ABU DHABI - Gas Exports, Imports From Qatar & Supply To Dubai.

Abu Dhabi is to become a major player in a regional gas market which is expected to grow rapidly as from this decade. Itself being a big exporter of liquefied natural gas (LNG) and gas liquids, it will import gas from Qatar to supply Abu Dhabi, Dubai, Oman and Pakistan through a marine pipeline.

Having more than 190 TCF of proven recoverable gas reserves, Abu Dhabi is selling up to 6m t/y of LNG, mainly to Japan, with quantities shipped to the West on short-term basis. But most of its reserves are sour gas in offshore fields which are expensive to develop, with a major part also being associated gas dependent on oil production. Local demand for gas is rising rapidly and supply of Qatari gas would avert a shortage by 2007.

The LNG Business: Abu Dhabi in 1977 was the first country in the Middle East to export gas in LNG form. The Abu Dhabi Gas Liquefaction Co. (ADGAS), a JV formed in 1973, had in April 1977 brought on stream a grassroots complex consisting of two LNG trains located on the isle of Das. Their capacity was raised by over 10% in the subsequent years to 2.3m t/y of LNG and 1.3m t/y of LPG. Most of the gas fed to the complex at the time was associated with offshore oil production and it was rich in propane and butane.

The two trains were debottlenecked in 1988. Their capacity was raised to 2.6m t/y. By then, the complex had begun receiving non-associated gas developed from a Khuff reservoir beneath the Umm Shaif oilfield. A third 2.3m t/y LNG train came on stream in late 1994, which brought the nominal capacity of the complex to 4.9m t/y of LNG and 1.55m t/y of LPG. The LNG output and some of the LPG production are sold mostly to Tokyo Electric Power Co. (Tepco), Japan's biggest power utility and the biggest importer of LNG in the world.

The complex has been further debottlenecked and its three trains now can produce 6m t/y of LNG. It has three other trains with the capacity to produce 1.7m t/y of LPG, 535,000 t/y of pentane and 338,000 t/y of sulphur (see background in Vol. 56, Gas Market Trends No. 3). In a new project to cost more than $400m, ADGAS is to have a fourth LPG train with a capacity to produce 1m t/y of LPG, plus small volumes of pentane and sulphur which will be on stream in early 2006. Train 4 will use 220 MCF/day of offshore associated gas at varying pressure streams. Sulphur will be recovered from the acid gas, with the methane and ethane contents to fuel Train 4. Excess gas will be redirected to fuel Trains 1 and 2 (see background in Vol. 60, No. 3).

With Das island short of space, the project's implementation has been modularised. Major equipment, new facilities and large portions of the process train are being pre-fabricated and will be brought in on a large barge. Manufacture, assembly and tie-in with the existing plants will be done by utilising roll-on, roll-off facilities on Das. ADGAS is also expanding the Das jetty. An additional LPG storage tank is being built in another project. Because there is no room for a fourth LNG train on Das, ADGAS will limit its future expansions to a further debottlenecking of the existing units. This would increase sustainable LNG production to 7m t/y. Experts have suggested that, if ADGAS decides on a major expansion of its LNG business, it could have additional capacity built on land to be reclaimed that would enlarge the surface of Das island.

By end-2007, Abu Dhabi's capacity to produce LPG from onshore and offshore gas will have reached 12m t/y of butane and propane. Its output of ethane feedstock for expanded production of ethylene will have been tripled (see DT).

ADGAS has no problem selling extra LNG and competing with other Middle East LNG suppliers. Its surpluses of LNG, LPG and sulphur are sold mainly under short-term contracts or on spot basis by ADGAS. Most short-term LNG and spot shipments go to BP Gas Marketing (with BP being a leading partner in ADGAS and having developed its own brand LNG trade), Gaz de France, Enagas of Spain and Distrigaz of Belgium. Under a deal signed in September 1998, ADGAS supplied Edison of Italy with 660,000 cubic metres in 11 shipments until June 1999. ADGAS in late 1994 and in 1995/96 sold LNG to Chubu Electric Power Co. of Japan. All have taken the LNG on fob basis, with tankers owned or chartered by ADNOC and ADGAS (see Vol. 60, No. 3).

On Oct. 15, 2002, ADGAS signed a flexible four-year sales and purchase agreement (SPA) with BP Gas Marketing for the supply of 750,000 t/y of LNG on fob basis. This is part of BP's brand-LNG business which has extended to several markets on both sides of Suez. Initially, BP took the Abu Dhabi LNG in Spain. The SPA, effective to March 2005, can be extended to March 2007 with all deliveries to be made on fob basis by ADGAS.

