United Arabian Emirates energy report 2011

Sep 11, 2011 12:00 AM

by Daniel Canty

Abu Dhabi upstream development projects steal the limelight in the 2011 review of the United Arabian Emirate’s energy market.
Almost one third of the top twenty largest oil and gas projects in the Middle East under execution are taking place in the Emirates’ booming upstream sphere. With the exception of a large, pan-national strategic pipeline project, all of the work for those projects is being undertaken in Abu Dhabi, the national epicentre for energy developments. However, Ras Al Khamaih, Sharjah and Dubai all have operations and development projects, which are significant, and worthy of some attention, not forgetting the vital, and increasing role Fujairah plays in the national energy equation.

The importance of the energy sector cannot be overstated, though unlike its neighbours the United Arabian Emirates has had a large degree of success in encouraging important non-oil sectors, thanks to a decade long commercial, industrial and tourism development drive which has seen it surpass all of its fellow Gulf economies in most spheres.
That said, enormous injections of capital in Qatar and Saudi Arabia mean there is no room for complacency in maintaining its dominant position as a business hub of choice.

Principally thanks to the resource wealth endowed on Abu Dhabi, the federation of seven emirates has become a crucial energy producer, typically exporting around 2.32 mm barrels of crude oil each day to predominantly Asian markets.
Japan remains the country’s main oil customer, accounting for almost 40 % of all shipments, though significant sales to South Korea and Thailand, as well as spot cargo sales to many others spread the revenue sources throughout Asia.

In terms of energy for export, the country’s principal investments and capacity increases will come from oil, as skyrocketing domestic energy use (the country remains an importer of natural gas from neighbouring Gulf countries), means that the bulk of gas developments are being funded to meet rising in-country demand.
The United Arabian Emirates has 97.8 bn barrels, making up 7 % of global oil reserves. In late 2008, Occidental Petroleum won the first concession offered in decades, earning the right to develop the Jarn Yahpour and Rahman oil fields.

Abu Dhabi National Oil Company (ADNOC), operates 14 subsidiaries which participate at every level of the oil and natural gas sectors. The contract structure is based on a long-term, production-sharing basis, often through joint venture companies.
The most noteworthy of the oil-producing consortia include the Zakum Development Company (ZADCO), the Abu Dhabi Company for Onshore Operations (ADCO), and the Abu Dhabi Marine Operating Company (ADMA-OPCO). International oil majors operating in the UAE include BP, Shell, Total, ExxonMobil, Petrofac, and Partex.

In November 2010, the ruler of Sharjah, Sheikh Sultan bin Muhammad al-Qasimi, issued a decree which created the Sharjah National Oil Corporation (SNOC).
The new firm manages those projects formerly operated by Crescent Petroleum in the emirate.

Oil E&P review
In 2010, the United Arabian Emirates produced approximately 2.81 mm bpd of total oil liquids, of which 2.3 mm bpd was crude oil. Crude oil production capacity is currently estimated at 2.6 mm bpd.
However, increases in capacity have not affected production due to limits imposed by OPEC, which constrain United Arabian Emirate’s production around the quota of 2,223 mm bpd. The government has pushed back plans to increase capacity to 3.5 mm bpd to 2018.

Much oil production in the United Arabian Emirates is from the Zakum oil system, a collection of oil fields which together make up the third largest oil zone in the world. The Upper Zakum field is run by ZADCO, 60 % owned by ADNOC with the Japanese Oil Development Company (JODCO) and ExxonMobil holding the remaining stakes.
In order to boost production capacity, ZADCO is reviewing the possibility to use extended reach drilling from four artificial islands to expand production from the current 550,000 bpd to 750,000 bpd by 2015, increasing the recovery rate to 70 %.

