Adnoc in hunt for more gas

Hunt for new natural gas sources in the country is on but cheap deposits will be few and far between.

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The Abu Dhabi National Oil Company (Adnoc) has stepped up its search for new natural gas resources as demand has exceeded all expectations, but low-cost options are running out, a senior industry official said yesterday. The UAE possesses the world's fifth-largest reserves of natural gas, estimated at 215 trillion cubic feet, but most of this is either trapped in resistant rock formations or contaminated with toxic acid, meaning that it is expensive to extract.

Abdul al Kindy, the general manager of the Adnoc subsidiary Abu Dhabi Company for Onshore Oil Operations, said gas demand had grown beyond all forecasts over the past two years. "The local demand for gas has gone beyond what anyone could have planned for, and that has added urgency to accelerate gas development," he said on the sidelines of the Abu Dhabi International Petroleum Exhibition and Conference.

"We had to develop gas faster than we would have done." Ismail al Ramahi, the manager of Adnoc's gas processing division, said the company was working against the clock to meet demand. "To develop a gas reservoir takes a minimum of five to seven years, so we have been working night and day to make gas available," he said. In the longer term, officials highlighted the need for the country to develop alternative energy sources, outside the indigenous fossil fuel base.

"Our (long-term) demand for energy is really surpassing anything that could be provided by oil, gas and coal, all combined," Mr Kindy said. Some GCC states are so short of cheap gas that they are importing the fuel from Qatar, which owns the world's biggest gas field. Abu Dhabi's Dolphin Energy imports Qatari gas supplies for the UAE and Oman through an undersea pipeline; Dubai has agreed to import seasonally available supplies of liquefied natural gas (LNG) from Qatar starting in 2010; Sharjah has been trying for the past three years to import gas from Iran; and Oman has signed an agreement with Iran for joint development of an Iranian offshore gas field.

Yesterday, a Royal Dutch Shell executive told the conference that a floating terminal to import LNG into Dubai would be ready by the end of 2010. Dubai is paying top dollar for LNG supplies that became available when Qatar's Asian customers decided to give up some exports due to seasonal demand fluctuations. Dolphin's general manager, Ibrahim al Ansari, said on Monday that he did not expect further Qatari gas supplies to become available in the next few years and analysts said Iranian gas exports to Gulf countries could take years to materialise.

That leaves the UAE heavily dependent on its own gas reserves, which are substantial but expensive and technically challenging to produce. In the case of the Emirate's large "sour gas" deposits, they are also dangerous to produce, involving deadly hydrogen sulphide as a by-product. Aside from cost and public safety challenges, decades of domestic gas subsidies have bequeathed Adnoc an additional dilemma in the form of unrealistic customer expectations. "They want gas now, and they want it cheap. But there is no cheap gas," said Mr Ramahi.

Nonetheless, Mr Kindy predicted that Adnoc's new gas strategy would start to pay off "two to three years down the road", with the start of production from the US$10 billion to $15bn (Dh37bn to Dh55bn) Shah sour gas development the company was pursuing in a joint venture with the US oil and gas company ConocoPhillips. Other Adnoc projects to increase Abu Dhabi's domestic gas supply include the "strategic linking" of offshore and onshore gas facilities to optimise production from gas fields, the development of Abu Dhabi's offshore Hail sour gas field, and a project to use nitrogen instead of natural gas to maintain pressure in oil fields. The company was also continuing a long-standing programme to reduce the amount of gas burnt or "flared" as a by-product of oil production, instead capturing the gas for commercial use, Mr Ramahi said.

On Monday, Adnoc and Royal Dutch Shell, the Anglo-Dutch energy group, announced an agreement to explore for and develop offshore gas deposits believed to be buried deep below the Gulf. Shell said it hoped to move quickly to a final agreement. The European company's agreement with Adnoc closely follows a preliminary agreement it signed with Iraq to capture and market large volumes of gas presently being flared in that country.

Throughout the Gulf region, a shortage of gas for power generation and petrochemical projects would drive a continued need for more gas production, creating new opportunities for international oil companies with the experience and expertise to tackle challenging projects to participate in the region's dominant oil and gas industry, said Steven Peacock, the president of the Middle East and South Asia division of BP.

"We will continue to see opportunities to explore for and develop the more difficult gas," he said.