ADGAS' was the sixth LNG plant to be built in the world, next to Arzew GL4Z (Algeria, Oct. 1964), Kenai (Alaska, Oct. 1969), Marsa El Brega (Libya, April 1970), Lumut (Brunei, Dec. 1972), and Skikda GL1K (Algeria, Dec. 1972). The ADGAS partners and their background are as follows:

ADNOC, 70% since July 3, 1997 when an agreement raised the state company's share from 51%. ADNOC owns all the gas reserves. When the first two trains went on stream, the gas was mostly associated with oil production in the offshore fields of Umm Shaif and Zakum as well as the Al-Bunduq field (shared equally by Abu Dhabi and Qatar and operated by UPD of Japan, with BP and Total as sleeping partners). ADGAS is only a downstream venture. This applies to the third train as well, with the gas sold to ADGAS by ADNOC. The increase in ADNOC's share from 51% had been agreed in the early 1990s when the partners decided to add a third train.

British Petroleum as project leader, 10% (reduced in 1997 from 16.33%), heading the foreign partnerships in the ADMA-OPCO consortium for offshore operations and in the ADCO group for onshore operations. It was BP (D'Arcy's Anglo-Persian) which had put Abu Dhabi on the oil map. That was before World War Two. The ADGAS general manager is a BP man in charge of the company's daily operations, with BP providing technical support. His deputy is from ADNOC. The chairman of ADGAS must be a top-ranking ADNOC representative. The first chairman was Mana Said Al Otaiba, then the UAE oil minister who personally headed most of the ADNOC ventures with foreign companies. The chairman now is Yusuf Bin Omeir Bin Yusuf, ADNOC's CEO and SPC secretary general as well as a former UAE oil minister.

Total, 5% (until 1997 8.17%), being one of the partners in ADMA-OPCO, ADCO and GASCO. Since the first ADGAS experience in the 1970s, Total has become involved in a number of gas ventures around the world. Now Total is a big investor in LNG business, being the leader in Qatargas' upstream element and a partner in its downstream venture. It is a partner in Oman LNG and leader of Yemen's LNG project. Total is involved in several other Abu Dhabi ventures, as well as operating Abu Al-Bukhoosh - one of the fields providing non-associated gas to the LNG complex of ADGAS. Total also has developed its own brand-LNG business.

Mitsui & Co. and Mitsui Liquefied Gas, 15% (reduced in 1997 from 24.5%), had brought in Tepco to buy the LNG output and most of the associated liquids. Mitsui is the main investor in Middle East LNG projects among Japanese companies, being a key partner in Qatargas and in Oman's venture. Its role has been crucial to both ADGAS and Qatargas, as well as to a huge oil/LNG venture on Russia's Far Eastern island of Sakhalin led by Shell.

The July 3, 1997 agreement which raised ADNOC's share and reduced that of the others, extended the foreign partners' participation in ADGAS until 2019. ADNOC insisted on raising its share because ADGAS had become quite profitable, with its gross revenues in 1995 having risen to about $1.5 bn and its expenditure limited to $600m. A fall in oil and LNG prices in 1998 has been overshadowed by a big price rise since March 1999.

The Costs & Wider Implications: BP had strived to cut costs across the board before oil prices collapsed in 1998. So the third train and associated installations and storage tanks cost about $1.3 bn. The contract to build the third train was worth around $600m, awarded to Chiyoda Corp. of Japan which lowered its price to help the project's economics. Chiyoda's move was followed by a price war among international contractors.

The price war worsened in March 1996 when JGC/Kellogg won the contract to build the 6.6m t/y RasGas LNG plant in Qatar at a price of $1 bn. The loser was Chiyoda, which had bid a little over $1 bn. But Chiyoda fought back seven months later in Oman.

A Chiyoda/Foster Wheeler partnership on Nov. 14, 1996 signed with Oman LNG the contract to build a 6.6m t/y LNG complex for $1.2 bn, i.e. about $182m per 1m t/y capacity. (In the 1980s, the going price for construction of a grassroots plant was $600-900m per 1m t/y capacity. So one could see how far plant costs came down).

However, since 2002 costs have risen as international contractors have stopped their price war, particularly in the Middle East where oil revenues have been rising steadily in the past three years.

Shipping: ADGAS has at its disposal eight LNG tankers owned by ADNOC unit National Gas Shipping Co. Ltd (NGSCo). Four 135,000 cu m ships were ordered from Japan and the other four, of 137,000 cu m each, were ordered later from Kvaerner-Masa Yards in Finland. They carry LNG from Das to Tokyo Electric and the short-term buyers in the West. NGSCo charters additional tankers to ship spot LNG and LPG. Oasis International Leasing Co., based in Abu Dhabi, has structured a lease finance package for NGSCo's fleet. This has freed up funds for ADNOC to finance its industrial expansions.