Abu Dhabi is looking to step up momentum on both conventional and renewable energy fronts
The Abu Dhabi energy policy makers have their hands full with an expanding project portfolio and organisational change sweeping through at the strategic level.
The oil rich capital of the United Arab Emirates, home to seven per cent of the world's oil, started off the year on a strong footing, bringing in Occidental Petroleum (Oxy) to replace US major ConocoPhillips as its joint venture partner on its ambitious project to develop sour gas reserves at the Shah field.
But state energy company Abu Dhabi National Oil Corporation (Adnoc), which is plotting a long-term expansion of oil production capacity to 3.5 million barrels a day (b/d), has also had to firefight problems closer to home, with a gasoline supply crisis afflicting many of the UAE's fuel stations in June.
As supply shortages in many northern emirates provoked anger among motorists, the UAE government lined up Adnoc to take over the fuel license of EPPCO (Emirates Petroleum Products Company) and ENOC (Emirates National Oil Company) petrol stations. Adnoc boosted supplies to more than 80 petrol stations, averting a more sustained crisis.
The recent fuel problems may however herald longer-lasting effects on Abu Dhabi's energy strategy, with a reshuffle of the senior guard at the Supreme Petroleum Council (SPC), the government body that oversees oil and gas strategy. In late June, Jamal al Dhaheri, a director at Abu Dhabi Investment Authority, replaced the long-standing former Adnoc chief Yousef al Omeir as SPC secretary general, while Abdulla Nasser al Suwaidi was promoted from deputy chief executive to director general of Adnoc.
Though the petrol crisis may have been the immediate trigger for change, analysts see longer-term drivers behind the change in the guard at SPC, including the need for Adnoc to be run as a tighter ship.
"There has been a perception that Adnoc had become lethargic, and rumours that some of its contracts were failing to benefit the country as a whole," says Samuel Ciszuk, Middle East energy analyst at IHS Global Insight.
The new leadership takes charge at a critical time for the emirate, which is looking to boost oil and gas production and advance a number of alternative energy projects, including renewable schemes. Much of the focus of its efforts will be on building market share in the rapidly growing Asian economies. In July, it struck a potentially significant agreement to double oil exports to China to 200,000 b/d from 2014. With Chinese oil demand forecast to grow by six per cent this year, boosting supply to the world's strongest growth markets is a clear priority for Adnoc.
Yet in order for it to be in a position to increase sales to the world's growth economies, Adnoc will need to progress plans to add at least 700,000 b/d of production capacity - and for this to work out, analysts say Adnoc chiefs will have to agree terms over the next couple of years with the large international oil companies that are partners in the country's largest fields.
ExxonMobil, Royal Dutch Shell, BP, Total and Partex are partners with Adnoc in the onshore concession operated by Adnoc affiliate, Abu Dhabi Company for Onshore Oil Operations (Adco). Adco is overseeing a series of projects that will boost overall production from 1.4 million b/d currently to 1.8 million b/d. Two new fields are being developed by Adco, the Qusahwira and Bab fields, that will add 250,000 b/d by 2014. Adco will also redevelop Bida al Qemzan field, adding 20,000 b/d to take production to 250,000 b/d by the third quarter of 2012.
The Adco concession comes up for renewal in 2014 and the foreign partners are angling for more attractive fiscal terms. The partners currently receive just $1 a barrel of oil produced from the concession, a price set back in the 1980s when operating costs were substantially lower than today.
More favourable returns would be the quid pro quo for the provision of critical technology to improve production at the Adco fields. BP for one has been vocal on this front, with officials at the British supermajor saying it was barely making any money on its Abu Dhabi concessions.
The offshore sector is another future area of activity. The Upper Zakum field is operated by Zakum Development Company (Zadco), 60 per cent owned by Adnoc with the Japanese Oil Development Company and ExxonMobil holding the remaining stakes. Zadco is mulling the use of extended reach drilling from four artificial islands to expand production from 550,000 b/d to 750,000 b/d by 2015, hiking the oil recovery rate to 70 per cent. The company is preparing for contract wards for the construction of offshore pipelines and for processing facilities on the four artificial islands that will draw more oil from Upper Zakum.
The majors holding equity stakes in Abu Dhabi's largest oilfields will be holding a watching brief on the progress of the emirate's most ambitious oil and gas project in its portfolio - the $10 billion Shah sour gas development.
Adnoc's speedy replacement of its joint venture partner at the Shah field, Conoco - which pulled out in April 2010 - by US superindie, Occidental, showed Abu Dhabi is still a strong draw for international oil companies (IOCs), even for the most technically challenging schemes. The partners aim to produce around 500 million cubic feet a day of network gas and a significant amount of condensate and natural gas liquids starting in 2014. Oxy will hold a 40 per cent participating interest in a 30 year contract. Work began in April, with the shifting of sand ahead of the drilling in deep deposits of sour gas.
Industry eyebrows were initially raised at the appointment of Oxy, which is smaller than the other majors active in Abu Dhabi. However, despite some questioning of Oxy's capacity to undertake such a capital-intensive and technically complex operation, the company's experience in developing the Mukhaizna heavy oilfield in neighbouring Oman may have stood it in good stead.
"Oxy have proven themselves in a number of technically advanced projects," says Ciszuk. "However, it's still wait and see on the Shah project. They don't seem to have secured significantly better terms than Conoco, and there are a lot of doubts as to whether Shah will be profitable. If it's not, then it's going to be a very expensive pilot project."
There is a big upside for Oxy if Shah does come off, as it will then be seen as a world leader in sour gas development. This could put it in pole position in sour gas projects elsewhere in the Middle East, where many deposits have a high sulphur content.
The new SPC leadership will also be charged with injecting greater momentum into Abu Dhabi's renewable energy projects. Abu Dhabi aims to generate at least seven per cent of the power it uses from renewable sources by 2020.
Solar power is the central feature of attempts to boost renewables' contribution to the emirate's future energy mix, with efforts focused on Abu Dhabi Future Energy Company (Masdar), established in 2006. Masdar now manages a high-tech cluster powered solely by renewable energy.
However, key decisions are awaited on major projects, which will have to jostle for attention with conventional oil and gas schemes in SPC's already bulging in-tray. BP announced in January 2011 that a proposed $2 billion hydrogen power plant in Abu Dhabi would be delayed at least three years to await a decision on whether to use carbon dioxide (CO2) produced by the plant to help boost oil output.
Reports suggest Masdar's plans to capture five million tonnes a year of CO2 have encountered delays with Adnoc apparently reluctant to reinject the CO2 into its oil fields for enhanced oil recovery purposes.
Nonetheless, Masdar is moving ahead with key renewables projects, prequalifying in July of this year engineering procurement and construction contractors for its third concentrated solar plant, a 100 megawatt (MW) facility, in addition to an existing 10 MW plant and another proposed 100 MW plant at Al Ain that is due to start commercial operation in 2012.
If the new energy leadership can maintain momentum on both conventional and renewable fronts, Adnoc stands to enjoy the benefit of an abundant resource base and ensure it remains one of the Middle East's stalwart energy producers.
© The Gulf 2011
