Mubadala starts phase two of Yoloten

Petrofac starts work with Mubadala on the main part of a contract to help develop Turkmenistan's biggest gasfield. The work order for the project's second phase is worth US$3.4bn.

The UK oil services company Petrofac has started work on the lucrative second phase of a project with Abu Dhabi's Mubadala Development to support the development of Turkmenistan's biggest gasfield, South Yoloten.

For Petrofac and Mubadala, a strategic investment company owned by the Abu Dhabi Government, the US$3.4 billion (Dh12.48bn) second phase of the contract they won a year ago will be by far their largest investment in the central Asian state, which has that region's biggest gas reserves.

"While we have substantial experience of working in the region, Turkmenistan is a new market for us, albeit one with considerable potential, where we would like to build a sustained presence," said Maroun Semaan, the group chief operating officer of Petrofac. "Successfully delivering this contract will underpin our endeavours in this respect."

South Yoloten is one of the world's five largest gasfields, containing at least 4 trillion cubic metres of reserves, according to a 2008 estimate by the British firm Gaffney, Cline & Associates. In October, Turkmen government geologists raised the upper limit of the estimate by a third to 21 trillion cu metres.

Petrofac Emirates, a joint venture between Petrofac and Mubadala, won a contract last year to build a gas plant to process half the field's expected output of 20 billion cu metres per year, as well as infrastructure and pipelines for the entire field development. After spending about $100 million on preliminary work, the partners took almost a year to decide to proceed further.

"Following the successful completion of the first phase … I am delighted that we are moving into the substantial second phase where we will be able to bring to bear our extensive experience of designing and constructing facilities to handle and process sour gas," said Marwan Chedid, the managing director of Petrofac's engineering and construction business.

The gas from South Yoloten's deep reservoirs is about 6 per cent hydrogen sulphide, agas that is corrosive and highly toxic. The gas-processing plant is to include sulphur handling facilities.

Abu Dhabi is keen to develop its own expertise in exploiting sour gas deposits, as most gas reserves in the emirate that are not contained in its oilfields fall into that category. Abu Dhabi National Oil Company is seeking a new partner for its Shah sour gas development after ConocoPhillips, the US oil and gas group, withdrew from the project in April.

Shah's gas is 23 per cent hydrogen sulphide, presenting stiff technical challenges for its developers. Despite the high costs and safety risks associated with the project in Abu Dhabi's Al Gharbia, or Western Region, the Government is intent on developing the gas as feedstock for a cluster of big petrochemical plants being built in the sparsely populated area. It will also provide fuel for the power plants supplying electricity to Al Ruwais industrial city.

Most energy firms with sour gas operating experience are big international oil companies such as Royal Dutch Shell, ExxonMobil and Total, all of which have previously expressed interest in taking part in Abu Dhabi sour gas projects. A few of the most sophisticated international oil contractors, including Petrofac, are now also seeking to enter the specialised sector.

The Caspian region's gas reserves are dwarfed by those of Russia and Iran but are still among the world's largest. Turkmenistan's 8.1 trillion cu metres of proved reserves exceed those of either Saudi Arabia or the US. However, it could cost as much a $25 per million British thermal units (btu) to extract South Yoloten's gas and transport it over mountainous terrain to markets in China, experts have estimated. That compares with a $5 per btu cost estimate for Shah.

Besides teaming up with Petrofac on the big South Yoloten development, Mubadala's oil and gas unit, which has an eastern hemisphere investment focus, is also pursuing oil and gas projects in the Turkmen and Kazakh sectors of the Caspian Sea.