The largest onshore oil fields are operated by ADCO. ADCO operates the Bu Hasa oil field, which produces as much as 600,000 bpd, as well as the Murban Bab, Sahil, Asab, and Shah oil fields, contributing another 705,000 bpd of crude.
Additionally, two new fields are being developed by ADCO, Qusahwira and Bab oil fields, adding 250,000 bpd by 2014. ADCO will also redevelop Bida al-Qemzan field, adding 20,000 bpd to its current production of 225,000 bpd by the third quarter of 2012. These projects are components of a plan to boost ADCO’s aggregate production to 1.8 mm bpd from its current 1.4 mm bpd by 2017.

ADMA-OPCO operates the main offshore assets in Abu Dhabi, which have been in redevelopment to maximise output. The Umm Shaif and Lower Zakum offshore oil fields have a capacity of 520,000 bpd combined, although after an expansion at each they will have a production capacity of 425,000 bpd and 300,000 bpd, respectively.
Two new oil fields have also come into development: Nasr and Umm al-Lulu. These will add a further 170,000 bpd capacity by 2018.

Dubai and Sharjah produce relatively minor amounts of crude oil. Despite causing something of a global stir with an announcement in 2010 that the Emirate had struck upon a major discovery, no further details have since come to light.
Dubai is widely thought to produce around 100,000 bpd from four separate fields, the older and more abundant Fateh and Southwest Fateh oil fields, with extra production from the Falah and Rashid fields. Sharjah’s only significant oil field is the Mubarak field, which produces 60,000 bpd. Sharjah-based Crescent Petroleum operated this field for 35 years before handing control to the government in December 2009.

In the pipeline
The largest export pipeline project in development currently is the Abu Dhabi Crude Oil Pipeline (ADCOP) Project. The International Petroleum Investment Corporation (IPIC) is spearheading the project, along with the China Petroleum Engineering & Construction Corporation, a subsidiary of the China National Petroleum Corporation.
The 230-mile pipeline is scheduled for completion by August 2011 and will transport 1.5 mm bpd from ADCO’s Habshan facility to the Fujairah export terminals. This will allow more than half of United Arabian Emirates’ exports to bypass the strategic chokepoint at the Strait of Hormuz.

Foot on the gas
The United Arabian Emirates holds around 214.4 tcf of proven natural gas reserves. This amounts to the seventh largest natural gas reserves globally, following Russia, Iran, Qatar, Saudi Arabia, Turkmenistan and the United States.
The majority of these reserves are located in Abu Dhabi (198.5 tcf), with marginal amounts found in Sharjah (10.7 tcf), Dubai (4 tcf), and Ras al-Khaimah (1.2 tcf).

In 2007, domestic consumption of gas outstripped production for the first time, and the use of natural gas for injection into mature oil fields further compounds the strain on natural gas supplies. Despite the United Arabian Emirates’ large natural gas reserves, capital costs and high sulphur content present major impediments to development.
Abu Dhabi Gas Industries Limited (GASCO), a consortium between ADNOC, Shell, Total, and Partex, is responsible for the processing of associated and non-associated onshore natural gas production. Two onshore mega-projects have brought on-line more than 1.5 bn cfpd in the past two years for reinjection into oil fields and other industrial uses.

The Onshore Gas Development (OGD) program completed its third phase in 2008, adding 1.2 bn cfpd of associated natural gas from the Bab oil field. A third phase is also set for completion at Asab and Sahil fields by 2012, bringing production there to 450 mm cfpd.
The Integrated Gas Development (IGD) is the largest natural gas project currently in development. GASCO is working with Abu Dhabi Gas Liquefaction Company Ltd. (ADGAS) to develop a new facility at the Habshan oil field, called Habshan-5. The project is based around a new facility at Habshan that will produce 900 mm cfpd, and 124,800 bpd of natural gas liquids.

GASCO also awarded a contract for a fourth natural gas liquid (NGL) train at the Ruwais facility to Petrofac. Much of the gas drawn for the project will derive at the Umm Shaif offshore oil field operated by ADMA-OPCO.
GASCO is also pursuing the offshore associated gas (OAG) project, which envisions a further 200 mm cfpd brought onshore from mature oil fields.

