will deliver 500 MMcf/d (5.17 Bcm/y) from Bab, followed by a second 500 MMcf/d (5.17 Bcm/y) offshore phase. The offshore component reduces potential gas reserves available for any future LNG production increase at Das Island, signaling the importance to ADNOC of meeting the demand for domestic gas.

Meanwhile, ADNOC is taking measures to fill an immediate supply gap. This week the firm announced a new contract for Qatar to supply 400 MMcf/d (4.13 Bcm/y) of “interruptible” gas via the Dolphin pipeline, which currently delivers 2 Bcf/d (20.68 Bcm/y) of Qatari North Field gas from Ras Laffan to Abu Dhabi. The pipeline has 1.2 Bcf/d (12.41 Bcm/y) of unused capacity and the contract is intended to supply gas in the summer to meet peak power generation demand. Elsewhere in the UAE, Golar LNG plans to station its 125,000 m3 Golar Freeze as a floating regasification and storage unit at Jebel Ali for ten years from 2011 to fuel growing power demand (see LNGWM, May ’09).

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