Disagreements hit Dorra gas field plans

18 December 2013

Despite both Saudi Arabia and Kuwait being in desperate need of additional supplies of gas, development of a gas asset in the Divided Zone has stalled

The exploration and production rights for the oil and gas fields in the Divided Zone between Saudi Arabia and Kuwait have always been shared amicably. Oil production from the area is significant, with 580,000 barrels a day being split between the two neighbouring countries.

However, the delay in the development of the Dorra field, an offshore non-associated gas asset, has led to questions being asked about why such an important field remains untapped when both countries are desperate for additional supplies of gas.

MEED reported in February that the development of the Dorra field had been shelved pending further studies at the site. The decision came after several false starts regarding tenders being released to engineering, procurement and construction contractors for the full-field development.

Definite disagreement

“There has been a definite disagreement between Kuwait and Saudi Arabia regarding the Dorra field,” says a senior executive from an international contractor with operations in the area. “Both countries want the gas, but they can’t agree on the right way to exploit the field.”

Both [Saudi Arabia and Kuwait] want the gas, but they can’t agree on the right way to exploit the field

Senior executive from international contractor

The Dorra field contains an estimated 60 trillion cubic feet of gas and is expected to provide 600 million cubic feet a day (cf/d) once developed. The development is likely to include five or six offshore platforms with interconnecting flowlines, gas gathering equipment, 200 kilometres of 30-inch pipeline and 100km of subsea cables, as well as extensive onshore gas processing facilities. The original plans also included two oil platforms, but this work will now be carried out as part of any phase 2 development.

The front-end engineering and design (feed) work for the Dorra field has been undertaken by Australia’s WorleyParsons. The budget for a full-field development is said to be well in excess of $2bn.

The field has been in the planning stages for a number of years, but several issues have hindered its progress. Dorra’s location means that Iran claims partial sovereignty of the field along with Kuwait and Saudi Arabia. This means that a deal must be agreed with Tehran that will see the Islamic Republic paid a fee for its share of the output. Despite rumours to the contrary, a deal with gas-rich Iran is not viewed as a major stumbling block for the project. Nevertheless, the development has stalled, which has led to speculation that the real problem lies between Saudi Arabia and Kuwait.

Kuwait felt it should be able to transfer its share directly to a domestic gas plant and this caused the scheme to stall

Oil and gas analyst based in Kuwait

“When two countries are sharing the offtake of a gas field, it is always going to cause problems about exactly what happens to the gas,” says an oil and gas analyst based in Kuwait. “Kuwait felt it should be able to transfer its share directly to a domestic gas plant and this caused the scheme to stall.”

The initial plan was to transfer the gas to Saudi Arabia to be processed before Kuwait’s share being sent via pipeline. However, Kuwait subsequently disagreed with this plan and the project has since ground to a halt.

There is no doubt that a chronic lack of gas is having a serious impact on Kuwait’s oil exports and increasing gas production has become a major issue for officials in the Gulf state.

Government-owned Kuwait Petroleum Corporation (KPC) has said Kuwait will need gas availability of 4 billion cf/d by 2030, which makes the lack of progress on the Dorra field even more inexplicable. The country’s non-associated gas output is currently only 145 million cf/d, but this could increase to more than 1 billion cf/d if KPC develops its Jurassic gas resources. But the Jurassic resources will be difficult to exploit and development is not expected until 2017.

Gas demand

Saudi Arabia is in a better position in terms of gas availability. Its production totalled almost 10 billion cf/d in 2012, and is forecast to rise to 15 billion cf/d by the end of the decade. The kingdom is set to become the region’s first producer of shale gas and is also looking at major gas developments on the Red Sea coast for the first time.

However, gas demand in Saudi Arabia is growing at an alarming rate, with conservative estimates of about 6 per cent a year. The domestic petrochemicals industry has an insatiable appetite for the resource and more power plants are being planned that will utilise gas feedstock instead of crude.

“Saudi Arabia can just about afford to take its time on the Dorra field,” says an oil and gas analyst based in the kingdom. “Kuwait does not have the same luxury.”

Despite having access to large volumes of gas, Riyadh will still be frustrated by the lack of progress at the field. State-owned Saudi Aramco has a number of large-scale gas projects either planned or under execution near the Divided Zone and the development of Dorra would have been a relatively straightforward scheme. Aramco’s upstream operations have focused heavily on developing gas assets and this strategy looks set to continue in the short to medium term.

The Wasit Gas Development is an offshore project in the Gulf that will produce 2.5 billion cf/d of gas when fully operational in 2016-17. A new gas plant is also being planned in the Eastern Province close to the Fadhili oil field, which will increase the kingdom’s sour gas processing capabilities by 1 billion cf/d.

Bureaucratic hurdles

“There is a big difference in Saudi Arabia when it comes to executing projects,” says the Saudi-based oil and gas analyst. “The Oil Ministry and Aramco are entrusted with developing the kingdom’s hydrocarbon resources, whereas the KPC has a lot of hurdles to overcome before it can get multibillion-dollar schemes signed off.”

Aramco already operates the Karan field, a non-associated gas field off the Gulf coast, and a number of offshore and onshore fields in the area produce associated gas that is processed at several gas plants.

Upcoming gas projects include Midyan, which is a small field under execution in the kingdom’s Western Province, as well as a much larger field off the Red Sea coast.

Shale gas development is also being fast-tracked. Feed contracts in the Empty Quarter, South Ghawar in the Eastern Province and Jafurah in the northern desert region are being prepared and should be tendered shortly.

Despite the obvious disagreements over the Dorra field, oil production in the Divided Zone has long been successfully split between the two countries. Much of this success is owed to Al-Khafji Joint Operations, which is responsible for oil activities in the area. The company is a joint venture of Aramco subsidiary Aramco Gulf Operations Company (AGOC) and Kuwait Gulf Oil Company (KGOC).

The Joint Executive Committee is the decision-making body that decides on the major policies, budgets and planning concerning the Divided Zone. The Joint Operating Committee looks after day-to-day operations and activities. Both committees have six members from Saudi Arabia and Kuwait.

The initial agreement meant AGOC and KGOC managed their respective halves of the zone. In 2010, a more formal agreement was reached, where the zone would be developed in a more cooperative manner.

According to regional projects tracker MEED Projects, since 2007 about $10bn-worth of schemes have been planned for the Divided Zone. Of these, the majority have been aimed at maintaining production in the area’s oil fields, with another scheme under execution that will capture flared gas from the offshore fields. The Dorra field development would have been the largest project to date.

Continued uncertainty

Sources indicate there is little chance of the Dorra project being resurrected in the short term. Aramco has several active gas schemes and while it is clear that the firm would welcome 300 million cf/d from Dorra, it will not be forced into making a decision.

The impasse over Dorra is not expected to influence oil production from the Divided Zone. More than 500,000 b/d is extremely significant production and there is nothing to suggest this will be affected in any way. However, it is still a cause for concern that a mutually beneficial gas scheme such as Dorra can be shelved so easily, when both countries need the gas it would produce.

“No one knows exactly what went on that stopped the development of Dorra, but it must have been serious,” says the executive from the international contractor. “Both countries need the gas and the simple fact is that this scheme should have been under execution by now.”

Key fact

Kuwait will need gas availability of 4 billion cubic feet a day by 2030

Source: Kuwait Petroleum Corporation

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