Sour hour
In January this year Occidental announced it had been selected by the Government of Abu Dhabi, through ADNOC, to participate in the development of Abu Dhabi’s Shah gas field, one of the largest gas fields in the Middle East. The agreement follows a year of stagnation on the project after ConocoPhillips, successful bidders first time round bailed out of the project in April 2010.
Under the terms of the new agreement in principle, Oxy will hold a 40 % participating interest in a 30-year contract. The Abu Dhabi National Oil Company (ADNOC) holds the remaining 60 % interest.

Production at the Shah Field will be an important future resource to fill the rapidly expanding regional demand for natural gas.
“This is another important step in the implementation of our growth strategy and in our relationship with the Emirate of Abu Dhabi. The development of this field under the agreement provides an exciting opportunity to create value for the people of Abu Dhabi and for our stockholders,” said Dr Ray Irani, Occidental’s then chairman and CEO.

The Shah gas project involves development of high-sulphur content reservoirs within the Shah field, located onshore approximately 180 km southwest of the city of Abu Dhabi.
The project will involve development of several gas gathering systems, construction of new gas and liquid pipelines and processing trains to process 1 bn cf of high-sulphur content gas. This is anticipated to produce approximately 500 mm cfpd of network gas and a significant amount of condensate and natural gas liquids.

ADNOC is already in the process of developing the field with the majority of project engineering procurement and construction contracts already awarded. Production from the field is scheduled to begin in 2014.
Capital expenditures are estimated to be in the range of $ 10 bn for the project with Occidental’s share proportional to its ownership. The Bab natural gas field went on tender along with Shah in 2007.

Total has recently indicated its interest in developing Bab with ADNOC, as the gas is dryer and more suited to Total’s capabilities. Executives at ADNOC have stated that their focus is on Shah currently and do not expect to offer a final tender on Bab until 2015.
The Bab project will pipe the resulting natural gas to Abu Dhabi for use as feedstock in electricity generation.

In 2008, Qatar, with its partner Shell, and Dubai agreed to a long-term LNG supply contract. In December 2010, the first of these LNG shipments arrived in Dubai.
The shipments of LNG come from the QatarGas 4 train going forward, which starts production in the first quarter of 2011. The LNG contract with Dubai is valid for 15 years for 400.3 mm cfpd, helping the emirate to meet peak summer electricity demand.

Total in the United Arabian Emirates
Total has been present in the United Arabian Emirates since 1939. The Group’s production in 2010 was 222,000 bpd, compared to 214,000 bpd in 2009 and 243,000 bpd in 2008.
In Abu Dhabi, Total holds interests in the Abu Al Bu Khoosh field (75 %, operator), in ADCO (9.5 %), ADMA (13.3 %). Total also has interests in GASCO (15 %), which produces LPG and condensates from the associated gas produced by ADCO, and in Abu Dhabi Gas Liquefaction Company (ADGAS, 5 %), which produces LNG, LPG and condensates.

Total recently signed agreements for a 20-year extension of its participation in the GASCO joint venture which will run until 2028.
Total is also a key partner with Mubadala in the Dolphin Energy project, and holds significant downstream stakes in the UAE, most notably a 33.3 % interest in Ruwais Fertilizer Industries (FERTIL), which produces urea.

Emerson in the United Arabian Emirates
Emerson Process Management launched its new office in Abu Dhabi earlier this year, with an investment of $ 4 mm.
The new 22,000 sq ft office located in Musaffah Industrial Area follows on from the success the Jebel Ali office has had in Dubai.

“We have experienced tremendous growth across all of our businesses. One of our key growth initiatives is to continue to move our operations closer to our customers, in terms of manufacturing, service and support,” said Cor Corbeek, general manager, Emerson Process Management, adding that Abu Dhabi represents both a core market, and a tremendous growth opportunity.
“The importance of Abu Dhabi as a key growth market, increasing competitiveness within the sector and the need to offer comprehensive sales and after-sales services, led to the launch of this enormous wholly-owned facility in Abu Dhabi.”

