Abu DhabiTo Import 1.2Bn CFD Of LNG, Shah Gas Field Slips

Abu Dhabi’s decision to start importing LNG in 2014-15 will put it into competition with Kuwait and Bahrain for floating regasification and storage units (FRSUs), whose market is tight. Positioning the terminal in Fujairah bypasses the Strait of Hormuz and could supply the northern emirates and/or allow Dolphin Energy to supply both Oman and Abu Dhabi with the gas. The move hangs a question mark over future operations of Abu Dhabi’s LNG exporter, ADGAS, which will need to replace two trains by 2019 when its only contract expires. Oxy’s 500mn cfd Shah ultra sour gas field start-up slips back, Nick Wilson writes.

Gas-starved Abu Dhabi plans to import 1.2bn cfd of LNG – about 8mn tons/year – into the emirate of Fujairah, bypassing the Strait of Hormuz, cutting shipping insurance costs and boosting energy security at a time of tension in the Gulf. Fujairah, which is on Dolphin Energy’s gas pipeline network that links Oman to Qatar via Abu Dhabi, is on the Gulf of Oman, which opens into the Indian Ocean.

State-owned conglomerate Mubadala – which has a 51% stake in the Dolphin consortium – will be the LNG project operator. The terminal will start importing gas via Phase 1, a floating storage and regasification unit (FSRU), in 2014-15, eventually ramping up to a fourth phase via a permanent onshore regasification terminal that will take at least four years to build. Phases 1 and 2 total 600mn cfd, which Phases 3 and 4 will double.

Five or six FRSUs will be available globally from shipping companies by 2014. LNG logistics and shipping firms Golar LNG and Hoegh are converting three old LNG carriers into FSRUs for delivery in 2013 and 2014, which have not yet been contracted. And Excelerate Energy, which has a fleet of nine new purpose-built FSRUs – eight of which are already under contract – is bringing a tenth vessel into service in two years. Its contract with Kuwait expires in 2013, potentially freeing another FRSU.

Abu Dhabi is, however, competing against Kuwait and Bahrain, which are looking at importing more LNG into the Gulf. Kuwait may renew its contracts with Shell and Vitol to import 500mn cfd via Excelerate’s vessel. And it is studying building a permanent LNG terminal. Bahrain hopes to find deep gas and make a final investment decision on developing it in 2014. This would make an FSRU to import 400-800mn cfd for 15 years starting in 2014 more attractive to Manama (MEES 27 February). Bahraini Minister of Energy and Chairman of the National Oil and Gas Authority (NOGA) 'Abd al-Husain 'Ali Mirza said in February that the tender for a FSRU or permanent terminal will be issued soon.

Dubai also imports 1mn tons/year of LNG via an FRSU, which provides a peak summer supply of 400mn cfd. Dubai’s energy exchange Dubai Multi Commodities Centre (DMCC) had previously studied building an LNG onshore depot in Fujairah to take advantage of arbitrage opportunities provided by seasonal and regional markets price differentials, but abandoned the project after getting contractor bids.

ADGAS Question Mark

Mubadala’s project hangs a question mark over the continuation of the operations of Abu Dhabi Liquefaction Gas Company (ADGAS) consortium, comprising state-owned Abu Dhabi National Oil Company (ADNOC), Mitsui , BP and Total . ADGAS exports 4.7mn t/y of LNG from its offshore fields through its sole contract – with Japan’s Tokyo Electric Power Company (TEPCO) – which expires in March 2019. Tokyo is trying to do a deal with Abu Dhabi to let its LNG engineering firm Chiyoda (MEES, 10 October 2011)replace ADGAS’s two LNG trains that will be over 30 years old by 2019, as part of a package that would secure Japanese upstream firms’ concessions in the emirate. ADGAS’s third LNG train is more recent.

However, Abu Dhabi could build another pipeline to bring gas onshore. The 1bn cfd capacity Integrated Gas Development (IGD) pipeline is scheduled for completion in the third quarter of 2013, some eight years after being planned. Abu Dhabi may reconsider its integration strategy before 2018 when the concession ends for the Abu Dhabi Marine Operating Company (ADMA-OPCO) – ADNOC (60%), Japan Oil Development Company (Jodco – 12%), BP (14.67%), and Total (13.33%). The IGD is a joint project by onshore gas operator Abu Dhabi Gas Industries Limited (GASCO) – ADNOC (68%), Shell (15%), Total (15%) and Partex (2%) –and ADGAS and ADMA-OPCO, resulting in cumbersome decision making.

The UAE has been locked in talks with Qatar for several years to boost imports – Dolphin has a 3.2bn cfd capacity pipeline and a 2bn cfd contract. The UAE has been unwilling to pay Qatar the price Doha wants for more supplies, but Abu Dhabi is now paying to build a terminal and buy LNG at market price, which implies political considerations are also involved. Bahrain has opted for more expensive LNG to avoid dependency on Qatar if it took the cheaper pipeline option. Abu Dhabi is also keen to support its poorer neighbors in the UAE’s northern emirates, to head off potential unrest.

Fujairah is a Dolphin pipeline hub (see map). It receives gas via an underused 1.6bn cfd capacity pipeline from Taweelah in Abu Dhabi for the state-owned Abu Dhabi Water and Electricity Company (ADWEC) Fujairah 1 and new Fujairah 2 power stations and desalination plants at Qidfa, on the Arabian Sea north of Fujairah city. Another ADWEC plant at Qidfa receives gas via Dolphin Energy’s al-Ain to Fujairah pipeline. From al-Ain, Abu Dhabi supplies gas to Oman. Reversing these pipelines’ flow could allow Dolphin Energy to supply both Oman and Abu Dhabi with imported LNG.

Shah Bidding Delays

US independent Occidental, which operates Abu Dhabi’s Shah ultra-sour gas field, is a partner of Mubadala and has a 24.5% stake in Dolphin Energy, as does Total. Bidding delays for construction packages have pushed Shah’s 500mn cfd of sales gas target back to end 2014/early 2015. Oxy, which also operates two 10,000 b/d oil fields, Jarn Yaphour and Ramhan, is throwing everything it has at the extremely challenging Shah project to boost its chances of winning more concessions. Consortium Abu Dhabi Company for Onshore Oil Operations (ADCO) – ADNOC (60%), Shell, Total, BP and ExxonMobil (9.5% each) and Portugal's Partex (2%) – has complained to Abu Dhabi about Oxy being given those concessions, MEES learns. Oxy is hoping the emirate may break up the consortium's concession, which includes most of the emirate's major onshore fields, and allow individual firms to operate separate fields. Taking on Shah is a “high risk strategy” a former Oxy official says. After the costs of its Mukhaizna oil field project in Oman shot up from $2bn to $9bn, it does not want to fail in Shah. The LNG import project highlights Abu Dhabi’s failure to develop its gas resources on time. It awarded Shah to ConocoPhillips in 2008 after almost a year’s delay, only to see the American firm pulling out in 2010. Oxy gets $0.90-0.95/mn BTU for the natural gas – up on ConocoPhillips’s proposed $0.80-0.85/mn BTU, MEES learns.

Dolphin’s Gas Pipeline Network

Source: Dolphin Energy.

© Copyright MEES 2012.