Occidental is awarded Shah sour gas project

Occidental Petroleum is to develop Abu Dhabi's US$10 billion (Dh36.73bn) sour gasfield.

"The Shah gas development was awarded to Occidental," said Mohammed Abdulla Haji, the vice president of general relations for the Abu Dhabi Company for Onshore Oil Operations (ADCO), a subsidiary of the Abu Dhabi National Oil Company (ADNOC).

ADNOC has been seeking one or more foreign partners for the development since April, as it lacks the specialised technology needed to tackle the challenging project alone.

The Shah gas, buried thousands of metres beneath Abu Dhabi's western desert, is considered a vital resource for supplying feedstock to a huge petrochemical complex under development at Ruwais. The facility is a major component of the emirate's industrial diversification strategy.

But the Shah field is costly and difficult to develop because of the high concentration of hydrogen sulphide, which is both toxic and corrosive, in the deposit. Only a few companies in the world have the experience and expertise to produce such gas safely and cost effectively from deep reservoirs under high temperature and pressure conditions.

The Occidental deal resulted from a meeting late on Tuesday in Abu Dhabi between the company's officials and ADNOC's chief executive, said Mr Haji.

"The share [of the concession] has not been confirmed yet," Mr Haji said on the sidelines of an Abu Dhabi energy conference. The larger oil and gas groups Royal Dutch Shell and ExxonMobil were also understood to have submitted bids for the contract, but Mr Haji said he was not aware that they had been awarded any part of the deal.

Occidental and ExxonMobil, both based in the US, declined to comment. Shell officials were not available for comment.

To profit from such a challenging project, experts said, Occidental would need more favourable terms than those secured by ConocoPhillips, which walked away from Shah last year.

Despite the high cost of the project, Shah is expected to produce only moderate volumes of gas, as about 30 per cent of its output would consist of impurities including hydrogen sulphide and carbon dioxide.

The development, expected to be completed in about 2014, is slated to pump 1 billion cubic feet per day of raw gas, yielding 560 million cu ft per day of saleable gas.

Valuable liquids used in making chemicals would also be stripped from the gas stream before sale.

Last February, the emirate acknowledged the special challenges posed by "ultra-sour" gas development by creating a new company for Shah - the Abu Dhabi Gas Development Company. The ADNOC subsidiary is separate from ADCO, its oil and gas exploration outfit.

Occidental's contract restarts the Shah development, which was originally expected to come online by 2013. In July, Saif al Ghafli, the chief executive of Abu Dhabi Gas Development Company, said gas would begin flowing in the third quarter of 2014.

Abu Dhabi has awarded at least $5.6bn of contracts related to Shah, including a contract with the US engineering firm Fluor and Al Jaber Group to build roads at Shah, and the US firm Honeywell to monitor and protect the fields.

This month, another ADNOC subsidiary, Abu Dhabi Gas Industries, awarded contracts to the Dodsal Group, based in Dubai, and a consortium made up of Techint Group's Italian arm and Al Jaber Energy Services, based in Abu Dhabi, to plan and build plants at Abu Dhabi's sour-gas fields to convert sulphur to a solid and construct a railway system to transport the sulphur.

Abu Dhabi has a growing relationship with Occidental. The US company has a concession to develop two small oilfields in the emirate. It is also a partner with Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, in an oil development project in Bahrain and Oman and in Dolphin Energy, the Abu Dhabi company that imports gas from Qatar to the UAE and Oman.