Abu Dhabi Company for onshore oil operations
ADCO operates onshore and in the shallow coastal waters of the Emirate of Abu Dhabi. The original concession agreement was made with Petroleum Development (Trucial Coast) Ltd. on January 11, 1939, but geological work did not begin until after the Second World War.
Exploratory drilling began in Abu Dhabi in February 1950.

The first commercial oil discovery was made at Bab in 1960, and exports began from the Jebel Dhanna terminal on December 14, 1963. In 1962, the company was renamed the Abu Dhabi Petroleum Company (ADPC).
On January 1, 1973, the Government of Abu Dhabi acquired a 25 % interest, which was increased to 60 % as of January 1, 1974. The Abu Dhabi Government interest is held by ADNOC. ADCO was incorporated on October 8, 1978 and has been responsible, since February 1979, for operations in the concession area, which now covers more than 21,000 sq km.

ADCO produces from six oil fields: Asab, Bab, Bu Hasa, Sahil, Shah and North East Bab (Dabbiya, Rumaitha and Shanayel).
These fields are linked by more than 450 km of pipeline, with storage and shipping facilities at Jebel Dhanna, where tankers load crude oil for export to many parts of the world.

Occidental in the United Arabian Emirates
In 2008 Occidental won the first new concession offered in the United Arabian Emirates for decades, earning the right to develop the Jarn Yahpour and Rahman oil fields. Occidental will operate both fields and holds a 100 % interest in newly created concessions.
“This is an important step in the implementation of our growth strategy and in our relationship with the Emirate of Abu Dhabi.The development of these two fields provides an exciting opportunity to create value for the people of Abu Dhabi and for our stockholders,” Dr Ray R. Irani, Chairman and Chief Executive Officer of Occidental.

Development activities at the onshore Jarn Yaphour field commenced immediately and first production from the field came in 2009. Gross production from the initial development is anticipated to be around 10,000 boepd.
The Ramhan discovery, located in very shallow water near the Abu Dhabi refinery, was tested in 1992 and flowed at a combined rate of 1,750 barrels of oil and 14 mm cf of gas per day from one well. Production from the Ramhan initial development is also expected to be in the 10,000 boepd range. First production from the field is thought to have commenced this year.

Total capital investment in both development projects is expected to be in the range of $ 500 mm over the next three to four years.
In addition to the initial field developments, this investment will include further field appraisal activities to determine the full upside potential of each area.

In January this year Occidental confirmed it had been selected to participate in the development of Abu Dhabi’s Shah gas field. Occidental will hold a 40 % participating interest in a 30-year contract. The Abu Dhabi National Oil Company (ADNOC) holds the remaining 60 % interest.
Production from the field is scheduled to begin in 2014. Capital expenditures are estimated to be in the range of $ 10 bn for the project with Occidental’s share proportional to its ownership.

Occidental is also a partner in the giant Dolphin Project, the premier trans-border natural gas project in the Middle East.
The project, in which Occidental has a 24.5 % interest, delivers natural gas from Qatar’s North Field to customers in the UAE and Oman.

ADGAS
ADGAS was conceived of in the late sixties to put an end to the wasteful flaring of associated gas. An agreement was reached between ADGAS and Tokyo Electric Power Company (TEPCO) to construct an LNG Plant to process the gas and export it in liquid form to Japan.
Through the liquefaction process, gas is cooled to -160º C and its volume reduced to 1/600 of its gaseous form to make its shipment on LNG carriers commercially and economically viable. ADGAS was established in March 1973.

The construction of the plant was completed early in 1977 and on 29th April that year, the first LNG shipment was exported to Japan. This impressive pedigree means ADGAS lays claim to pioneering the gas liquefaction industry in the Gulf area.
When constructed, the plant was comprised of two identical process trains with its design production capacity amounted to 2.3 mm tons of LNG, in addition to 1.3 mm tons of Propane, Butane and Pentane per annum.

In 1994 the Third Process Train was built.
At the time this was the world’s largest, producing up to 2.5 mm tons of LNG per annum.

Company composition:
70 % ADNOC, 15 % Mitsui (Japan), 10 % BP (UK,) 5 % Total (France).

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