Abu Dhabi struggles to attract interest in Shah gas package

07 November 2008
Concerns mount over safety and maintenance of sulphur pipeline.

Abu Dhabi’s $12bn-plus energy project to develop onshore sour gas reserves is facing its first major stumbling block. Doubts are emerging over whether any contractors will bid for the 275-kilometre-long sulphur pipeline package due to concerns over safety and maintenance on the scheme.

Abu Dhabi National Oil Company (Adnoc) and its joint venture partner, US-based ConocoPhillips, approached contractors to develop gas reserves from the Shah field in early October (MEED 3:10:08).

Total cost of developing onshore sour gas reserves$12bn
Length of sulphur pipeline being tendered275km
Amount of hydrogen sulphide in Shah field gas deposits23 per cent
Original start-up date for the energy project2013

Companies who attended Adnoc’s engineering, procurement and construction (EPC) requalification meeting in Abu Dhabi in mid-October tell MEED that few firms are interested in bidding for the sixth package, which covers a liquid sulphur pipeline which, when completed, will be the longest of its kind in the world.

“Nobody showed any interest in the pipeline package,” says the business development director of one Abu Dhabi-based contractor. “It is seen as too long and too risky.”

The project is widely considered to be one of the most complicated energy deals in the region, because gas deposits from the Shah field contain around 23 per cent hydrogen sulphide, a highly toxic and flammable gas.

Adnoc and Conoco have asked contractors to transport the sulphur by pipeline from the Shah field to Ruwais, from where Conoco will sell the product.

“The sulphur pipeline is a very hard sell for Adnoc and Conoco to make to us,” says another EPC contractor who attended the meeting. “There are other lucrative packages that will take priority.”

Companies were told that the pipeline temperature must be kept at 125-155 degrees centigrade, noting that water mixed with sulphur generates sulphuric acid.

Last year, the UK’s BG Group pulled out of the project citing concerns over project delivery and safety (MEED 30:3:07).

Adnoc and Conoco, which have yet to formally sign a joint venture agreement for the project, have told the 40 prequalified companies that only five firms will be permitted to lodge bids for each package.

US-based Fluor Corporation is working on the front-end engineering and design (feed) of the Shah Gas Development for Abu Dhabi Gas Industries (Gasco), the Adnoc subsidiary which is managing this section of the scheme (MEED 3:10:08).

The feed is in three parts, a gas collection system and product pipelines, a gas plant, and a sulphur management system. The gathering system will take fluids from the Shah field wells to the Shah plant, and the product pipelines will then take gas, condensate and natural gas liquids to Habshan, 65 miles southwest of Abu Dhabi city.

Ryan Lance, president for exploration and production in Europe, Asia, Africa and the Middle East at Conoco, tells MEED that a final investment decision on the development is likely to be delayed by several months until the feed is finished.

“We are looking at close to mid-2009,” says Lance. “The feed should be completed by early next year and then we can take a look at costs after that. We will assess the future outlook once the feed is done.”

Lance says the previous start-up date for the project of October 2013 may also be subject to change.

“It is hard to say right now and we will have to see what the feed shows,” says Lance. “It is a pretty volatile market right now.”

The rapid drop in oil prices in recent months has created uncertainties in the wider market, but Lance says Conoco is focused on the long-term situation.

“The real question is what is the price of the product going to be five, six, seven years from now when it [the project] starts out. We do not necessarily look at today’s prices but at the long-term.”

He declines to comment on the level of contractor interest in the liquid sulphur pipeline package.

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