Abu Dhabi gas plans turn inwards

Adnoc is looking to develop three large sour gas deposits that could supply the emirate with 2.5bn cubic feet of gas per day.

Abu Dhabi has long helped keep the lights on in Tokyo with shipments of liquefied natural gas (LNG), one face of its established role as one of the principal energy suppliers to industrialised nations. But the emirate's focus is now quickly turning inwards as it moves to develop resources to meet its own industrialisation. Supplies of cheap imported energy - such as natural gas from Qatar through the recently completed Dolphin pipeline - are limited, and the country faces a host of technical challenges in developing three large domestic deposits.

One thing is sure: Japan will have to look elsewhere for any extra imported gas. "Incremental exports of LNG beyond the current 5.8 million tonnes per annum look extremely unlikely to ever materialise, with attention now firmly set on value-added petrochemical and other energy-intensive industrial projects including aluminium at home," Raja Kiwan, an analyst at PFC Energy in Dubai, wrote in a recent report.

The Abu Dhabi National Oil Company (Adnoc) is pressing ahead with plans to tap three sour gas deposits that could supply the emirate with up to 2.5 billion cubic feet of gas each day, according to estimates by PFC. The offshore Hail field is next up on Adnoc's agenda, after the company signed a deal with Conoco Phillips to develop the Shah field in July. Recent media reports have said the Hail project, which could produce up to 500 million cubic feet of gas per day, is now under the purview of Abu Dhabi Gas Industries (Gasco), an Adnoc subsidiary, indicating the gas will almost certainly be used domestically, Mr Kiwan said.

He said the decision to develop the project within the structure of Adnoc reflected the Government's intention to prioritise speed over other considerations. "It's a big shift in policy, with Abu Dhabi moving forward in any projects they can," Mr Kiwan said. Adnoc has not yet talked publicly about Hail, but the company referred questions about the project to Gasco officials, who could not be reached for comment yesterday.

Shah and Hail, together with a third field called Bab, could produce up to 2.5 billion cubic feet of sour gas per day, PFC estimates. But demand from the new Emirates Aluminium smelter at Taweelah, petrochemicals expansions across Abu Dhabi and increased power demand in the northern emirates will total 2.2 billion cubic feet of gas per day, leaving a thin supply margin and little room for project delays.

Mr Kiwan noted that Hail was a challenging field, since it was located offshore and the gas contained a high proportion of toxic hydrogen sulphide, meaning delays were highly likely. With its sour gas fields, the UAE has the fifth-largest reserves of natural gas in the world, according to the BP Statistical Review, but the fields were long thought to be uneconomic and too challenging to exploit. "We'll probably not see Hail move ahead with development by 2012-2013," Mr Kiwan said.

The Shah project is also behind, with construction yet to begin. The contract process between Adnoc and ConocoPhillips took two years, a fact not lost on nervous government officials. The "crunch time" for Abu Dhabi's gas shortage would probably come in 2010 or 2011, Mr Kiwan said, at the time when the aluminium smelter and a new plastics facility in Ruwais are scheduled to start production. It looks increasingly unlikely that imports of gas will be able to plug the shortage in the short term.

A plan to import gas from an offshore Iranian field by pipeline to Sharjah looks less likely to go ahead after the Iranian president Mahmoud Ahmadinejad took a hard line on the deal last week, calling the agreed price for the gas too low and suggesting that corrupt Iranian negotiators had betrayed their country's interests. Meanwhile, an increase in gas supplied by the Dolphin pipeline from Qatar remains unlikely, as that country has imposed a moratorium on further development of its giant North Field.

Starting next month, the UAE will have less access to Dolphin gas, with 200 million cubic feet per day set to be diverted to Oman in line with the original import agreement. The gas crunch is likely to cause the Government to consider "scaling back" plans for energy-intensive industries, Mr Kiwan said. In July, the chief executive of Rio Tinto announced that an aluminium smelter project his company was working on with Abu Dhabi Basic Industries was "dead" for lack of gas. Officials hope the failure of the Rio Tinto deal will not be a harbinger of things to come.