Conoco takes lead in Shah gas bidding

11 January 2008
US company is surprise frontrunner for sour gas project, with Shell and Occidental set to lose out

The US’ ConocoPhillips is the surprise frontrunner for the multi-billion-dollar project to develop sour gas reserves from Abu Dhabi’s Shah field.

According to sources in Abu Dhabi, the Houston-based oil major is most likely to win the concession after it was shortlisted, along with three other international oil companies, for the contract in 2007.

Abu Dhabi National Oil Company (Adnoc) declined to confirm or deny that it has selected Conoco for the contract, while
the oil major itself declined to respond to questions on the deal.

If it were to win the contract, Conoco’s victory would take the industry by surprise as it was widely believed that two of the other firms competing for the contract, the UK/Dutch Shell Group and the US’ Occidental Petroleum, were in better positions during the negotiating process.

The contract award was previously expected before the end of 2007, but was delayed (MEED 7:12:07).

A success would also mark ConocoPhillips’ re-entry into the UAE upstream sector after its 45-year operating concession in neighbouring Dubai expired in early 2007.

The sour gas scheme, known as the Shah Gas Development, involves the long-term production of more than 1 billion cubic feet a day of sour gas from the field. The sour gas is likely to be used for reinjection to maintain pressure at existing oil fields.

The surface portion of the scheme covers a gas gathering system to collect the wellstream fluids, a gas processing facility including treating and sulphur recovery facilities, and a sulphur management system.

The US’ Fluor Corporation is the front-end engineering and design contractor and Australia’s WorleyParsons is the project management consultant.

The development of its sub-stantial sour gas reserves is a key part of Abu Dhabi’s policy to ensure it has enough gas supply to meet its growing power generation requirements.

Demand for gas is growing by about 15-20 per cent a year in the emirate, and despite the addition of gas from Qatar via the subsea Dolphin gas pipeline, the authorities are continually looking for further supplies.

In addition to the Shah Gas Development, Adnoc is looking at the development of sour gas from its onshore Bab field.

Bab was originally included as part of the Shah scheme but was separated from it because of cost and safety issues.

The field is located close to the Liwa oasis and a leak of the hard-to-detect sour gas could have serious health and safety consequences for the nearby area. None-- theless, Adnoc is expected to proceed with Bab.

Another sour gas field under consideration is the offshore Hail field, roughly equidistant between Abu Dhabi and Ruwais.

Although the field falls within the concession of Abu Dhabi Company for Onshore Oil Operations (Adco), development of the project will come under the responsibility of Abu Dhabi Gas Industries Company (Gasco).

Sour gas is not Adnoc’s only option. It recently established a joint venture with Germany’s Linde to produce and supply industrial gases such as nitrogen, which could also be used for reinjection purposes.

However, it is unclear whether the amount of natural gas required to produce nitrogen makes it worth the effort.

A final option for Abu Dhabi is to evaluate the capture and storage of carbon dioxide.

Using innovative technology, the gas can be captured and then piped to oil fields, where it can be also be used for reinjection purposes, freeing up natural gas for power generation.

However, the technology required is still in its infancy, and it is unclear whether it can be implemented on a large scale.

It is also not clear whether carbon dioxide can remain in the oil reservoir in the long term or whether it would seep out, potentially causing huge damage to the reservoir. The cost of such a project may also prove to be a deterrent.

Instead of looking at freeing up its natural gas, Abu Dhabi may opt to evaluate other energy production forms.

It is developing a major solar gas project, and is believed to be studying the implementation of nuclear power.

Reducing demand through emission-free developments is yet another option.

Two of the other companies competing for the sour gas contract, the US’ ExxonMobil Corporation and Occidental, were unavailable for comment.

“Adnoc has yet to finalise or announce the outcome,” says a spokeswoman for Shell, the final company competing for the project, which had been the favourite to take the concession.

Success on the sour gas scheme would mark a welcome change for ConocoPhillips in the region, after its activities in the Gulf were hit by sharply rising costs in the second half of 2007.

The oil major ended its involvement in the UAE’s grassroots Fujairah refinery and, along with Saudi Aramco, reassessed its plans for the Yanbu refinery in Saudi Arabia, after both were hit by increasing project costs (MEED 14:9:07).

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications