Energy is at the heart of everything Abu Dhabi has done and hopes to achieve.
The emirate has about 95 per cent of the United Arab Emirates’ proven oil reserves – about 8.5 per cent of the world’s reserves – and petrodollars have enabled Abu Dhabi to become the nation’s financial and political powerhouse.
Experts forecast Abu Dhabi will be able to keep pumping crude for another 100 years and the emirate has been steadily working to expand production.
The current capacity is about 2.9m barrels per day (it produces about 2.2m barrels per day, in line with Opec cuts) and the plan is to reach 3.7m barrels per day by 2017.
However, while the picture for oil remains rosy, there is increasing urgency to produce more gas to meet rapidly growing energy demands in Abu Dhabi and the wider UAE – even during the economic downturn energy use was rising at between 8 and 9 per cent in Abu Dhabi.
The UAE is already a net importer of gas, bringing in 2bn cubic feet per day from Qatar through the Dolphin Pipeline, which serves about 60 per cent of the nation’s gas usage for power generation.
Like other states in the oil-rich Gulf, it is not that the UAE does not have gas, rather it is a question of how it utilises the increasingly precious resource and brings more of it on line.
At the beginning of 2007, the UAE had proven gas reserves of 214,000bn cu ft – the fifth-largest in the world – according to the US Energy Information Administration.
The vast majority of the UAE’s reserves, like oil, are in Abu Dhabi, but the problem for the emirate is that significant amounts exist as “associated gas”, which means it is dissolved in the liquids of oil reservoirs, so accessing it is dependent on crude production. Also, much of the associated gas is re-injected to maintain reservoir pressure of the oil fields (making extraction easier), or to produce condensates – a type of natural gas liquid (NGL).
Meanwhile, a large amount of the emirate’s non-associated gas is sour, with a high content of hydrogen sulphide (H2S), making it highly corrosive, expensive and technically challenging to develop.
“There are huge demands for gas re-injection in Abu Dhabi, unlike Saudi Arabia, to sustain increased production at their oil fields because of the nature of their geology,” says Colin Lothian, senior analyst at Wood Mackenzie. “In addition to that, they have several very large gas recycling schemes so they re-inject the gas to produce natural gas liquids. It’s a value proposition – the NGLs are very important revenue streams.”
In a bid to reap export revenues from oil and condensate production as well as meeting domestic demand, Abu Dhabi has put in place a number of programmes to bring additional gas online. This includes new exploration, the construction of a pipeline that will enable up to 700m cu ft to be produced offshore and piped to the mainland, and the development of Shah – an onshore sour field – which if successful, could open up extraction at other sour sites.
ConocoPhillips signed an agreement last year with the Abu Dhabi National Oil Company (Adnoc) to develop the Shah field. It is hoped that production will start around 2013, with a target for gas sales of between 500m and 700m cu ft per day. The project is estimated to cost at least $10bn.
“Shah will be the first time technology has been tried to produce large quantities of gas at such high levels of H2S in the UAE – it will in some ways be a pilot,” says an official in Abu Dhabi.
But even if the sour gas development does prove successful, officials acknowledge that the emirate will struggle to meet the growth in domestic demand. And without finding solutions, the UAE will have to burn increasing amounts of oil-related liquids for power generation, leaving less to export. Oil fuels are already being used during peak periods.
The result is that Abu Dhabi, which has the additional burden of providing gas for the other emirates, is looking beyond hydrocarbons for solutions.
These include the ambitious Masdar Initiative, on which the emirate is spending billions of dollars in the hope of developing renewable energy technology, in particular solar power.
However, the main initiative is the UAE’s plan – led and funded by Abu Dhabi – to develop a nuclear programme by 2017. It is hoped that a civilian nuclear trade agreement with the US will pass through the US Congress shortly, after which the UAE is expected to award a contract for the construction of the nation’s first nuclear power plants, which could be producing between 4,000 and 5,500 megawatts of electricity by 2020.
“Other countries in the region have used gas to the point where they didn’t have enough so had to start diverting oil production into the utilities sector – what the UAE is desperately trying to do is not follow that path,” says an official familiar with the nuclear programme.
“If we did nothing, we could find ourselves in a situation where all of our production growth would be offset by domestic consumption, which would reduce our ability to export.”