Adnoc postpones Shah pipeline decision

02 December 2009

Joint venture to announce in March 2010 whether a pipeline or railway will be built to transport sulphur

The joint venture behind the $10bn Shah gas development in Abu Dhabi will wait until March 2010 before deciding how to transport sulphur produced at the field to export facilities at Ruwais, according to senior sources working on the scheme.

The joint venture of Abu Dhabi National Oil Company (Adnoc) and US energy major Conoco-Phillips plans to produce 1 billion cubic feet a day of sour, or sulphur-rich, gas from the southern Shah field by 2014.

Adnoc has asked contractors hoping to bid on the deal, which involves building a pipeline to carry the sulphur from Shah to Ruwais via facilities at Habshan, to resubmit their prequalification documents by 14 December, even though many fear Adnoc will scrap the project.

Adnoc cancelled the original tender for the sulphur pipeline contract in June because it feared too few companies would bid for the technically demanding job. Contractors said at the time that the technical complexity of the scheme made it risky to take on (MEED 18:6:09).

In July, Adnoc asked the US’ Fluor Corporation, which completed the front-end engineering and design (Feed) study for the scheme, to conduct a new feasi-bility study (MEED 8:7:09).

In October, the local Union Railway Company revealed that Adnoc had asked it to look into building a railway to transport the sulphur from Shah to Habshan and Ruwais (MEED 13:10:09).

Adnoc planned to choose between the pipeline and the railway before the end of 2009, but the company will now push back its decision until March 2010, say the senior sources.

The national oil company’s request for prequalification applications for the pipeline contract is an attempt to gauge interest in building the pipeline, rather than a commitment to the pipeline project, one source adds.

According to a senior executive at one UAE-based engineering consultant, Adnoc’s decision to commission an additional study will add “millions, if not tens of millions” of dollars to the cost of the project.

If the partners tender the pipeline deal only to scrap the contract next year, the bidders could end up spending millions of dollars without getting anything in return, and Adnoc could leave itself open to legal action, says one UAE-based executive at another engineering firm.

“Getting technical and commercial proposals together can cost millions of dollars, especially on a big and complex project like this,” says the executive. “If Adnoc tenders it and then decides to go with the railway option, we could well look for compensation.”

Despite still having to make a choice between the railway and the pipeline, Adnoc and Conoco-Phillips are keen to award the other construction and management contracts on the scheme.

At least three international engineering firms bid for two project management consultancy deals to oversee the construction work on the projecton 19 November. The joint venture plans to award the contract in December.

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